Entire Section
Islamic Finance Rules (IFR) [VER15/04-20]
IFR 1 IFR 1 Introduction
IFR 1.1 IFR 1.1 Application
IFR 1.1.1 IFR 1.1.1
This module (IFR) applies to:
(a) everyPerson who carries on, or holds itself out as carrying on, aFinancial Service in or from theDIFC as in accordance with Shari'a;(b) aDomestic Fund which is operated or held out as being operated as anIslamic Fund ; and(c) aPerson making anOffer in or from theDIFC relating to anInvestment which is held out as Islamic or Shari'a compliant.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 1.1.1 Guidance
1. Most of the requirements that apply toPersons conductingFinancial Services or distributingSecurities as Islamic or Shari'a compliant are included in this module. There are other more generic requirements relating to suchFinancial Services or activities that are included in other modules of the DFSA Rulebook.2. To enablePersons carrying on or proposing to carry on Islamic finance activities to easily access the Islamic finance related requirements applicable to their activities, the DFSA has created a web-based Islamic Finance Handbook. This handbook allows electronic navigation to reach the relevant provisions in the IFR and other DFSA Rulebook modules where Islamic finance related requirements applicable to specific Islamic finance activities are located. The handbook is accessible from the DFSA web-site.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 1.2 IFR 1.2 Overview of the IFR Module
IFR 1.2 Guidance
1. Rules in this module are made under or for the purposes of a number of laws, including the Regulatory Law 2004, the Law Regulating Islamic Financial Business 2004 and the Collective Investment Law 2010. Guidance may indicate the relevant legislation.2. Chapters IFR 2 and IFR 3 contain the general requirements and obligations that apply to anAuthorised Person who carries on anyFinancial Service asIslamic Financial Business . IFR Chapter 4 contains the accounting and audit requirements that apply to such Persons.3. IFR Chapter 5 contains additional requirements that apply to anAuthorised Firm that carries on theFinancial Service ofManaging Profit Sharing Accounts .4. IFR Chapter 6 contains the additional requirements that apply to aFund Manager of anIslamic Fund .5. IFR Chapter 7 contains specific requirements that apply toReporting Entities whichOffer Securities as Shari'a compliant. However, the general requirements that apply to such Offers with which theReporting Entities must comply continue to be in the Market Rules (MKT module).6. IFR Chapter 8 contains the additional requirements applying toPersons who carry onInsurance Business orInsurance Intermediation asTakaful Insurance .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]
[Amended] DFSA RM94/2012 (Made 14th June 2012). [VER4/06-12]IFR 2 IFR 2 Islamic Finance
IFR 2.1 IFR 2.1 Application
IFR 2.1.1
This chapter applies to every
Person to whom this module applies in accordance with IFR Section 1.1.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 2.2 IFR 2.2 Activities that Constitute Islamic Financial Business
IFR 2.2 Guidance
1. Article 10 of the Law Regulating Islamic Financial Business 2004 prescribes what constitutesIslamic Financial Business. In essence, where aPerson engages in any activity that constitutes aFinancial Service and carries on or holds out the activity as being conducted in accordance with Shari'a, that activity constitutesIslamic Financial Business .2. GEN section 2.2 sets out the activities that constitute aFinancial Service .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 2.3 IFR 2.3 Conducting Islamic Financial Business
IFR 2.3 Guidance
1. Article 9 of the Law Regulating Islamic Financial Business 2004 provides that in order to conductIslamic Financial Business , theAuthorised Person must have an endorsed Licence authorising it to conduct such business:a. as anIslamic Financial Institution ; orb. by operating anIslamic Window .2. Article 11 of the Law Regulating Islamic Financial Business 2004 governs the making of an application for an endorsement to conductIslamic Financial Business .3. Article 11(5) of the Law Regulating Islamic Financial Business 2004 governs the grant of an endorsement to conductIslamic Financial Business as either anIslamic Financial Institution or by operating anIslamic Window . APerson must obtain the relevant endorsement before carrying onIslamic Finance Business as anIslamic Financial Institution or through anIslamic Window .4. AnAuthorised Person with an endorsement to operate anIslamic Window may conduct some of its activities as a conventionalFinancial Service while conducting itsIslamic Financial Business through theIslamic Window .5. IfIslamic Financial Business (whether through anIslamic Financial Institution orIslamic Window ) is provided toRetail Clients , theAuthorised Person must also have aRetail Endorsement on itsLicence .6. APerson may, subject to any restrictions in the DFSA Rules, carry on more than oneFinancial Service , provided thatPerson has the relevant authorisations or endorsements on itsLicence as are applicable.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM139/2014 (Made 21st August 2014). [VER8/06-14]IFR 2.4 IFR 2.4 Islamic Financial Instruments and Products
IFR 2.4 Guidance
1. The DFSA regulatory regime applies to aPerson carrying on any Islamic financial activities in or from the DIFC if the activity:a. relates to a financial instrument or product of the kind described in Guidance Notes 3 (Profit Sharing Investment Accounts ), 5 (Investments), and 7 (Takaful insurance) below; andb. is conducted by way of business and not expressly excluded from regulation as aFinancial Service . Note there are a number of such exclusions in GEN chapter 2.2. TheDFSA will, when considering the treatment ofIslamic Financial Business arrangements, take a "substance over form" approach.3. The issue of financial products which areSecurities such asShares ,Debentures orUnits as defined in GEN A2.1.2 (which are a subset of the definition of Investments — see Guidance Note 5), attracts product specific disclosure requirements such asProspectus orExempt Disclosure Statements . Where such products are included on anOfficial List of Securities or made available to the public in the DIFC, there are initial and ongoing disclosure and other obligations that apply to theReporting Entity (generally the issuer) under the MKT module. These MKT obligations are quite distinct from the obligations that apply toPersons carrying onFinancial Services in respect of such financial products.Profit Sharing Investment Accounts (PSIAs)
