DFSA opens consultation on Islamic finance rules changes

The proposals come as firms in the DIFC increasingly operate across conventional and Sharia‑linked products, and are intended by regulators to emphasise the importance of carefully reviewing the use of Islamic‑related language across marketing, product documentation and client communications.

The Dubai Financial Services Authority’s (DFSA) consultation paper CP172 (6-page / 459KB PDF) proposes a series of amendments to the DFSA Islamic finance regulations, covering enhanced disclosure requirements around Takaful products, Islamic endorsement requirements and changes to the DFSA rulebook.

One of the central planks of the proposals is to clarify when an authorised person is taken to be conducting Islamic financial business and therefore requires an Islamic endorsement under the Islamic Financial Business Law 2004.

Under the proposals, a licence endorsement would be required for conducting Islamic business when a firm holds itself out as conducting all or part of its business in accordance with Sharia principles, provides a financial service in relation to an Islamic or Sharia‑compliant product, or manages an Islamic or Sharia‑compliant fund.

No Islamic endorsement would be required where a firm merely provides access to or distributes Islamic products, such as sukuk or takaful, on an execution‑only basis, without making representations about Sharia compliance or giving advice. Existing obligations would continue to apply on top of the new proposals.

Seya Rahnema, an Islamic finance expert with Pinsent Masons in Dubai, said the proposals would enable much greater clarity for firms in the region.

“The DFSA’s proposals in the consultation paper are a welcome clarification for firms operating in or from the DIFC, particularly given the continued growth of Islamic finance activity and increasing use of hybrid or multi‑product platforms,” he said.

“Greater certainty around when an Islamic endorsement is required should help firms structure their offerings with more confidence and reduce the risk of inadvertently triggering regulatory requirements through marketing or product positioning.”

The DFSA proposals also include changes to the disclosure framework for takaful products, which currently only applies where a firm holds itself out as conducting Islamic Financial Business. The changes would require disclosures to retail clients whenever takaful products are sold, regardless of whether the firm operates under Islamic endorsement.

In addition, the DFSA proposes introducing a formal definition of “takaful” in the Glossary module, describing it as a Sharia‑compliant insurance arrangement based on mutual support and risk‑sharing.

Marie Chowdhry, a financial regulation expert with Pinsent Masons in the UAE, said the amendments underlined the DFSA’s approach of focusing on governance, systems and controls rather than determining Sharia compliance of individual products.

“In particular, the clarification that execution‑only distribution of Islamic products, without holding them out as Sharia‑compliant or providing advice on Sharia matters, does not require an endorsement will be helpful for firms offering broad product access across conventional and Islamic markets,” she explained.

“The proposed changes to the takaful disclosure regime are also likely to improve client outcomes by ensuring consistent, transparent disclosures regardless of how a product is positioned.

“Firms should use the consultation period to review their marketing, product governance and disclosure frameworks, and assess whether any current practices could be caught by the clarified ‘holding out’ criteria once the amendments are finalised.”

The consultation is open until 19 June.