Implications of Islamic finance for securities law in New Zealand Essay

The spheric growth and growth of Shariah pliable financial products has been more(prenominal) pronounced in the last three decades, when several countries already had established laws and regulations governing finance and securities.The reflection of variety of peachy market products, compounded by progression of market activity, not confined to the handed-down jurisdictions in Asia and the Middle East and the development and advancement of technology has led to global trade in Shariah lamblike products not limited by the geographical boundaries, whereas in the altogether Zealand has laws governing investment and finance, what argon the implications of Moslem finance for securities law in New Zealand? Furthermore how has the development of Shariah compliant financial products occurred in New Zealand and what is the regulative treatment of these products?Introduction Moslem capital securities and Shariah compliant products, which were previously predominantly viewed as a preserve of Middle East and East Asia, has received geographical expansion beyond the traditional spheres of activity. The global impacts of Shariah compliant products resulted to the recognition of such products, hence International shaping of Securities Commissions hence creating Islamic Capital foodstuff Task Force to access the compatibility of IOSCO? s core principles with the products and practices of Islamic finance.The securities of several countries were created and implemented before the global recognition of Islamic laws concerning finance and securities. In New Zealand, several laws which govern securities were implemented long before IOSCOs creation and recognition of Islamic Capital Market Task Force, these laws include The Securities solve 1978, Securities Regulations 1983, The Securities Markets trifle 1988, Securities Act (Contributory Mortgage) Regulations 1988, monetary Reporting Act 1993, Securities (Fees) Regulations 1998 and the Securities Markets (Fees) Regulations 2003.The growth of compliant financial services as undergo global growth and several measurement metrics eat been recognised, such as FTSE Global Islamic powerfulness series, Global Dow Jones Islamic Market Index , FTSE Shariahh Global Equity Index , Bursa Malaysia Hijrah Shariahh and EMAS Shariahh indices, FTSE SET Shariahh Index, FTSE SGX Shariahh Index Series and the FTSE SGX Shariah Index Series which on critical analysis reveals that the global performance of Shariah compliant financial services has been on the positive trend, withal New Zealand does not have Islamic compliant Series and as such, whereas the laws have been amended and changed several times, the global influence of Shariah compliant products is bound to have unfavorable impacts on the securities law in New Zealand.Literature Review The Islamic finance sectors in footing of Shariah deference incorporate diverse spectrum of financial services such as securities, banking, insurance, non-bank mo netary arbitration and capital markets where these products are influenced by the common Shariah heavy maxim where any action is permitted unless expressible prohibited by law jibe to El-Hawary, Grais & Iqbal the growth of Islamic finance in the 1980s and 1990s involved in the first place the augmentation of banking and trade-related support activities. The Islamic finance sector is a product of Shariah laws, which are founded on Quran, Ahadith , Ijma, Qiyas, and Ijtihad, the laws however master the Islamic way of life in entirety, where associated influence of rules, laws and interpretations of Shariah is demonstrated in the religious, cultural, social, political and communal aspects of Muslims. According to Muhammad Ashraf , the convergence of the countrys regulatory laws, and the Shariah compliancy should be ground on the principle of concordare leges legibus est optims interpretandi modus which dictates that the beat mode of interpreting laws is to make laws agree with law s.New Zealand being a member of International Organization of Securities Commissions (IOSCO) which mandated the formation of an Islamic Capital Market Task Force (ICMTF) is envisioned to embrace fully and aline with international defined standards of Shariah compliancy, however the Securities Act 1978, which regulates primary markets in New Zealand forms a basis of regulation, Securities Markets Act 1988 regulates secondary markets, furthermore there exists legislations that impact on securities such as Unit Trusts Act 1960, Financial Reporting Act 1993, KiwiSaver Act 2006, and Companies Act 1993, these acts come in force before the prominence of Shariah compliant financial products.Mansoor H Khan , and argues that the implications of Islamic finance on laws are a challenge ground on divergence of Islamic banking courts and conventional court systems, where disputed cases of the Islamic banks are subjected conventional legal system while in essence the nature of the legal system o f Islam differs, he further argues lively laws, are repugnant to injunctions of Islam, yet they are expected to promulgate Shariah compliant legal cases and products.This supports the argument by Yong-Jae Chang , and Jun-Hee Choi , where existent laws are identified as inhibitors to development of Shariah compliant products, and advocates amendment of subsisting laws since Islamic banking resembles universal banking, consequently, laws and regulations motivation to be amended accordingly to provision for the universal approach, this complies with Securities Act 1978, which grants the Securities Commission leeway to co-operate with similar bodies overseas. The intension of Islamic finance are disposed by the Shariah laws governing finance and investment, which are bound to have influence is the principle of materiality where financial transactions should bear material in terms of unquestionable monetary transaction.In this case Shariah compliancy in terms of financial reward achi evement is based on musharaka, in terms of joint ventures, where risks and financial results are shared by the contributing partners and mudaraba centred on trust financing where the outcome of business venture is shared by capital contributor and the managing partner. Shariah laws besides prohibits predetermined touch rate, referred as riba or usury set ex ante, in this regard banks are disallowed from charging additional interests, which do not equally benefit the client, consideration of New Zealand laws, Securities Markets Act 1988 , requires brokers and investment advisers offer customers written disclosure statement and forbids market manipulation, hence agreeing with Shariah.With the principle of risk-sharing, the finance provider as advantageously as the loaned party share risks, in exchange of profits and losses, the attractiveness of such arrangement has deepen the growth of Shariah compliant especially to risk averse investors, regulations however have to be modified to go such an arrangement. The Securities Act 1978 & Securities Regulations 1983 allows clients to cancel allotment of security midterm as a result of take information, on the Islamic perspective, Shariah dictates murabaha (mark-up financing), which occurs in terms of Basic Murabaha, Commodity Murabaha and Reverse Murabaha in which a financing institution buys products for a client and sells them on on a deferred basis, adding an agreed profit margin , however the agreement can be cancelled midterm, this conforms with existing laws on securities and can foster development of Shariah compliant products.Ijara which governs operating Lease and Ijara wa Iqtina which governs finance Lease are also products which demand less amendment of existing laws, since they are modelled on conventional sale agreements where the financial institutions acquire assets and leases them to a customer who may obtain the said assets at a later date, this is also exhibited in Diminishing Musharaka. On co ntrast however, qard hassana which prohibits charging interest on loans and baisalam or baisalaf is based on delivery or the purchased commodity, are different from the conventionally judge principles of financial institutions which are geared towards achieving profits by charging interests.According to IOSCO report, Shariah law prohibits gharar or improbableness or speculation, in actual sense however, financial markets are laden with vibrant and fickle behavior, whereas Shariah principle states that hump disclosure of information is a requisite and disallows indiscretion of information in a contract, while allowing improbability with controllable on the society, in New Zealand, the Financial Reporting Act 1993 , agrees with the Shariah laws and further defines the terms of compliance by defining the punitive measures against truant financial institutions.Conclusion The global pace of market development hint on interest to offer Shariahh compliant financial products by financial institutions globally, the fact that regulatory bodies such as International Organization Of Securities Commissions distinguishes these products means that global recognition and regulation of Islamic finance is eminent, with collaboration, information exchange and thematic work by financial institutions globally, New Zealand financial institutions will be compelled to offer Shariah compliant products, in essence this shall contribute to altering of the countrys laws to accommodate the new-sprung(prenominal) product.