4.PSIAs do not fall within the GEN definitions ofInvestments . They are contractual arrangements under whichAuthorised Firms invest clients' funds, often (though not always) on a pooled basis, and are generally treated by the firm as off balance sheet. They are sometimes structured underMudaraba , so that the investor in principle bears the full investment risk. AlthoughPSIAs have the characteristics of aCollective Investment Fund , under an express exclusion provided under CIR Rule 2.1.13, they are not treated as such. Instead,Managing a PSIA is a distinctFinancial Service as defined in Rules GEN 2.2.2(r) and GEN 2.21.5. AsManaging a PSIA is aFinancial Service , the DFSA regulatory regime that applies toPersons carrying onFinancial Services in or from the DIFC applies toAuthorised Firms that managePSIAs . AsPSIAs are notInvestments , the offer ofPSIAs , does not attract prospectus-like disclosure. Instead, it attracts a tailored regulatory regime that applies to the entity, i.e. anAuthorised Firm , that manages thePSIAs (see IFR chapter 5 for these Rules). The Financial Service ofAdvising onFinancial Products will apply to aPerson giving advice on the merits of investing in aPSIA (as aPSIA is defined as a 'financial product' for the purposes of that activity). However, other activities such as dealing and arranging and COB requirements relating to those activities do not apply to aPSIA (as it is not anInvestment as defined in GEN).Investments
6.Investments comprise two types of products;Securities andDerivatives . These products are defined in GEN App2. Most of the conventional Investments defined in GEN App2 can be offered as Islamic financial products, provided the relevant requirements including Shari'a principles are adhered to and in accordance with anyShari'a Supervisory Board rulings as applicable. While not an exhaustive list, conventional Investments that are commonly used as Islamic financial products includeShares ,Sukuks ,Units of Islamic Funds and alsoStructured Products . Increasingly,Derivatives are also being developed in accordance with Shari'a, such as a contract where the rights and liabilities of the parties are determined by reference to an underlying factor such as property of any description, currency rate or index, provided that the underlying factor in itself is Shari'a compliant and the contract does not involve any fundamental uncertainty (Gharar).7. The DFSA regulatory regime applies toPersons who carry on in or from the DIFC anyFinancial Services activity in relation to any Islamic financial products that fall within the definition ofInvestments . However, particular products or instruments such asProfit Sharing Investment Accounts (PSIAs),Takaful andIslamic Funds attract product/instrument specific additional conduct and other requirements, which are included in this module.Takaful insurance
8. Takaful insurance generally refers to an arrangement where an insurer establishes a Shari'a compliant fund, predicated for mutual protection, where participants donate a part of their contributions to the common fund which will be used to meet claims payments and any participation rights. TheTakaful insurer's role is generally confined to managing the insurance activities and investing the fund assets in accordance with Shari'a.9. Persons conductingTakaful insurance are conductingInsurance Business . There are two types ofFinancial Services that compriseInsurance Business , ie,Effecting Contracts of Insurance orCarrying out Contracts of Insurance . Accordingly, anyPerson carrying on theseFinancial Services activities is subject to the DFSA regime for regulatingFinancial Services . Where such activities are carried out asTakaful insurance, there are additionalTakaful specific requirements that apply to such an insurer, which are set out in this module (see IFR chapter 8). In addition, there are certain activities relating to insurance, such as advising and arranging, which are regulated asInsurance Intermediation (see GEN section 2.19).Persons conducting those activities in relation toTakaful insurance are regulated in the same way asPersons conducting such activities in relation to conventional insurance.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
Amended in accordance with Notice of Amendments to Legislation April 2011 [VER3/02-11]
[Amended] DFSA RM94/2012 (Made 14th June 2012). [VER4/06-12]
[Amended] RM192/2016 (Made 7th December 2016). [VER11/02-17]IFR 3 IFR 3 General Obligations
IFR 3.1 IFR 3.1 Application
IFR 3.1.1 IFR 3.1.1
This chapter applies to an
Authorised Person which carries onIslamic Financial Business in or from the DIFC.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 3.1.1 Guidance
"Authorised Person" is defined in the GLO module as an
Authorised Firm orAuthorised Market Institution .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 3.2 IFR 3.2 Constitution of an Islamic Financial Institution
IFR 3.2.1 IFR 3.2.1
An
Authorised Person which is anIslamic Financial Institution must ensure that its constitutional documents state that its entire business will be conducted in accordance with Shari'a.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 3.2.1 Guidance
Article 10 of the Law Regulating Islamic Financial Business 2004 provides that an
Islamic Financial Institution is anAuthorised Person whose entire business is conducted in accordance with Shari'a.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 3.3 IFR 3.3 Systems and Controls
IFR 3.3.1 IFR 3.3.1
(1) AnAuthorised Firm conductingIslamic Finance Business must establish and maintain systems and controls which enable it to comply with the applicable Shari'a requirements.(2) An Authorised Firm using a Fund Platform that has one or more Islamic Funds on the Fund Platform must ensure that the Fund Platform has systems and controls which enable the Fund Manager to comply with the applicable Shari’a requirements in respect of the Islamic Funds.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RMI249/2019 (Made 18th December 2019). [VER14/12-19]IFR 3.3.1 Guidance
1. This Chapter should be read in conjunction with Chapter 5 of the GEN Module.2. Responsibility for ensuring that anAuthorised Person complies with Shari'a ultimately rests with its senior management. The systems and controls required by Rule 3.3.1 will assist senior management to ensure that there is such compliance.3. TheGoverning Body should, when setting the business objectives and strategies of the firm and on an on-going basis, make use of the expertise of the firm's Shari'a Supervisory Board as appropriate.4. Similarly,Persons Undertaking Risk Control Functions of the firm, particularly compliance and internal audit, should have easy access to theShari'a Supervisory Board in relation to matters involving Shari'a compliance.5. The members of the SSB should also have adequate access to theGoverning Body , senior management and thePersons Undertaking Key Control Functions as appropriate to ensure that their roles can be effectively discharged.6. Both Islamic and conventional Funds can be established on the same Fund Platform, provided the requirements relating to Shari’a compliance are met both as to investments and as to relevant operational matters, and that appropriate governance is in place to achieve this. This would generally require either all the Funds on a Fund Platform to be Islamic Funds, or the Fund Platform to operate through an Islamic Window in the same way as the Fund Manager that is using the Fund Platform.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]
[Amended] DFSA RMI249/2019 (Made 18th December 2019). [VER14/12-19]IFR 3.4 IFR 3.4 Policy and Procedures Manual
IFR 3.4.1
An
