Implications of Islamic finance for securities law in New Zealand Essay

The globose growth and development of Shariah submissive monetary products has been more enounce in the last three decades, when several countries already had established laws and regulations organization finance and securities.The materialization of variety of hood market products, compounded by progression of market activity, not confined to the traditional jurisdictions in Asia and the meat eastmost and the development and advancement of technology has led to global c be in Shariah manipulable products not limited by the geographical boundaries, whereas bleak Zealand has laws governing investment and finance, what argon the implications of Muslim finance for securities law in overbold Zealand? Furthermore how has the development of Shariah compliant financial products occurred in natural Zealand and what is the regulatory treatment of these products?Introduction Muslim capital securities and Shariah compliant products, which were antecedently predominantly viewed as a preserve of Middle East and East Asia, has received geographical expansion beyond the traditional spheres of activity. The global clashings of Shariah compliant products resulted to the recognition of much(prenominal) products, hence International Organization of Securities Commissions hence creating Muslim outstanding commercialise Task Force to access the compatibility of IOSCO? s burden rationales with the products and practices of Moslem finance.The securities of several countries were created and implemented in the beginning the global recognition of Islamic laws concerning finance and securities. In advanced Zealand, several laws which govern securities were implemented tenacious before IOSCOs creation and recognition of Islamic Capital food market Task Force, these laws include The Securities Act 1978, Securities Regulations 1983, The Securities Markets Act 1988, Securities Act (Contributory Mortgage) Regulations 1988, Financial report Act 1993, Securities (Fees) Regulations 1998 and the Securities Markets (Fees) Regulations 2003.The growth of compliant financial services as see global growth and several measurement metrics turn over been recognised, such as FTSE Global Islamic Index 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 effect of Shariah compliant financial services has been on the positive trend, however New Zealand does not put one over Islamic compliant Series and as such, whereas the laws have been amended and changed several times, the global warp of Shariah compliant products is bound to have adverse impacts on the securities law in New Zealand.Literature examine The Islamic finance sectors in terms of Shariah compliance incorporate different spectrum of financial services such as securities, banking, insurance, non-bank monetary arbitration and capital markets where these products are influenced by the common Shariah effective maxim where any meet is permitted unless expressible prohibited by lawAccording to El-Hawary, Grais & Iqbal the growth of Islamic finance in the 1980s and 1990s involved mainly the augmentation of banking and trade-related pay activities. The Islamic finance sector is a product of Shariah laws, which are founded on Quran, Ahadith , Ijma, Qiyas, and Ijtihad, the laws however traverse 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 body politics regulatory laws, and the Shariah compliancy should be based on the principle of concordare leges legibus est optims interpretandi modus which dictates that the best mode of interpretin g laws is to make laws agree with laws.New Zealand creation 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 align 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, butmore there exists legislations that impact on securities such as Unit Trusts Act 1960, Financial reportage 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 based on divagation of Islamic banking courts and stuffy court systems, where disputed cases of the Islamic banks are subjected conventional legal system while in essence the nature of the legal system of Islam differs, he further argues live laws, are repugnant to injunctions of Islam, as 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 existing laws since Islamic banking resembles universal banking, consequently, laws and regulations need to be amended accordingly to supplying for the universal approach, this complies with Securities Act 1978, which grants the Securities Commission leeway to co-operate with similar bodies overseas. The connotation 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 minutes should bear material in terms of actual monetary transaction.In this case Shariah compliancy in terms of financi al reward attainment 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 finance where the take of business venture is shared by capital contributor and the managing partner. Shariah laws in like manner prohibits predetermined interest rate, referred as riba or usury set ex ante, in this regard banks are disallowed from charging additional interests, which do not evenly benefit the client, consideration of New Zealand laws, Securities Markets Act 1988 , requires brokers and investment advisers offer customers scripted disclosure statement and forbids market manipulation, hence agreeing with Shariah.With the principle of risk-sharing, the finance supplier as well as the loaned party share risks, in mass meeting of profits and losses, the attractiveness of such arrangement has enhanced the growth of Shariah compliant especially to risk averse investors, regulations however hav e to be modified to suit such an arrangement. The Securities Act 1978 & Securities Regulations 1983 allows clients to cancel allotment of security midterm as a result of misleading 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 concur profit margin , however the agreement can be off midterm, this conforms with existing laws on securities and can foster development of Shariah compliant products.Ijara which governs operate Lease and Ijara wa Iqtina which governs finance Lease are also products which crave 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 purchase the said assets at a later date, this is also exhibited in Diminishi ng Musharaka. On business line 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 accepted principles of financial institutions which are pitch towards achieving profits by charging interests.According to IOSCO report, Shariah law prohibits gharar or improbability or speculation, in actual sense however, financial markets are laden with vibrant and fickle behavior, whereas Shariah principle states that complete disclosure of information is a demand and disallows indiscretion of information in a contract, while allowing improbability with governable 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 financi al products by financial institutions globally, the detail 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 grounds laws to accommodate the new product.