On July 10, 2023, the government released its response to the consultation on the reform of the CCA. The document outlines the feedback received and the proposed next steps by the government. Overall, stakeholders expressed support for the reform, and the government aims to undertake a comprehensive overhaul of the CCA. Policy development will now commence to produce detailed proposals, with a second stage consultation planned for 2024 to gather input from stakeholders.

The CCA, established in 1974, regulates credit card purchases, personal loans, and consumer hire agreements in the UK, including Islamic finance products. The government aims to use this reform as an opportunity to encourage innovation in the credit sector and enhance accessibility to credit products, thereby contributing to sector growth and overall economic development. Moreover, the reform intends to strengthen existing consumer protections to ensure adequate safeguards in a modern, digital economy.

In June 2022, the government initially announced its intention to reform the CCA, leading to the consultation that is currently underway. Stakeholders are invited to provide input on the strategic direction of the reform, focusing on areas such as customer communications, consumer protections, and regulatory standards for firms. Additionally, questions regarding credit accessibility and financial inclusion are addressed. Stakeholders have until March 17, 2023, to contribute to the consultation.

Dr. Samir Alamad, Chief Adviser at Ihsan Islamic Finance Solutions (IIFS), a UK-based Islamic finance and banking consultancy firm, commented on the reform's significance. “He highlighted the efforts made by the Islamic finance industry to advocate for the reform, addressing challenges posed by the current regulations. Dr. Alamad emphasised that this improvement would position Islamic finance as mainstream finance in the UK, with specific provisions catering to its requirements.”

During his 17-year career in Islamic banking, Dr. Alamad has advised successive UK governments on enabling Islamic finance and fostering an equitable environment for the industry's growth. Notably, he innovated the structure for the Takaful (cooperative) Alternative Student Finance that was enacted in 2017, and the Bank of England alternative (Sharia compliant) central bank liquidity facility. He provided guidance on the CCA reform and the ongoing consultation, offering potential solutions to align the act with the principles of Islamic finance.

The Chancellor Jeremy Hunt, in his annual Mansion House speech on July 10, 2023, presented a package of reforms aimed at driving growth and competitiveness in the financial services sector, benefitting consumers and businesses. These reforms build upon the Edinburgh Reforms announced in December 2022.

Dr. Alamad, who has been providing guidance to the UK government regarding the CCA reform and the consultation, also highlighted specific issues related to Islamic finance and banking products addressed in questions 27 and 28 of the consultation. He has already advised the government on potential solutions that could be considered in the reformed Act. These solutions include addressing requirements to disclose "interest" and early repayment rebates, which contradict the principles and framework of Islamic finance.

Although the current state of Islamic banks in the UK has seen some retrenchment, Dr. Alamad remains optimistic about the potential growth of Islamic finance in the country. He believes that these reforms and the enablement of Islamic finance are significant steps forward, which can be further supported through organic development of the Islamic finance industry in the UK and leveraging FinTech solutions.

As the reform process progresses, the government will develop a detailed policy approach, considering implementation timelines and industry adaptation. The government is open to exploring a phased approach to implementation, potentially focusing on specific aspects of the regime to realize early benefits. However, the interconnected nature of the CCA may present challenges to dividing the reform into discrete phases. The government is committed to maintaining transparency and will provide further details in due course.

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Dr Samir Alamad is the Chief Adviser, Islamic Banking and Finance at IIFS LTD and associate director of the International Finance and Banking at Coventry University. He can be contacted at samir.alamad@iifs.co.uk.

Ihsan Islamic Finance Solutions (IIFS) LTD is a well-established Islamic finance and banking advisory firm based in the UK. IIFS specialises in Islamic finance products structuring, audit, Islamic finance advisory and certification and risk management. It advises governments and Islamic institutions. 

For inquiries, please contact Ihsan Islamic Finance Solutions LTD (IIFS), a reputable Islamic finance and banking advisory firm based in the UK, via info@iifs.co.uk