By Bernardo Vizcaino

(Reuters) - The Bank of England has joined the Islamic Financial Services Board (IFSB), one of the main standard-setting bodies for Islamic finance, the second Western regulator to do so after Luxembourg.

The BoE joins as an associate member, the 65th regulatory body to join the Kuala Lumpur-based body, bringing total membership to 189, the IFSB said in a statement.

Britain's government has been keen to make London a centre for Islamic finance. In June of last year it became the first Western country to issue Islamic bonds (sukuk).

The move comes at a key time for Britain's domestic Islamic banks, as the BoE works to grow the number of sharia-compliant assets they can use in their liquidity buffers, with progress expected by the turn of the year.

Currently, sukuk issued by the AAA-rated Islamic Development Bank are the only assets that meet the BoE's criteria for use in the liquidity buffers of the 22 Islamic financial institutions operating in Britain.

The BoE could expand this by allowing use of sukuk issued by sovereigns with lower credit ratings and other non-financial issuers, according to a consultation paper released last year.

Islamic finance follows religious principles such as bans on interest and pure monetary speculation, limiting the range of financial tools that banks can use to manage short-term funding needs.

The IFSB has also admitted the central bank of Kyrgyzstan and the Securities and Exchange Commission of Pakistan as observer members.

The central bank of Kazakhstan has also been upgraded to a full member, becoming the 23rd member of the IFSB Council, its highest governing body.

(Reporting by Bernardo Vizcaino; Editing by Eric Meijer)



