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England building the rails for Islamic investment
05 Aug 2026
The UK has built a reputation as the leading western centre for Islamic finance. As Sharia-compliant funds, pensions, and sukuk move closer to the mainstream, Zarah Choudhary examines whether the asset servicing infrastructure beneath them is ready to scale
Image: moofushi/stock.adobe.com
From specialist market to servicing opportunity
Tax reforms, two sovereign sukuk (Sharia-compliant bond equivalents) issuances, the strength of English law, and London’s capital markets have helped establish the UK as the leading western hub for Islamic finance.
Sharia refers to the principles of Islamic law that guide permissible financial activity. In practice, Sharia-compliant finance avoids interest and certain prohibited industries while requiring transactions to be connected to legitimate economic activity.
The opportunity is no longer defined only by Islamic banks or specialist retail products.
Sharia-compliant investment is expanding across funds, pensions, exchange traded products (ETPs), and sukuk, drawing interest from domestic savers and Gulf institutions.
The global backdrop is significant. The Islamic Corporation for the Development of the Private Sector – London Stock Exchange Group (ICD – LSEG) Islamic Finance Development Report 2025 valued worldwide Islamic finance assets at US$5.98 trillion in 2024, following annual growth of 21 per cent.
It forecasts that the industry could reach US$9.7 trillion by 2029. Sukuk assets surpassed US$1 trillion in 2024, while Islamic funds accounted for US$308 billion.
For the UK, this creates an opportunity that extends beyond product manufacturing. Every Sharia-compliant vehicle still requires custody, fund accounting, transfer agency, cash management, corporate actions processing, reporting, and governance.
The question is whether those functions can accommodate an additional set of requirements without turning each mandate into a bespoke operational exercise.
Areeba Khan, head of Sharia products at Apex Group, says UK demand has shifted from a niche proposition towards institutional interest from Gulf Cooperation Council (GCC) family offices and pension-linked mandates.
“That growth curve is what’s pushing UK servicers to move Sharia compliance from a bolt-on check to a continuous, embedded process across the fund lifecycle,” she explains.
An additional layer of governance
Trades must still settle, assets be safeguarded, funds valued, and investors reported to. The difference is the continuing obligation to demonstrate that investments and operations remain consistent with Sharia principles.
Islamic finance prohibits interest, excessive uncertainty, and investment in activities including conventional financial services, alcohol, gambling, and pork-related products. In equity portfolios, that requires both qualitative sector screening and quantitative tests covering areas such as leverage, interest-bearing cash, and non-permissible income.
There is no single universal rulebook. Standards and index providers use different ratios, denominators, and review methods, meaning the same company can be compliant under one methodology and excluded under another. Research examining major screening standards found material differences in how providers treat debt, cash, receivables, and non-permissible income.
For administrators and compliance teams, this creates a governance challenge as much as a screening task. They must know which methodology applies to each product, maintain the relevant data, and evidence how decisions were made.
A Sharia council or supervisory board is a panel of scholars that reviews whether a financial product and its activities comply with Islamic principles.
Mohsin Ismail, managing director of compliance solutions for the Middle East at Waystone, says Sharia-compliant products generally require an additional governance layer, potentially including a Sharia council or board of scholars.
“There is also more emphasis on transparency and reporting, as investors expect clear evidence that the product has remained Sharia-compliant throughout its lifecycle, not just at launch,” he elaborates. “This means asset servicers need strong controls, accurate data, and close coordination with Sharia boards or advisers.”
Screening does not stop at launch
A security that passes an initial screen cannot simply be assumed to remain eligible. Changes in debt, revenue composition, or business activity can alter its status, while acquisitions and other corporate events may introduce exposure to prohibited activities.
The operational model must therefore be continuous. Portfolio holdings need to be checked against the selected standard, breaches identified, and the consequences communicated to the manager and Sharia adviser. Depending on the product’s rules, a newly non-compliant holding may need to be sold within a defined period.
Khan argues that this makes corporate actions and custody particularly difficult. Asset-backed structures can require the servicer to follow underlying ownership rather than only a paper claim, while an event affecting an equity holding can cause it to breach a screening threshold during the investment period.
