Lord Sheikh: My Lords, I certainly welcome our increasing involvement in Islamic finance. We have the largest finance industry in the western world and are very keen to promote this. I see us as being the stepping stone into more penetration into Europe. Islamic finance is taken not only by Muslims but by non-Muslims because of its ethical nature and the fact that it is mutual. Therefore, the idea of promoting sukuk is marvellous. There is a large Islamic banking sector here-not only wholesale but retail banks. We are also keen to promote Takaful Islamic insurance because there is a demand for it. I repeat that this change will appeal to Muslims and non-Muslims. If the world had followed Islamic Sharia principles, perhaps we would not have had such a drastic credit crunch. Islamic finance is based more on mutuality, assets and transparency. We need to promote the order and I welcome the Minister’s comments.

The Minister’s response included the following paragraphs:

Lord Myners: My Lords, we believe that alternative finance investment bonds should, as far as possible, be afforded a level playing field with their conventional equivalents. We have said that the aim of the order is to create clarity over the regulatory treatment of corporate sukuk and to reduce potential legal and compliance costs that may have been a barrier to increased issuance. The joint Treasury and FSA consultation concluded that the most appropriate way forward was to introduce legislative amendments to exempt explicitly these instruments from collective investment scheme regulations and to create a new specified investment under the regulated activities order. The FSA estimates that these regulatory changes could reduce overall costs of sukuk issuance by around £35,000 for a sukuk of five years’ duration. The responses that we have received to our consultation have been generally supportive.

The Government believe that the additional cost of around £175,000 to upgrade the FSA’s technology is justified by the increased prospect of corporate sukuk issuance in the UK and related developments in the UK market. We see these as a public benefit for many who will, potentially, be able to access them. The HMRC impact assessment for the amendment of tax legislation on alternative finance investment bonds, published in April 2009, estimated that there will be up to 20 issuances per year under the revised tax and regulatory framework. As the market gains momentum, as the noble Lord, Lord Sheikh, has suggested it could, and London becomes Europe’s centre, we could see a much more active market that will attract the involvement of other agents who have no previous skill or knowledge in this area.

We have dealt with the £175,000. The noble Baroness, Lady Noakes, asked whether FSA assurance on the regulation of alternative finance bonds is appropriate and whether treatment would be the same as for conventional bonds. Alternative investment ensures that economically equivalent instruments are afforded equivalent regulatory treatment. That is to say that sukuk are the same in substance as conventional bonds and accordingly it is appropriate that they should be treated as such. The Treasury and the FSA engage with industry on an ongoing basis to take views about the opportunities and challenges in the area of Islamic finance. In particular, I would welcome an opportunity to discuss this further with the noble Lord, Lord Sheikh.

We have a group that regularly meets to discuss Islamic finance, tax and technical issues and the noble Lord, Lord Sheikh, may wish to share his considerable knowledge in this area with that group. As I said before the noble Baroness on the Cross Benches asked her question, I was much taken by the speech made by the noble Lord, Lord Sheikh, about the importance of the ethical dimension, which the House will know has been lacking in much of our financial sector for some time. He also talked about the concept of mutuality.