Authorised Person undertakingIslamic Financial Business must implement and maintain anIslamic Financial Business policy and procedures manual which addresses the following matters:(a) the manner in which the compliance function will be undertaken, in respect of Shari'a compliance;(b) the manner in which theShari'a Supervisory Board will oversee and advise in regard to theIslamic Financial Business conducted by theAuthorised Person ;(c) the manner in whichShari'a Supervisory Board fatwas, rulings and guidelines will be recorded, disseminated and implemented and the internal Shari'a review undertaken;(d) the manner in which disputes between theShari'a Supervisory Board and theAuthorised Person in respect of Shari'a compliance will be addressed;(e) the process for approving those internal systems and controls which are in place to ensure not only that theIslamic Financial Business is carried out in compliance with Shari'a, but that information is disseminated, using an appropriate method and manner, to investors and, in the case of anAuthorised Market Institution ,Persons to whom access to its facilities are provided;(f) the manner in which conflicts of interest will be identified and managed including where prescribed; and(g) in respect of anAuthorised Person operating anIslamic Window , the systems and controls in place to ensure the appropriate separation of theIslamic Financial Business of theAuthorised Person from its conventional business.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 3.5 IFR 3.5 Shari'a Supervisory Board
IFR 3.5 Guidance
Article 13 of the Law Regulating Islamic Financial Business 2004 requires an
Authorised Person undertakingIslamic Financial Business to appoint aShari'a Supervisory Board .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 3.5.1 IFR 3.5.1
When an
Authorised Person appoints aShari'a Supervisory Board , it must ensure that:(a) theShari'a Supervisory Board has at least three members;(b) the members appointed to theShari'a Supervisory Board are competent to perform their functions asShari'a Supervisory Board members;(c) any appointments, dismissals or changes in respect of members of theShari'a Supervisory Board are approved by theGoverning Body of theAuthorised Person ; and(d) no member of theShari'a Supervisory Board is a director orController of theAuthorised Person .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 3.5.1 Guidance
For the purposes of IFR Rule 3.5.1, an
Authorised Person should consider the previous experience and qualifications of the proposedShari'a Supervisory Board members to assess whether the proposedShari'a Supervisory Board member is competent to advise on theIslamic Financial Business to be undertaken by theAuthorised Person .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 3.5.2
An
Authorised Person must document its policy in relation to:(a) how appointments, dismissals or changes will be made to theShari'a Supervisory Board ;(b) the process through which the suitability ofShari'a Supervisory Board members will be considered; and(c) the remuneration of the members of theShari'a Supervisory Board .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 3.5.3 IFR 3.5.3
An
Authorised Person must establish and maintain, for six years, records of:(a) its assessment of the competency of theShari'a Supervisory Board members;(b) the agreed terms of engagement of each member of theShari'a Supervisory Board ; andDerived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 3.5.3 Guidance
The records of the assessment of competency of
Shari'a Supervisory Board members should clearly indicate; at least:a. the factors that have been taken into account when making the assessment of competency;b. the qualifications and experience of theShari'a Supervisory Board members;c. the basis upon which theAuthorised Person has deemed that the proposedShari'a Supervisory Board member is suitable; andd. details of any otherShari'a Supervisory Boards of which the proposedShari'a Supervisory Board member is, or has been, a member.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 3.5.4
(1) TheAuthorised Person must ensure that theIslamic Financial Business policy and procedures manual it is required to maintain under IFR Rule 3.4.1 provides that:(a) a member of theShari'a Supervisory Board is obliged to notify theAuthorised Person of any conflict of interest that such member may have with respect to theAuthorised Person or, in the case of anInvestment Trust , theTrustee ; and(b) theAuthorised Person will take appropriate steps to manage any such conflict of interest so that theIslamic Financial Business is carried out appropriately and in compliance with Shari'a, the interest of aClient is not adversely affected and allClients are fairly treated and not prejudiced by any such interests.(2) If anAuthorised Person is unable to manage a conflict of interest as provided above, it must dismiss or replace the member as appropriate.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 3.5.5
If requested by the DFSA, an
Authorised Person must provide the DFSA with information on its appointed or proposedShari'a Supervisory Board members with regard to the qualifications, skills, experience and independence of theShari'a Supervisory Board members.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 3.5.6
An
Authorised Person must take reasonable steps to ensure that it and itsEmployees :(a) provide such assistance as theShari'a Supervisory Board reasonably requires to discharge its duties;(b) give theShari'a Supervisory Board right of access at all reasonable times to relevant records and information;(c) do not interfere with theShari'a Supervisory Board's ability to discharge its duties; and(d) do not provide false or misleading information to theShari'a Supervisory Board .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 3.6 IFR 3.6 Shari'a Reviews
IFR 3.6.1
An
Authorised Person must ensure that all Shari'a reviews are undertaken by the Shari'a Supervisory Board in accordance with AAOIFI GSIFI No 2.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 3.6.2
(1) AnAuthorised Person must commission an annual report from theShari'a Supervisory Board which complies with AAOIFI GSIFI No 1.(2) AnAuthorised Person must deliver a copy of the annual report of theShari'a Supervisory Board to the DFSA within 14 days of having received it.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 3.7 IFR 3.7 Internal Shari'a Review
IFR 3.7.1
An
Authorised Person must perform an internal Shari'a review to assess the extent to which theAuthorised Person complies with fatwas, rulings and guidelines issued by itsShari'a Supervisory Board .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 3.7.2
An
Islamic Financial Institution must perform the internal Shari'a review in accordance with AAOIFI GSIFI No. 3.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 3.7.3 IFR 3.7.3
An
Authorised Person which operates anIslamic Window must, to the extent possible, perform the internal Shari'a review in accordance with AAOIFI GSIFI No. 3 and must document the manner in which it will conduct that part of the internal Shari'a review that is not conducted in accordance with AAOIFI GSIFI No. 3.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 3.7.3 Guidance
GSIFI No. (3) (Internal Shari'a Review) establishes standards and provides guidance on the internal Shari'a review in institutions that conduct business in accordance with Shari'a. The standard covers the following:
a. objectives;b. internalShari'a Review ;c. independence and objectivity;d. professional proficiency;e. scope of work;f. performance of the internalShari'a Review work;g. management of the internalShari'a Review ;h. quality assurance; andi. elements of an effective internalShari'a Review control system.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 3.7.4 IFR 3.7.4
An
Authorised Person must ensure that the internal Shari'a review is performed by the internal audit function or the compliance function of theAuthorised Person and that the individuals or departments involved in performing the review are competent and sufficiently independent to assess compliance with Shari'a.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 3.7.4 Guidance
For the purposes of assessing competency of personnel or departments which perform the internal Shari'a review, an
Authorised Person should consult AAOIFI GSIFI No. 3 paragraphs 9 to 16 inclusive.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 3.8 IFR 3.8 Additional Conduct Requirements
IFR 3.8 Guidance
The COB module contains conduct of business requirements that apply to
Authorised Firms conductingFinancial Services . The AMI module contains additional conduct standards that apply toAuthorised Market Institutions . Set out below are additional conduct requirements that apply to anAuthorised Person carrying out anyFinancial Service in accordance with Shari'a.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]Disclosure Relating to Shari'a Supervisory Board
IFR 3.8.1 IFR 3.8.1
(1) AnAuthorised Firm , subject to (2), must disclose to eachClient :(a) at the outset of the relationship and thereafter at any time on request, details of the members of theAuthorised Firm's Shari'a Supervisory Board ; and(b) at any time on request, details of the manner and frequency of Shari'a reviews.(2) AnAuthorised Firm does not have to make the disclosure required under (1) if it is aFund Manager of aFund and is making anOffer ofUnits of thatFund in accordance with the disclosure requirements in the Collective Investment Law 2010, the CIR module and this module.(3) AnAuthorised Market Institution must disclose the following information to eachPerson granted access to its facilities at the outset of the relationship, and thereafter whenever the information changes:(a) the members of theAuthorised Market Institution's Shari'a Supervisory Board ; and(b) if thePerson granted access to its facilities requests, the manner and frequency of Shari'a reviews.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]IFR 3.8.1 Guidance
1. AnAuthorised Firm may make the initial disclosures required under IFR Rule 3.8.1(a) by including such information in theClient Agreement provided under COB chapter 3.2. AnAuthorised Firm Managing a PSIA may make additional disclosure required to be made relating toPSIA by including such information in theClient Agreement . See IFR chapter 5 for additional disclosure forPSIAs .3. AFund Manager making anOffer of aUnit of aFund it manages is required under Rules CIR 14.3.1(b) and CIR 14.3.2(b) to include information specified in IFR Rule 3.8.1(1) in theProspectus which it must prepare and make available toClients , hence the exemption in IFR Rule 3.8.1(2). A similar exemption is available toFund Managers with regard to key information that must be provided to a Client under COB Rule 3.3.1(e).Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]Marketing Material
IFR 3.8.2 IFR 3.8.2
In addition to information required by COB 3.2, any marketing material communicated by an
Authorised Firm to aPerson must state whichShari'a Supervisory Board has reviewed the products or services to which the material relates.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 3.8.2 Guidance
1. COB section 3.2.4 sets out the meaning of "marketing material".2. AnAuthorised Firm may be able to rely on theTransitional Rules in GEN chapter 10 for the purposes of complying with some of the provisions in this module. See for example GEN Rule 10.5.1 which provides transitional relief for marketing material.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]Islamic Window
IFR 3.8.3 IFR 3.8.3
(1) AnAuthorised Firm which operates anIslamic Window must, subject to (3), disclose to itsClients whether or not it commingles funds attributable to itsIslamic Financial Business with funds attributable to conventional financial business.(2) AnAuthorised Market Institution which operates anIslamic Window must disclose to anyPerson granted access to its facilities whether or not it commingles funds attributable to itsIslamic Financial Business with funds attributable to conventional financial business.(3) AnAuthorised Firm does not have to make the disclosure required under (1) if it is aFund Manager of an IslamicFund and is making anOffer ofUnits of thatFund in accordance with the disclosure requirements in the Collective Investment Law 2010, the CIR module and this module.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]
[Amended] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]
[Amended] DFSA RMI249/2019 (Made 18th December 2019). [VER14/12-19]IFR 3.8.3 Guidance
1. See Guidance 3 for the type of information required to be included in a Prospectus. The disclosures required under Rule 3.8.3(1) and (2) should initially be made in writing at the beginning of the relationship with aClient or with a person granted access to anAuthorised Market Institution's facilities. Additional disclosure should also be made if theAuthorised Firm changes its policy relating to commingling of funds attributable to itsIslamic Financial Business with funds attributable to conventional financial business.2. The requirements in Rule 3.8.3 will also apply to an Authorised Firm that uses a Fund Platform and has both Islamic and conventional Funds on the Fund Platform.[Added] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]
[Amended] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]
[Amended] DFSA RMI249/2019 (Made 18th December 2019). [VER14/12-19]Disclosure Relating to Client Money Provisions
IFR 3.8.4
An
Authorised Firm must disclose to itsClients details about how anyClient Money arising out ofIslamic Financial Business is or will be held.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 3.9 IFR 3.9 Prudential Requirements
IFR 3.9.1 IFR 3.9.1
An
Authorised Firm in Prudential Category 1, 2, 3 or 5 which invests in or holdsIslamic Contracts for purposes other than managingPSIAs must calculate itsCredit Risk orMarket Risk in respect of those contracts in the same way as a firm holding or investing inIslamic Contracts for the purposes of managingPSIAs as set out in IFR section 4.4.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 3.9.1 Guidance
Substantive prudential requirements in PIB which apply to conduct of
Investment Business continue to apply in the same way to firms conductingIslamic Financial Business , except to the extent added to or otherwise provided in this module.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 4 IFR 4 Accounting and Auditing
IFR 4.1 IFR 4.1 Application
IFR 4.1.1 IFR 4.1.1
This chapter applies to every
Authorised Person carrying onIslamic Financial Business .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 4.1.1 Guidance
GEN chapter 8 contains the general accounting and audit requirements applying to
Authorised Persons .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]