A scalable service cannot depend on an operations team repeatedly interpreting rules from scratch. Each mandate needs clearly configured thresholds, reliable reference and accounting data, automated alerts, and a documented escalation route for cases requiring scholarly judgement.
Following the money
Screening is only one part of the operational burden. A Sharia-compliant portfolio may still receive a small amount of income from impermissible sources. This must be identified, calculated, and removed through a purification process, often by donating the relevant amount to charity.
That introduces work across fund accounting, net asset value (NAV) production and reporting. The administrator may need to calculate the affected portion of a dividend, preserve the audit trail and report it to the manager or Sharia board.
Cash creates another point of sensitivity. Conventional servicing models routinely use interest-bearing accounts, overdrafts, and other treasury tools. Sharia-compliant products require controls around how operational cash is held and how any incidental interest is treated.
Ijara is a leasing arrangement, while murabaha is a sale in which an asset is purchased and resold at an agreed profit margin. Both are commonly used as Sharia-compliant alternatives to conventional interest-based financing.
“The core difference is that compliance isn’t a one-off legal review — it’s ongoing,” Khan says. “Servicers need continuous Sharia screening of holdings, purification calculations on impermissible income, and monitoring against structures like ijara, murabaha, and sukuk rather than standard debt and equity instruments.”
Mainstream platforms can perform custody, settlement, NAV production, and conventional reporting, Ismail notes. However, Sharia-specific controls must sit within those daily processes rather than being treated as exceptions outside them.
Sukuk beyond the bond label
Sukuk are frequently described as Islamic bonds, but the comparison can obscure their operational structure.
Conventional bonds evidence a debt owed by an issuer. Sukuk certificates represent an interest connected to an underlying asset, usufruct, project, or investment activity, with returns generated through the relevant Sharia-compliant arrangement.
A usufruct is the right to use an asset or receive the benefits and income generated by it without owning the asset itself.
Structures include ijara leasing, wakala agency arrangements, murabaha cost-plus sales, and partnership models, each with different documentation, cash-flow, and ownership considerations.
Wakala is an agency arrangement in which one party appoints another to manage assets or investments on its behalf in return for an agreed fee.
For the custodian or administrator, scheduled profit distributions may resemble bond coupons at the surface. Beneath that, the servicer may have to follow the contractual terms of the structure, underlying assets, special-purpose vehicle, and relevant purchase or substitution arrangements.
“Sukuk servicing is harder than conventional fixed income because the ‘coupon’ is really a profit distribution tied to an underlying asset or wakala structure,” Khan informs. “Servicers track asset performance and purification adjustments, not a fixed payment schedule.”
The UK’s first sovereign sukuk in 2014 made it the first country outside the Islamic world to issue one, followed by a £500 million deal in 2021. London has also become a major international listing venue, supported by English law and established clearing infrastructure. The foundations for this ambition stretch back to the government’s earlier work on creating a sterling sukuk market and removing structural and tax obstacles.
Yet an intermittent sovereign issuance programme leaves a question over market depth. Regular government issuance can provide a benchmark, support liquidity, and encourage corporate issuers. Without it, the UK risks retaining expertise in arranging and listing overseas deals without developing the deeper domestic pipeline that would sustain specialist servicing capabilities.
Turning bespoke controls into infrastructure
The central technology challenge is not whether platforms can record a Sharia-compliant fund. It is whether they can apply the correct controls consistently across thousands of holdings and events.
Automated screening tools can test portfolios for exposure to prohibited sectors, leverage limits, and non-permissible revenue. Workflow systems can flag status changes, calculate purification ratios, and preserve an audit trail for review. Data can also support tailored reporting to investors and Sharia supervisory boards.
However, Khan observes specialist processes including purification, sukuk lifecycle events and supervisory-board reporting are still often manual or added through external vendors rather than built natively into servicing platforms.
Ismail similarly expects the mainstreaming of the products to require Sharia-specific controls to be embedded into everyday operations. Manual processes may be manageable for a small specialist fund, but they become a source of cost and operational risk when applied to workplace pensions, multi-asset portfolios, or a growing book of institutional mandates.
