DFSA Proposes Tighter Rules on Islamic Endorsements and Takaful Disclosure

The Dubai Financial Services Authority has proposed changes to its Islamic finance rulebook, setting out more precise conditions for when a firm must hold an Islamic endorsement and adding disclosure duties for Takaful products. The proposals are contained in Consultation Paper No. 172.

At the centre of the paper is a question the regulator says needs a clearer answer: when is a firm actually conducting Islamic financial business, rather than merely handling products that happen to be Shari'a-compliant?

Three triggers for an endorsement

The consultation sets criteria that would require an authorised firm or market institution to obtain an Islamic endorsement. A firm would fall inside the framework if it states that its operations, funds or products are Shari'a-compliant. The same applies where a firm offers financial services tied to Islamic products, or where it manages Islamic or Shari'a-compliant funds.

Firms that only distribute Islamic financial products, or give clients access to them, would sit outside that requirement. The exemption comes with conditions. Such a firm must not present those products or services as Shari'a-compliant, and it must keep meeting the client protection rules already in force.

The distinction matters for how the regime is scoped. Distribution is a common activity in the centre, and firms that pass products through without marketing them as religiously compliant operate under a lighter burden than those that build and manage Islamic mandates themselves.

Takaful disclosure

The paper also introduces expanded disclosure requirements for Takaful, the Shari'a-compliant mutual insurance model. Providers would have to set out the main features of the contract, how fees are structured, how surplus is shared, and whether policyholders could be asked for additional contributions.

Those obligations would apply whether or not the firm holds an Islamic endorsement, drawing Takaful providers into the disclosure regime on the strength of the product rather than the firm's regulatory status.

Regulator, not arbiter

The DFSA describes its role as that of a Shari'a systems regulator. It does not rule on whether a product is religiously compliant. What it does require is that authorised firms maintain suitable systems and controls to manage the risks that come with Islamic financial business.

Charlotte Robins, Managing Director of Policy and Legal at the DFSA, said the framework should give firms clarity and certainty as Islamic finance expands in the DIFC, across the UAE and internationally.

The scope question is the practical one for firms already active in the centre. A distributor that describes a fund as Shari'a-compliant moves into endorsement territory under the criteria; one that stays silent on compliance and lets the product provider make that case does not. How the DFSA draws that line in the final rules will determine which firms need to apply for authorisation and which can carry on under existing permissions.