[Amended] DFSA RM139/2014 (Made 21st August 2014). [VER8/06-14]IFR 4.1.2 [Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 4.2 IFR 4.2 Financial statements — specific disclosures
IFR 4.2.1 IFR 4.2.1
An
Authorised Person carrying onIslamic Financial Business must ensure that its financial statements required under GEN chapter 8 contain the following disclosures:(a) the role and authority of theShari'a Supervisory Board in overseeing theAuthorised Person's Islamic Financial Business ;(b) the method used in the calculation of the Zakah base;(c) whether Zakah has been paid by theAuthorised Person ;(d) where Zakah has been paid by theAuthorised Person , the amount which has been paid; and(e) where Zakah has not been paid by theAuthorised Person , sufficient information to allow a shareholder or other investor to compute the amount of his own liability to Zakah.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12][Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 4.2.2
An
Authorised Person who operates anIslamic Window must ensure that its financial statements required under GEN chapter 8 contain the following disclosures:(a) a detailed statement of the funds mobilised according to Shari'a rules and principles and the assets financed by those funds;(b) a detailed statement of the income and expenditure attributable to itsIslamic Financial Business ; and(c) whether funds attributable toIslamic Financial Business are commingled with funds attributable to conventional financial services.[Added] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 4.2.3
An
Authorised Firm which is aTakaful Insurer must ensure that the financial statements required under GEN chapter 8 for eachInsurance Fund contain the following disclosures:(a) income from contributions to theInsurance Fund ;(b) revenues and gains from theInsurance Fund's investments;(c) amounts paid to the Takaful operator;(d) amounts paid for reinsurance cover, net of any commissions;(e) amounts paid to Takaful contributors as a distribution of surplus;(f) amount of any loan received from, or repaid to the Takaful operator;(g) changes in the actuarial reserves of theInsurance Fund ; and(h) the position of theInsurance Fund at the end of the period, including actuarial reserves, policyholders' surplus and any loans outstanding.[Added] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 4.2.4
An
Authorised Firm which Manages aProfit Sharing Investment Account ("PSIA") must ensure that its financial statements required under GEN chapter 8 contain the following disclosures:(a) an analysis of income according to types of investments and their financing by customers;(b) the basis for the allocation of profits between owners' equity and PSIA holders;(c) the equity of PSIA holders at the end of the reporting period;(d) the bases used to determine anyProfit Equalisation Reserve orInvestment Risk Reserve ;(e) the changes which have occurred in such reserves during the reporting period;(f) any deductions made by theAuthorised Firm from its share of income, and any expenses borne by theAuthorised Firm on behalf of PSIA holders, as a contribution to increase the income of PSIA holders, if such contribution was material; and(g) the identity of any person to whom any remaining balances of anyProfit Equalisation Reserve orInvestment Risk Reserve is attributable in the event of liquidation.[Added] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 4.3 IFR 4.3 [Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 4.3.1 [Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 4.3.4 [Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12][Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 4.3.5 [Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 4.3.6 [Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 4.4 IFR 4.4 [Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 4.4.1 [Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 4.4.2 [Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 4.4.3 [Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 4.4.4 IFR 4.4.4 [Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12][Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 4.4.5 [Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 4.4.6 [Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 4.5 IFR 4.5 [Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 4.5.1 [Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 4.6 IFR 4.6 [Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 4.6.1 [Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 4.6.2 [Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 4.6.3 [Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 5 IFR 5 Managing Profit Sharing Investment Accounts
IFR 5.1 IFR 5.1 Application
IFR 5.1.1 IFR 5.1.1
This chapter applies to an
Authorised Firm which conducts theFinancial Service ofManaging Profit Sharing Investment Accounts (PSIAs).Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 5.1.1 Guidance
1. APSIA does not constitute aDeposit , because aPSIA is managed in relation to property of any kind, and the risk of loss of capital, to the extent of theClient's contribution, remains with theClient . Accordingly, anAuthorised Firm should take great care to ensure that aPSIA is not represented as aDeposit , either directly or indirectly. The DFSA may conclude that theAuthorised Firm isAccepting a Deposit instead ofManaging a PSIA in certain circumstances, for example, where theAuthorised Firm attaches to the investment account characteristics or facilities that are generally regarded to be those of aDeposit or current account such as providing:a. an explicit or implicit guarantee to theClient against the risk of loss of capital; orb. a cheque book, an ATM card or a debit card.2. The prudentialCategory forIslamic Financial Institutions and otherAuthorised Firms Managing PSIAs is determined in accordance with the Rules in PIB.Prudential Category 5 firms areIslamic Financial Institutions whose entire business is conducted according toShari'a and are authorised to manageProfit Sharing Investment Accounts . AnAuthorised Firm which managesPSIAs , whether as anIslamic Financial Institution or through anIslamic Window , must also comply with the requirements in PIB in relation to specific prudential requirements relating toTrading Book andNon-Trading Book activities, includingCredit Risk ,Market Risk ,Liquidity Risk andGroup Risk .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM115/2012 (Made 15th October 2012). [VER5/12-12]IFR 5.1.2 IFR 5.1.2 [Deleted]
[Deleted] DFSA RM115/2012 (Made 15th October 2012). [VER5/12-12][Deleted]
[Deleted] DFSA RM115/2012 (Made 15th October 2012). [VER5/12-12]IFR 5.2 IFR 5.2 Additional Disclosure Requirements for PSIAs
IFR 5.2.1
An
Authorised Firm must, prior toManaging a PSIA , provide written notice to theClient that theClient alone will bear any losses arising from thePSIA , which are limited to the amount of his contribution, unless there is negligence, misconduct or breach of contract on the part of theAuthorised Firm .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]Client Agreement
IFR 5.2.2
In addition to matters referred to in COB section 3.3, an
