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Last February, I attended the Parliamentary launch of a report from Gatehouse Bank on promoting Islamic finance in the UK.

While avoiding revealing anyone else's comments, I used the contents of the report (which is public) and my own comments during the meeting for my March 2025 column in the magazine "Islamic Finance News."

You can read it below.

How to boost UK Islamic finance?

I think UK Islamic finance practitioners have been more optimistic since the change of government in July 2024.

In another recent development, on 25 February 2025 I attended a breakfast roundtable in the House of Lords hosted by Liberal Democrat peer Lord Sharkey. This was to launch Gatehouse Bank’s report “Striving for Growth: Fostering the UK’s Islamic Finance Sector.” (I wrote about Gatehouse’s calendar 2021 results in my 7 December 2022 column, so need to do another catch up.)

Apart from Lord Sharkey, there were other peers and elected members of Parliament present, as well as industry participants, so it was a high quality audience.

Gatehouse Bank’s CEO Charles Haresnape outlined the report’s key recommendations:

1. Establish a government-led Islamic finance taskforce to identify areas of growth, including facilitating inward investment and attracting international investors seeking alternative sustainable options.
2. Attract new Islamic finance entrants by removing barriers and disadvantages compared to conventional finance, such as increasing the Bank of England’s Alternative Liquidity Facility. (See my 2 March 2022 column.)
3. Develop a cohesive UK government strategy on Islamic finance, to level the playing field and ensure alternative finance structures are considered when formulating policy and proposing new legislation.
4. Foster global collaboration on Islamic fintech, to fuel the already strong UK market and enable it to grow.

During the discussion, I pointed out a change falling within recommendation (3) above that is needed to the UK’s tax law relating to “alternative finance arrangements.” This is the tax law that was enacted to facilitate Islamic finance.

From inception in 2005, it has required one of the parties to be a “Financial institution” as defined in the legislation. I understand this requirement was imposed for two reasons:

• To reduce the scope for people to avoid tax using the new law. (That has not stopped people trying!)
• To avoid transactions getting sucked into the new tax rules inadvertently.

However, the requirement is an impediment for Islamic finance startups, particularly small fintech firms, since there is a significant regulatory burden (with significant related costs) in becoming an entity that qualifies within the existing definition.

I recommended that the Islamic finance sector works with the government to devise a new definition of, say, an “Alternative Financial Services Provider”, “AFSP” (name only created while writing this column!) which would satisfy the following conditions:

• A properly defined registration process policed by (preferably) one of the existing financial regulators, so there would always be a clear list of which entities were AFSPs.
• The process for becoming an AFSP should be easier, and therefore less expensive, than the process for falling within the existing definition.
• At the same time, the process should be sufficiently rigorous that the government was satisfied that AFSPs would not be used for tax avoidance, or for other forms of financial misbehaviour.

Getting the balance right between requirements that were too onerous, or were so light that they would be abused, would not be easy.

However, I considered that it would be possible to devise a good definition by having a working party of a small group of industry practitioners alongside a small group drawn from the government’s existing regulators. Done properly, introducing the AFSP definition should allow more innovation and more startups within the UK Islamic finance sector.

Mohammed Amin is an Islamic finance consultant and former tax partner at PwC in the UK.