In the second half of 2015, the Bank of England (BoE) commenced work on assessing the feasibility of establishing central bank liquidity on a Shari’ah compliant basis. Such facilities would provide greater flexibility to Islamic banks in the UK in meeting their liquidity requirements under the Basel III rules. The BoE issued its first consultation paper on establishing Shari’ah compliant central bank liquidity facilities in February 2016, which detailed Shari’ah compliant facility models which might feasibly be implemented in the UK.

The BoE has now published a second consultation paper entitled Shari’ah compliant liquidity facilities: establishing a fund based deposit facility. In this consultation paper, the BoE has provided more operational detail on how the fund based model would work in practice. In doing so, it has adjusted the design of the original model to address questions raised in its earlier consultation paper, while ensuring acceptability under the liquidity rules. The BoE is now seeking views on this more detailed version of the fund based deposit facility.

Following the conclusion of the consultation exercise, and assuming no material impediments arise, the BoE will commence work on the implementation of the fund based Shari’ah compliant deposit facility. Work to both integrate the facility into the BoE’s systems and processes, and to create a set of standardised terms and contractual documentation, will commence following the close of the consultation exercise. However, the deposit facility is unlikely to be ready before Spring 2018. Further details on implementation, including timeline, will be posted on the BoE’s website in due course.

The deadline for comments on the consultation paper is 23 May 2017.

View BoE consults on Shari’ah compliant fund-based deposit facility, 6 April 2017