Authorised Firm must ensure that the following information is included in theClient Agreement relating to aPSIA :(a) how and by whom the funds of theClient will be managed and invested including details of its policy on diversification of the portfolio;(b) the basis for the allocation of profit between theAuthorised Firm and theClient ;(c) confirmation of theClient's investment objectives including details of any restrictions requested by theClient , as agreed between theClient and theAuthorised Firm ;(d) a summary of the policies and procedures for valuation of assets or portfolio;(e) a summary of policies and procedures for the transfer of funds to and from theProfit Equalisation Reserve orInvestment Risk Reserve accounts, if applicable;(f) particulars of the management of thePSIA and of any third party to whom theAuthorised Firm has or will delegate or outsource the management of thePSIA , including:(i) the name of the third party;(ii) the regulatory status of the third party; and(iii) details of the arrangement.(g) details of early withdrawal , redemption or other exit arrangement and any costs to aClient as a result thereof;(h) details of segregation of the funds of theClient from the funds of theAuthorised Firm and from any claims by the creditors of theAuthorised Firm ;(i) details of whether funds from onePSIA will be commingled with the funds of anotherPSIA ; and(j) details of any applicable charges and the basis upon which such charges will be calculated including, any deductions of fees that may be made by theAuthorised Firm from the profits of thePSIA .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]Periodic Statements
IFR 5.2.3
(1) COB section 6.10 applies to anAuthorised Firm as if theAuthorised Firm is an investment manager in respect of thoseClients who arePSIA holders.(2) In addition to the requirements of COB section 6.10, an Authorised Firm must ensure that a periodic statement provided to aClient contains the following information:(a) details of the performance of theClient's investment;(b) the allocation of profit between theAuthorised Firm and theClient ; and (c) where applicable, details of changes to the investment strategies that may affect theClient's account or portfolioDerived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]Additional Matters to be Included in the Policy and Procedures Manual
IFR 5.2.4 IFR 5.2.4
Where an
Authorised Firm Manages a PSIA , itsIslamic Financial Business policy and procedures manual must address the following additional matters:(a) the basis upon which aPSIA will be deemed restricted or unrestricted;(b) the basis for allocation of profit or loss to thePSIA ;(c) the basis for allocation of expenses to thePSIA ;(d) the manner in which anAuthorised Firm's own funds, funds of restrictedPSIAs and funds from unrestrictedPSIAs are to be controlled;(e) the manner in which the funds of each type of investment account holder will be managed;(f) the manner in which it will determine priority for investment of own funds and those of holders of unrestrictedPSIAs ;(g) how provisions and reserves against equity and assets are to be applied; and(h) the manner in which losses incurred as a result of the misconduct or negligence for which theAuthorised Firm is responsible will be dealt with.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 5.2.4 Guidance
For the purposes of IFR Rule 5.2.4, the policy and procedures manual should include procedures to ensure that the
Authorised Firm manages the accounts ofProfit Sharing Investment Account holders in accordance with their instructions.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 5.3 IFR 5.3 Funds of PSIA Holders
IFR 5.3.1
Unless clearly expressed in the contract between an
Authorised Firm and aPSIA holder, theAuthorised Firm may not use funds provided by aPSIA holder to fund its own corporate activities.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 5.4 IFR 5.4 Prudential Requirements
Application and Interpretation
IFR 5.4.1
(1) This section applies when calculatingCredit Risk orMarket Risk in respect ofIslamic Contracts invested in or held by anAuthorised Firm Managing a PSIA , which is anUnrestricted PSIA .(2) In (1), theIslamic Contracts referred to are contracts which are funded by thePSIA .(3) In this section, the term "investing in or holding Islamic Contracts" means investing in or holding as a principal.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM115/2012 (Made 15th October 2012). [VER5/12-12]Initial and Ongoing Capital Requirements
IFR 5.4.1 Guidance
1. AnAuthorised Firm undertakingIslamic Financial Business is required to maintain initial and ongoingCapital Requirements in accordance with Rules in part 2 of Chapter 3 of PIB.2. In accordance with Rules in part 3 of chapter 3 of PIB, anAuthorised Firm undertakingIslamic Financial Business is required to ensure that only the eligible components of capital are included in the calculation of capital.3. In accordance with PIB Rule 3.15.9, anAuthorised Firm undertakingIslamic Financial Business is required to exclude fromT2 Capital any amount by which the total of theProfit Equalisation Reserve and theInvestment Risk Reserve exceeds theDisplaced Commercial Risk Capital Requirement .4. For the purpose of calculatingCapital Requirements , anAuthorised Firm undertakingIslamic Financial Business or otherwise investing in or holdingIslamic Contracts should give due importance to the economic substance of the transaction, in addition to the legal form of theIslamic Contracts .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM115/2012 (Made 15th October 2012). [VER5/12-12]Systems and Controls in Relation to PSIAs
IFR 5.4.1 Guidance
The requirements in Rules IFR 5.4.2 and IFR 5.4.3 amplify the requirements in GEN Chapter 5.
Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 5.4.2
In addition to Rule PIB 3.2.4, PIB 3.2.5, GEN Rule 5.3.1 and this module, an
Authorised Firm Managing a PSIA must ensure that its senior management establishes and maintains systems and controls that ensure that theAuthorised Firm is financially sound and able at all times to satisfy the specific prudential requirements arising out of such business.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM115/2012 (Made 15th October 2012). [VER5/12-12]IFR 5.4.3 IFR 5.4.3
(1) In addition to Rules in IFR 5.2.4, anAuthorised Firm Managing a PSIA must set out in a written policy how it proposes to organise and control the activities that arise from such business and ensure that its activities are conducted in accordance with Shari'a.(2) The policy must as a minimum address, where appropriate, the following matters:(a) how the interests of shareholders andPSIA holders are safeguarded;(b) how theAuthorised Firm will limit exposures ofPSIA holders to theAuthorised Firm ;(c) a description of the controls to ensure that the funds of thePSIA are invested in accordance with the investment guidelines agreed in the investment contract;(d) the basis for allocating profits and losses to thePSIA holders;(e) the policy for making provisions and reserves and, in respect ofPSIAs , to whom these provisions and reserves revert in the event of a write-off or recovery;(f) theAuthorised Firm's policy on the prioritisation of investment of own funds and those ofUnrestricted PSIA holders;(g) how liquidity mismatch will be monitored;(h) the basis for allocating expenses toPSIA holders; and(i) how theAuthorised Firm will monitor the value of its assets.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12][Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]Displaced Commercial Risk
