We have today published a consultation paper on establishing a Shari’ah-compliant deposit facility.
We recognise that Islamic banks are currently unable to use our existing facilities because they involve interest, which is not deemed Shari’ah compliant.
Based on market feedback and internal analysis, we are minded to implement a deposit facility using a fund-based model. This is one of the two deposit models originally outlined in our 2016 consultation. The new consultation paper provides more technical detail on how this model would work in practice.
We are seeking views from the UK Islamic banks in particular, but also from interested parties more generally. The deadline for responses is Tuesday 23 May 2017.
Unless any material impediments arise, work will then start on implementation. Work to integrate the facility into our systems and processes, and to create a set of standardised terms and contractual documentation, will start after the consultation closes. However, the deposit facility is unlikely to be ready before Spring 2018.
We will post more details, including a timeline, on our website in due course.
Background to this consultation
We started work on developing a Shari’ah-compliant facility in the second half of 2015, as part of our more general approach to broadening market access to central bank liquidity facilities. The main focus of our work is establishing a deposit facility, as this is currently the area of greatest demand.
Once the deposit facility is operational and has been evaluated, we may start work on an accompanying Shari’ah-compliant liquidity insurance facility. However, the resource requirements for further work will necessarily be considered in the context of our wider priorities.