Technology cannot remove the need for judgement. A system can apply a chosen methodology, but it cannot resolve every difference of scholarly interpretation. The more realistic model combines automated monitoring with clear human oversight, escalation, and approval.
A question of scale
The UK possesses many of the components required to expand: global custodians, administrators, advisers, exchanges, index providers, and established links with the Gulf and Southeast Asia. Its weakness may be fragmentation. Products remain relatively limited, specialist knowledge is unevenly distributed, and much of the Sharia layer continues to sit outside core operating systems.
Ismail says greater standardisation, scale, and specialist operational capability are needed, alongside deeper connectivity with established Islamic finance markets. Closer alignment with GCC expectations on governance, transparency, and Sharia oversight could make UK products more attractive to international investors.
Khan also identifies greater standardisation of screening and reporting, more native sukuk and ijara capabilities, and closer alignment between UK regulators and standards developed by the Accounting and Auditing Organization for Islamic Financial Institutions as priorities.
The opportunity is not limited to Muslim investors. Sharia finance’s ethical exclusions and risk-sharing principles overlap with demand for sustainable investment, while green sukuk can bridge Islamic and conventional institutional capital. The ICD-LSEG report identifies the UK as a key hub for green and sustainable sukuk listings, while global ESG sukuk outstanding had passed US$50 billion by the end of 2024.
From ambition to operating model
The UK’s Islamic finance credentials were built through policy, legal innovation, and access to capital markets. Preserving them will increasingly depend on the less visible infrastructure beneath the products. As volumes grow, investors will expect Sharia-compliant funds and securities to offer the same operational resilience, reporting speed, and scalability as conventional assets. Achieving that requires more than adding a screening report at the end of a valuation cycle.
Compliance must be connected to custody records, corporate actions, cash, accounting, and investor reporting. Sukuk structures must be understood throughout their lifecycle. Data must support the selected standard, while governance must provide a defensible answer when standards or scholars differ.
For UK asset servicers, this presents both a burden and a commercial opening. Firms that can turn specialist Sharia requirements into repeatable infrastructure will be able to support a market extending from domestic pensions to international family offices and cross-border sukuk.
The UK has already demonstrated that Islamic finance can operate alongside conventional markets. Its next test is whether it can make that coexistence operational at scale.
Tax reforms, two sovereign sukuk (Sharia-compliant bond equivalents) issuances, the strength of English law, and London’s capital markets have helped establish the UK as the leading western hub for Islamic finance.
Sharia refers to the principles of Islamic law that guide permissible financial activity. In practice, Sharia-compliant finance avoids interest and certain prohibited industries while requiring transactions to be connected to legitimate economic activity.
The opportunity is no longer defined only by Islamic banks or specialist retail products.
Sharia-compliant investment is expanding across funds, pensions, exchange traded products (ETPs), and sukuk, drawing interest from domestic savers and Gulf institutions.
The global backdrop is significant. The Islamic Corporation for the Development of the Private Sector – London Stock Exchange Group (ICD – LSEG) Islamic Finance Development Report 2025 valued worldwide Islamic finance assets at US$5.98 trillion in 2024, following annual growth of 21 per cent.
It forecasts that the industry could reach US$9.7 trillion by 2029. Sukuk assets surpassed US$1 trillion in 2024, while Islamic funds accounted for US$308 billion.
For the UK, this creates an opportunity that extends beyond product manufacturing. Every Sharia-compliant vehicle still requires custody, fund accounting, transfer agency, cash management, corporate actions processing, reporting, and governance.
The question is whether those functions can accommodate an additional set of requirements without turning each mandate into a bespoke operational exercise.
Areeba Khan, head of Sharia products at Apex Group, says UK demand has shifted from a niche proposition towards institutional interest from Gulf Cooperation Council (GCC) family offices and pension-linked mandates.
“That growth curve is what’s pushing UK servicers to move Sharia compliance from a bolt-on check to a continuous, embedded process across the fund lifecycle,” she explains.
An additional layer of governance
Trades must still settle, assets be safeguarded, funds valued, and investors reported to. The difference is the continuing obligation to demonstrate that investments and operations remain consistent with Sharia principles.