IFR 5.4.4 IFR 5.4.4
An
Authorised Firm Managing a PSIA , which is anUnrestricted PSIA , must calculate aDisplaced Commercial Risk Capital Requirement in respect of itsPSIA business.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM115/2012 (Made 15th October 2012). [VER5/12-12]IFR 5.4.4 Guidance
1. AnAuthorised Firms Managing a PSIA , on an unrestricted basis is subject to a unique type of risk referred to asDisplaced Commercial Risk . This risk reflects the fact that anAuthorised Firm may be liable to find itself under commercial pressure to pay a rate of return to itsPSIA holders which is sufficient to induce those investors to maintain their funds with theAuthorised Firm , rather than withdrawing them and investing them elsewhere. If this "required" rate of return is higher than that which would be payable under the normal terms of the investment contract, theAuthorised Firm may be under pressure to forgo some of the share of profit which would normally have been attributed to its shareholders (e.g., part of the Mudarib's share). Failure to do this might result in a volume of withdrawals of funds by investors large enough to jeopardise theAuthorised Firm's commercial position (or, in an extreme case, its solvency). Thus, part of the commercial risk attaching to the returns attributable to thePSIA is, in effect, transferred to the shareholders' funds or theAuthorised Firm's own capital. It also reflects situations whereby an investor may be permitted to exit from an asset pool at par while the fair value of such assets may be lower than their carrying amounts and where theAuthorised Firm in certain circumstances may provide for the shortfalls.2. In anUnrestricted PSIA , the account holder authorises theAuthorised Firm to invest the account holder's funds in a manner which theAuthorised Firm deems appropriate without specifying any restrictions as to where, how or for what purpose the funds should be invested, provided that they are Shari'a compliant. Under this arrangement, theAuthorised Firm can commingle the investment account holder's funds with its own funds or with other funds which theAuthorised Firm has the right to use. The investment account holders and theAuthorised Firm generally participate in the returns on the invested funds.3. In aRestricted PSIA , the account holder imposes certain restrictions as to where, how and for what purpose the funds are to be invested. Further, theAuthorised Firm may be restricted from commingling its own funds with the restricted investment account funds for purposes of investment. In addition, there may be other restrictions that the investment account holders may impose. In other words, the funds provided by holders ofRestricted PSIAs are managed by theAuthorised Firm which does not have the right to use or dispose of the investments except within the conditions of the contract.4. AnAuthorised Firms undertakingIslamic Financial Business is also exposed to fiduciary risk which arises where the terms of the contract between theAuthorised Firm and the investor are breached and where theAuthorised Firm does not act in compliance with Shari'a.5. AnAuthorised Firm is required to apply theCapital Requirements specified in chapters PIB 4 and PIB 5 to any other business it carries on.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM115/2012 (Made 15th October 2012). [VER5/12-12]IFR 5.4.5
(1) AnAuthorised Firm's Displaced Commercial Risk Capital Requirement is based on 35% of theCRCOM andMarket Risk capital requirement of assets funded byUnrestricted PSIA holders, and is calculated using the following formula:
PSIACOM = [PSIACOMcredit + PSIACOMmarket] × 35%.(2) PSIACOM is theDisplaced Commercial Risk Capital Requirement ;(3) PSIACOMcredit is theCredit Risk capital requirement for assets funded byUnrestricted PSIA holders and is calculated in accordance with Rules in part 3 of chapter 4 of PIB; and(4) PSIACOMmarket is theMarket Risk capital requirement for assets funded byUnrestricted PSIA holders and is calculated in accordance with Rules in PIB chapter 5.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM115/2012 (Made 15th October 2012). [VER5/12-12]Credit Risk and Counterparty Risk for Islamic Contracts
IFR 5.4.6
(1) AnAuthorised Firm Managing a PSIA , which is anUnrestricted PSIA , must calculate its PSIAComcredit in relation to allIslamic Contracts financed byUnrestricted PSIAs in the manner prescribed in this section.(2) AnAuthorised Firm must, when undertaking the calculation in (1), apply an appropriate risk weighting for the relevantIslamic Contract .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM115/2012 (Made 15th October 2012). [VER5/12-12]IFR 5.4.7 IFR 5.4.7
(1) In this section:(a) "E" represents theExposure determined by anAuthorised Firm as applicable to anIslamic Contract ; and(b) "CRW represents the risk weighting or capital charge assessed by anAuthorised Firm as appropriate to thatIslamic Contract .(2) Where anIslamic Contract is in theNon-Trading Book , anAuthorised Firm must determine the PSIACOMcredit for that contract by applying the following formula:
E × CRW × 8%.(3) Where anIslamic Contract is in theTrading Book , anAuthorised Firm must determine the PSIACOMcredit for that contract in accordance with the methodology in PIB A4.7 and PIB A4.8 as appropriate.(4) AnAuthorised Firm must calculate its PSIACOMcredit of all contracts by:(a) identifying allIslamic Contracts to which this section applies;(b) valuing the underlying investment or asset of each contract and reducing the value of any such investment or asset in the manner stipulated in Section 4.9 of chapter 4 of PIB, the result of which constitutes E for that contract;(c) determining the risk weighting or capital charge appropriate to each contract, which will constitute the CRW for that contract in accordance with Rules in Sections 4.10, 4.11 and 4.12 of chapter 4 of PIB;(d) applying the respective formula in IFR Rule 5.4.7(2) or (3) to determine of PSIACOMcredit in respect of each contract; and(e) summing the PSIACOMcredit of each contract to determine the PSIACOMcredit applicable to theAuthorised Firm .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM115/2012 (Made 15th October 2012). [VER5/12-12]
[Amended] DFSA RM210/2017 (Made 25 October 2017). [VER12/01-18]IFR 5.4.7 Guidance
1. The DFSA considers that thisGuidance will assist anAuthorised Firm in applying the appropriate risk weighting or capital charge to eachIslamic Contract for the purpose of IFR Rule 5.4.7. Accordingly, the DFSA expects anAuthorised Firm managingPSIAs , which areUnrestricted PSIAs to pay due regard to thisGuidance .2. The Rules in this section and thisGuidance are also relevant to anAuthorised Firm which invests in or holdsIslamic Contracts , when calculatingCRCOM forIslamic Contracts under PIB chapter 4.3. Table 2 contains Guidance on how anAuthorised Firm Managing a PSIA , which is anUnrestricted PSIA should apply risk weightings forIslamic Contracts in respect of calculating relevant E and CRW for its PSIACOMcredit component of the PSIACOM.Table 2
1.
Islamic Contract type2.
Underlying investment or asset3.
