LONDON — Global banking giant HSBC has agreed to review a controversial $38 million investment in U.S. surveillance and military technology firm Palantir. The stake, held within its flagship sharia-compliant Islamic equity fund, triggered sharp backlash from British Muslim savers following an investigative report by the Muslim news outlet Hyphen.

The Controversy and Workplace Pensions

According to Hyphen, HSBC’s Islamic Global Equity Index Fund acquired approximately $38.3 million (£29.7 million) in Palantir shares during the first half of 2026.

The investment drew immediate scrutiny because Palantir signed a strategic partnership with Israel’s Ministry of Defense in January 2024 to supply advanced technologies supporting military operations. Consequently, British Muslims utilizing ostensibly ethical, faith-compliant funds found themselves unknowingly tied to the ongoing conflict in Gaza.

The implications extend far beyond individual retail investors, impacting major British workplace pensions:

Nest: The UK's largest workplace pension provider channeled 70% of its sharia fund—affecting over 33,000 savers—directly into the HSBC fund.
The People’s Pension: Serving over seven million members, the provider also voiced formal concerns over Palantir’s inclusion.
In response to the mounting pressure, an HSBC spokesperson stated that the bank recognizes the vital importance of ensuring such funds reflect investors' values. The institution pledged to review the matter thoroughly in collaboration with independent expert advisors and act swiftly.

A Regulatory Gap in Islamic Finance

The uproar has exposed structural blind spots in Islamic finance screening methodologies. Conventional sharia-compliance frameworks typically screen for prohibited sectors such as alcohol, gambling, conventional finance, and weapons, allowing a company to qualify as long as impermissible income remains under 5%.

However, technology firms like Palantir can easily pass these financial screens despite engaging in contracts with militaries involved in controversial military campaigns. Palantir's software processes massive data sets to assist in intelligence and targeting operations—capabilities that company leadership has openly defended.

Broader Industry Implications and Expert Stance

The controversy has sparked high-level calls to tighten investment guidelines within the Islamic finance sector:

Activist campaigns, such as one launched by Islamic Finance Guru, are urging Muslim savers to demand immediate divestment from Palantir and defense contractors.
Prominent Islamic scholar Mufti Taqi Usmani—chair of the sharia board for global standard-setter AAOIFI—addressed the issue at a London summit. While noting rulings depend on context, Usmani stated that investment becomes impermissible (haram) when there is absolute certainty that the product will be utilized in a harmful, forbidden manner.
This latest development follows a 2025 Hyphen investigation which revealed that six major Islamic funds collectively held over $1 billion in shares of companies whose technologies supported military operations in Israel, prompting a broader ethical reckoning for the faith-aligned investment industry.

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