Islamic finance prohibits interest, excessive uncertainty, and investment in activities including conventional financial services, alcohol, gambling, and pork-related products. In equity portfolios, that requires both qualitative sector screening and quantitative tests covering areas such as leverage, interest-bearing cash, and non-permissible income.
There is no single universal rulebook. Standards and index providers use different ratios, denominators, and review methods, meaning the same company can be compliant under one methodology and excluded under another. Research examining major screening standards found material differences in how providers treat debt, cash, receivables, and non-permissible income.
For administrators and compliance teams, this creates a governance challenge as much as a screening task. They must know which methodology applies to each product, maintain the relevant data, and evidence how decisions were made.
A Sharia council or supervisory board is a panel of scholars that reviews whether a financial product and its activities comply with Islamic principles.
Mohsin Ismail, managing director of compliance solutions for the Middle East at Waystone, says Sharia-compliant products generally require an additional governance layer, potentially including a Sharia council or board of scholars.
“There is also more emphasis on transparency and reporting, as investors expect clear evidence that the product has remained Sharia-compliant throughout its lifecycle, not just at launch,” he elaborates. “This means asset servicers need strong controls, accurate data, and close coordination with Sharia boards or advisers.”
Screening does not stop at launch
A security that passes an initial screen cannot simply be assumed to remain eligible. Changes in debt, revenue composition, or business activity can alter its status, while acquisitions and other corporate events may introduce exposure to prohibited activities.
The operational model must therefore be continuous. Portfolio holdings need to be checked against the selected standard, breaches identified, and the consequences communicated to the manager and Sharia adviser. Depending on the product’s rules, a newly non-compliant holding may need to be sold within a defined period.
Khan argues that this makes corporate actions and custody particularly difficult. Asset-backed structures can require the servicer to follow underlying ownership rather than only a paper claim, while an event affecting an equity holding can cause it to breach a screening threshold during the investment period.
A scalable service cannot depend on an operations team repeatedly interpreting rules from scratch. Each mandate needs clearly configured thresholds, reliable reference and accounting data, automated alerts, and a documented escalation route for cases requiring scholarly judgement.
Following the money
Screening is only one part of the operational burden. A Sharia-compliant portfolio may still receive a small amount of income from impermissible sources. This must be identified, calculated, and removed through a purification process, often by donating the relevant amount to charity.
That introduces work across fund accounting, net asset value (NAV) production and reporting. The administrator may need to calculate the affected portion of a dividend, preserve the audit trail and report it to the manager or Sharia board.
Cash creates another point of sensitivity. Conventional servicing models routinely use interest-bearing accounts, overdrafts, and other treasury tools. Sharia-compliant products require controls around how operational cash is held and how any incidental interest is treated.
Ijara is a leasing arrangement, while murabaha is a sale in which an asset is purchased and resold at an agreed profit margin. Both are commonly used as Sharia-compliant alternatives to conventional interest-based financing.
“The core difference is that compliance isn’t a one-off legal review — it’s ongoing,” Khan says. “Servicers need continuous Sharia screening of holdings, purification calculations on impermissible income, and monitoring against structures like ijara, murabaha, and sukuk rather than standard debt and equity instruments.”
Mainstream platforms can perform custody, settlement, NAV production, and conventional reporting, Ismail notes. However, Sharia-specific controls must sit within those daily processes rather than being treated as exceptions outside them.
Sukuk beyond the bond label
Sukuk are frequently described as Islamic bonds, but the comparison can obscure their operational structure.
Conventional bonds evidence a debt owed by an issuer. Sukuk certificates represent an interest connected to an underlying asset, usufruct, project, or investment activity, with returns generated through the relevant Sharia-compliant arrangement.
A usufruct is the right to use an asset or receive the benefits and income generated by it without owning the asset itself.
Structures include ijara leasing, wakala agency arrangements, murabaha cost-plus sales, and partnership models, each with different documentation, cash-flow, and ownership considerations.
Wakala is an agency arrangement in which one party appoints another to manage assets or investments on its behalf in return for an agreed fee.
