The Riffle
The Dubai Financial Services Authority (DFSA) has issued Consultation Paper 172 proposing targeted enhancements to its Islamic Finance framework across the IFR, COB, and Glossary modules.
The proposals focus on clarifying when firms are considered to be conducting Islamic Financial Business (“holding out”) and standardising disclosure requirements for Takaful products, reflecting the continued evolution of DIFC as a mature Islamic finance hub.
Key Highlights
1. Clearer Definition of “Holding Out”
The DFSA is refining when a firm is deemed to be conducting Islamic Financial Business:
If it structures or offers products in accordance with Shari’a
If it markets products as Islamic, halal, or Shari’a-compliant
If it provides advice on Shari’a compliance
This directly impacts whether a firm requires an Islamic endorsement on its licence.
2. Marketing & Advisory Triggers Matter
Firms will be considered as “holding out” if they:
Use Islamic or Shari’a-related terminology in communications
Refer to Shari’a Supervisory Board (SSB) oversight
Provide guidance or opinions on compliance
3. Important Carve-Out for Distribution Activities
An Islamic endorsement is not required where firms:
Provide execution-only access to Islamic products
Distribute products without representing them as Shari’a-compliant
However, firms must still comply with:
Financial promotion rules (clear, fair, not misleading)
Suitability obligations for recommendations
4. DFSA Continues as a “Shari’a Systems Regulator”
The DFSA does not determine Shari’a compliance itself. Instead, it requires firms to establish:
Robust systems and controls
Independent Shari’a Supervisory Boards
Internal governance and audit frameworks
5. Takaful Disclosure Framework Realigned
A key structural change:
Takaful disclosures are being moved from IFR to COB
This ensures consistent disclosure to Retail Clients, regardless of whether the distributing firm has an Islamic endorsement.
6. Enhanced Takaful Disclosure Requirements
Firms must clearly disclose:
Nature of contracts between fund and operator
Fee and profit-sharing mechanisms
Surplus distribution basis
Scenarios requiring additional contributions
7. Treatment of Islamic Instruments
The DFSA reinforces a substance-over-form approach:
Tokens labelled as “Islamic” or “Sukuk” may trigger endorsement requirements
Islamic digital assets fall within scope if marketed as Shari’a-compliant
8. PSIA Clarifications
Profit Sharing Investment Accounts (PSIAs):
Are not classified as Investments or Funds
Are treated as a distinct Financial Service
Follow a tailored disclosure regime (no prospectus requirement)
9. Strengthened Operational Expectations
Firms conducting Islamic Financial Business must maintain:
Dedicated policy and procedures manuals
Shari’a-compliant systems and controls
Specific financial disclosures
Compliance at both firm and fund levels
Why This Matters
These proposals bring greater regulatory clarity at a critical intersection of marketing, product structuring, and compliance.
For firms in DIFC:
The threshold for triggering Islamic endorsement is now clearer—but broader in practice
Marketing language and advisory positioning will need careful review
Distribution models can continue—but only within clearly defined limits
For clients:
Takaful disclosures become more consistent and transparent, improving comparability and understanding
Next Steps for Firms
Review marketing materials and terminology used across products
Assess whether current activities may be considered “holding out”
Re-evaluate distribution vs advisory models
Update Takaful disclosure frameworks in line with COB requirements
Strengthen internal Shari’a governance structures, where applicable
Conclusion
DFSA CP 172 reflects a maturing Islamic finance ecosystem in DIFC, where clarity, consistency, and client protection are becoming central themes.
By sharpening the definition of “holding out” and standardising Takaful disclosures, the DFSA is setting clearer expectations for firms navigating both conventional and Islamic financial business models.
Consultation Timeline
Issued: May 2026
Comments Deadline: 19 June 2026
Implementation: Post consultation feedback and DFSA notice
