The Association of the Luxembourg Fund Industry (ALFI) has published its best practices for setting-up and servicing Islamic funds to provide a greater level of understanding and consistency of the requirements and expectations to this growing market sector.
2012 has been a very active year for the Luxembourg Islamic finance community with several new Shariah-compliant funds launched. Luxembourg currently ranks No. 5 worldwide and first in Europe in the number of Shariah-compliant domiciled funds, at 41 funds with 4 billion in assets under management, explained Marc Saluzzi, chairman of ALFI.
Islamic funds are investment vehicles that follow the religious laws, known as Shariah. They operate under a strict set of prohibitions, including the charging and receiving of interest, speculation or investment in certain commodities such as pork related products or activities such as gambling.
Saluzzi continued: Most service providers in Luxembourg already have dedicated teams looking at Shariah funds. This collection of best practices will further contribute to establish Luxembourg as the centre of reference for servicing Shariah compliant funds, whether they are domiciled here or elsewhere.
Islamic finance first appeared in the Grand-Duchy in 1978 with the arrival of the first Islamic finance institution to set up in a western country. Five years later, the first Shariah-compliant insurance company in Europe was established in Luxembourg and, in 2002, Luxembourg was the first European stock exchange to list a sukuk.
For accounting and valuations, pricing models should be subject to periodic reviews and these reviews should be carried out at least annually. The funds prospectus should clearly state and provide detail on the funds pricing policy and the preferred price providers.
On safekeeping and settlement, depending on the level of compliance with Shariah principles, the Shariah board or Shariah advisor may, in order to satisfy investor expectations, require Islamic assets to be held on segregated accounts, either at individual or omnibus account level. In such cases, Islamic assets should not be commingled with conventional assets.
The guidelines can be found here.
(JDC)