UAE introduces comprehensive Islamic finance framework as regulatory reforms continue

The new framework, set out in Central Bank Regulation No. 1/2026, implementing aspects of Federal Decree-Law No. 50/2022, establishes detailed rules governing a broad range of Islamic finance structures and transactions, including murabaha, ijarah, salam, istisna'a, mudaraba, musharaka and wakala arrangements, as well as Islamic deposits, investment accounts, guarantees, documentary credits and takaful products.

The regulation is relevant to Islamic banks and finance companies operating in the UAE, conventional banks offering Islamic banking services through Islamic ‘windows’, takaful and retakaful operators, corporate borrowers and project sponsors using Islamic financing structures, and investors participating in sharia-compliant financing and investment arrangements.

The framework appears to consolidate and codify principles applicable to Islamic financial transactions within a formal regulatory regime.

Seya Rahnema, Islamic finance expert at Pinsent Masons, said: “The regulation represents an important development in the UAE's Islamic finance framework. By setting out detailed rules governing a wide range of Islamic finance products and structures, it should enhance legal and regulatory certainty for market participants and support greater consistency in the way transactions are structured and documented.”

He added: “The breadth of products covered by the regulation means businesses involved in Islamic finance transactions may need to review existing arrangements to assess whether updates to documentation, governance processes or compliance frameworks are required.”

The new rules are likely to be of particular interest to in-house legal, compliance, risk and sharia governance teams, given the emphasis on establishing a clearer regulatory foundation for Islamic financial transactions and institutions.

Rahnema said: “One of the most significant aspects of the regulation is the extent to which it codifies principles applicable across different forms of Islamic finance. Greater regulatory clarity can help facilitate market growth by providing increased confidence for institutions, investors and counterparties when entering into sharia-compliant arrangements.”

The development comes amid continued regulatory evolution of the UAE's Islamic finance sector. Earlier this year, the Dubai Financial Services Authority (DFSA) expanded the scope of its Islamic Finance Rules (IFR) to bring additional sharia-compliant securities offerings and Islamic funds within its regulatory framework in a move designed to strengthen regulatory oversight of Islamic capital markets activity in the Dubai International Financial Centre (DIFC).

The amended framework follows the DFSA's consultation paper CP172 (6-page / 459KB PDF). The changes mean that firms marketing products as Islamic or sharia-compliant may need to ensure they comply with applicable DFSA requirements relating to governance arrangements, disclosures and sharia compliance processes.

The changes are likely to be particularly relevant for issuers seeking to raise capital through Islamic instruments, fund managers operating Islamic investment funds, and sponsors involved in structuring or marketing Shari'a-compliant products across the region.

Marie Chowdhry, financial regulation expert at Pinsent Masons, said: “Firms should review whether existing or planned sharia-compliant securities offerings or Islamic fund offerings are now subject to the IFR and assess internal compliance frameworks, governance arrangements and disclosure documentation against the updated rules.”

“Businesses should also consider whether offering documents, marketing materials and sharia governance processes require updating. Legal and regulatory advice will likely be required where products may newly fall within the expanded scope of the IFR,” she said.