For the custodian or administrator, scheduled profit distributions may resemble bond coupons at the surface. Beneath that, the servicer may have to follow the contractual terms of the structure, underlying assets, special-purpose vehicle, and relevant purchase or substitution arrangements.
“Sukuk servicing is harder than conventional fixed income because the ‘coupon’ is really a profit distribution tied to an underlying asset or wakala structure,” Khan informs. “Servicers track asset performance and purification adjustments, not a fixed payment schedule.”
The UK’s first sovereign sukuk in 2014 made it the first country outside the Islamic world to issue one, followed by a £500 million deal in 2021. London has also become a major international listing venue, supported by English law and established clearing infrastructure. The foundations for this ambition stretch back to the government’s earlier work on creating a sterling sukuk market and removing structural and tax obstacles.
Yet an intermittent sovereign issuance programme leaves a question over market depth. Regular government issuance can provide a benchmark, support liquidity, and encourage corporate issuers. Without it, the UK risks retaining expertise in arranging and listing overseas deals without developing the deeper domestic pipeline that would sustain specialist servicing capabilities.
Turning bespoke controls into infrastructure
The central technology challenge is not whether platforms can record a Sharia-compliant fund. It is whether they can apply the correct controls consistently across thousands of holdings and events.
Automated screening tools can test portfolios for exposure to prohibited sectors, leverage limits, and non-permissible revenue. Workflow systems can flag status changes, calculate purification ratios, and preserve an audit trail for review. Data can also support tailored reporting to investors and Sharia supervisory boards.
However, Khan observes specialist processes including purification, sukuk lifecycle events and supervisory-board reporting are still often manual or added through external vendors rather than built natively into servicing platforms.
Ismail similarly expects the mainstreaming of the products to require Sharia-specific controls to be embedded into everyday operations. Manual processes may be manageable for a small specialist fund, but they become a source of cost and operational risk when applied to workplace pensions, multi-asset portfolios, or a growing book of institutional mandates.
Technology cannot remove the need for judgement. A system can apply a chosen methodology, but it cannot resolve every difference of scholarly interpretation. The more realistic model combines automated monitoring with clear human oversight, escalation, and approval.
A question of scale
The UK possesses many of the components required to expand: global custodians, administrators, advisers, exchanges, index providers, and established links with the Gulf and Southeast Asia. Its weakness may be fragmentation. Products remain relatively limited, specialist knowledge is unevenly distributed, and much of the Sharia layer continues to sit outside core operating systems.
Ismail says greater standardisation, scale, and specialist operational capability are needed, alongside deeper connectivity with established Islamic finance markets. Closer alignment with GCC expectations on governance, transparency, and Sharia oversight could make UK products more attractive to international investors.
Khan also identifies greater standardisation of screening and reporting, more native sukuk and ijara capabilities, and closer alignment between UK regulators and standards developed by the Accounting and Auditing Organization for Islamic Financial Institutions as priorities.
The opportunity is not limited to Muslim investors. Sharia finance’s ethical exclusions and risk-sharing principles overlap with demand for sustainable investment, while green sukuk can bridge Islamic and conventional institutional capital. The ICD-LSEG report identifies the UK as a key hub for green and sustainable sukuk listings, while global ESG sukuk outstanding had passed US$50 billion by the end of 2024.
From ambition to operating model
The UK’s Islamic finance credentials were built through policy, legal innovation, and access to capital markets. Preserving them will increasingly depend on the less visible infrastructure beneath the products. As volumes grow, investors will expect Sharia-compliant funds and securities to offer the same operational resilience, reporting speed, and scalability as conventional assets. Achieving that requires more than adding a screening report at the end of a valuation cycle.
Compliance must be connected to custody records, corporate actions, cash, accounting, and investor reporting. Sukuk structures must be understood throughout their lifecycle. Data must support the selected standard, while governance must provide a defensible answer when standards or scholars differ.
For UK asset servicers, this presents both a burden and a commercial opening. Firms that can turn specialist Sharia requirements into repeatable infrastructure will be able to support a market extending from domestic pensions to international family offices and cross-border sukuk.
The UK has already demonstrated that Islamic finance can operate alongside conventional markets. Its next test is whether it can make that coexistence operational at scale.
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