CRWBinding Murabaha for the Purchase Orderer (MPO) Asset with an Authorised Firm before purchase by theCounterparty Apply the appropriate percentage from the second column in the table in PIB Rule A4.6.5 Accounts receivable for the contract, i.e. amounts due from the Counterparty less any provision for doubtful debtsCRW in accordance with PIB chapter 4Murabaha and Non-binding Murabaha for the Purchase Orderer (MPO) Accounts receivable for the contract, i.e. amounts due from the Counterparty less any provision for doubtful debtsCRW in accordance with PIB chapter 4Mudaraba and Musharaka Where the underlying investment meets the requirements for inclusion in the Trading Book Market Risk Capital Requirement for the exposure associated with the underlying investment determined in accordance with PIB chapter 5Investment in commercial enterprise to undertake business ventures other than trading activities (or other than those which meet the requirements for inclusion in the Trading Book )CRW of 400% on the exposure Investment in real estate assets and other movable assets, using underlying Ijarah andMurabaha contractsCRW of the lessee for the underlying Ijarah contracts or the CRW of the counterparty of the underlying Murabaha contract, in accordance with PIB App4Ijarah/Ijarah Muntahia Bittamleek Asset with an Authorised Firm available for lease before purchase by theCounterparty — for both contracts with both binding or non-binding promise to leaseApply the appropriate percentage from the second column in the table in PIB Rule A4.6.5 Residential real estate where the lessee has the right to purchase property at the end of the lease and the lessor has a legally enforceable first charge over the property Apply the appropriate percentage in accordance with PIB Rule 4.12.17. Total estimated value of lease receivables for the whole duration of the Ijarah, less any recovery value of the leased asset CRW of Ijarah lessee, in accordance with PIB Section 4.12Full recourse Istisna'a — with or without parallelIstisna'a and limited / non-recourse
Istisna'a with/without parallel Istisna'aNet balance of the work-in-progress CRW of the Istisna'a buyer, in accordance with PIB Section 4.12Total amount receivable from the counterparty, pursuant to contract billings CRW of Istisna'a buyer, in accordance with PIB Section 4.12Salam and parallel Salam Value of the underlying asset receivable for the Salam contractCRW in accordance with PIB Section 4.12 Assets acquired 100% Balance in relevant accounts receivable CRW in accordance with PIB Section 4.12 Kefala The amount of the guarantee CRW in accordance with PIB Section 4.12 Sukuk held in theNon-Trading Book Receivables from the Sukuk structure, including the principal and any returns associated with it, arising from any of the following as underlying contracts:
Salam
Istisna'a
Ijarah
Murabaha
Mudaraba
Musharaka CRW applicable to underlying Ijarah ,Salam orMurabaha contracts, in accordance with PIB Section 4.12
If theSukuk provides recourse to the issuer, CRW applicable to the issuer or CRW applicable to underlying contracts of theSukuk is in accordance with PIB Section 4.12, whichever is higherUsufructs/services CRW applicable to underlying service provider or usufruct owner, in accordance with PIB Section 4.12. If the Sukuk provides recourse to the issuer, CRW applicable to the issuer or CRW applicable to underlying service provider or usufruct owner in accordance with PIB App 4, whichever is higherLeased assets The higher of CRW of the underlying leased assets and that of the issuer Investment agency The higher of CRW of the underlying assets and that of the issuer Muzara'a (share of produce of the land)Musaqa (share of produce of the trees)Mugarasa (share in the land and the trees)100% Mixture of tangible and intangible assets The higher of CRW of the underlying assets and that of the issuer Where the underlying investment meets the requirements for inclusion in the Trading Book Market Risk Capital Requirement for the exposure associated with the underlying investment determined in accordance with PIB chapter 5Bai' Bithaman Ajil Residential and commercial properties
Plant and equipment
Motor vehicles
Shares
LandCRW in accordance with PIB chapter 4 Arboun Where an Authorised Firm has made the purchase depositCRW in accordance with PIB chapter 4 Where an Authorised Firm has received the purchase depositNo CRW is applicable Where the contract would meet the requirements for inclusion in the Trading Book Market Risk Capital Requirement for the exposure associated with the underlying investment determined in accordance with PIB chapter 54. Where anIslamic Contract is not listed in Table 2, anAuthorised Firm should consult with the DFSA, on a case-by-case basis, to determine the:a. contract type and the underlying investments or assets to calculate the E; andb. appropriate risk weighting or the capital charge for such contract to calculate the CRW.5. In some cases, as stipulated in the relevant parts of column 3 of Table 2, the calculation of capital requirement should be carried out as prescribed in PIB Rule A4.6.5 and in accordance with PIB chapter 5.6. In determining the E of aBinding Murabaha for thePurchase Orderer (MPO), as per PIB Rule A4.6.5, E should equal the total acquisition cost of the asset (purchase price and other direct costs) less market value of the asset (net of any haircut) less any security deposit provided.7. In determining the E ofIjarah /Ijarah Munthia Bittamleek contract, as per PIB Rule A4.6.5, E should equal the total acquisition cost of the asset (purchase price and other direct costs) less the market value of the asset (net of any haircut), less anyArboun (earnest money deposit received from the potential lessee).8. In addition to paragraph 7 above, in the case of anIjarah Muntahia Bittamleek contract, the exposure may be reduced by the recovery value of the leased asset, only in cases where there is a reasonable basis to conclude that the leased asset can be repossessed and effectively redeployed as a leased asset to anotherCounterparty . This is important because the asset leased under theIjarah Muntahia Bittamleek contract is usually customised equipment or large pieces of equipment which are integrated with other assets of the lessee and hence are unsuitable for repossession and releasing to another lessee.9. In determining the E of anIstisna'a contract, the exposures arising from such a contract should not be netted off against exposures arising from aParallel Istisna'a contract entered into by anAuthorised Firm for procuring the underlying investment for theIstisna'a contract.10. In determining the E of aSalam contract, the exposures arising from such a contract should not be netted off against exposures arising from aParallel Salam contract entered into by anAuthorised Firm for procuring the underlying asset for theSalam contract.11. Off-balance sheet exposures for import or export financing contracts based onMurabaha , where the underlying goods or shipment are collateralised and insured, should attract a 20% CCF to anAuthorised Firm that issues or confirms the letter of credit.12. WhereMudaraba andMusharaka contracts are used to invest in commercial enterprise to undertake business ventures other than trading activities (or other than those which meet the requirements for inclusion in theTrading Book ), the E is measured as the amount invested in the commercial enterprise less any specific provisions. If there is a guarantee and such guarantor is not connected to the commercial enterprise, then the CRW for the guarantor will be applied for risk weighting for the amount of any such guarantee.13. In addition to the relevantRules prescribed in PIB chapter 4 and PIB App4, anAuthorised Firm may consider the following types of collateral as eligible collateral forCredit Risk management:a.Hamish Jiddiyyah (security deposit) only for agreements to purchase or lease preceded by a binding promise;b.Arboun where earnest money deposit held after a contract is established as collateral to guarantee contract performance; andc. inMudaraba investment in project finance, anAuthorised Firm may use the collateralisation of the progress payments made by the ultimate customers to mitigate the exposures of unsatisfactory performance by theMudarib .14. Where anAuthorised Firm places funds under aMudaraba contract, subject to a Shari'a compliant guarantee from a third party and such a guarantee relates only to theMudaraba capital, the capital amount should be risk-weighted at CRW of the guarantor provided that the CRW of that guarantor is lower than the CRW of theMudarib (as aCounterparty ). Otherwise, the CRW of theMudarib will apply.15. AnAuthorised Firm placing liquid funds with a central bank or another financial institution on a short-termMudaraba basis in order to obtain a return on those funds, may apply the CRW applicable to theMudarib (as aCounterparty ), provided theMudarib effectively treats the liquid funds placement as its liability, although normally such placements are not treated as liabilities of theMudarib .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM115/2012 (Made 15th October 2012). [VER5/12-12]Market Risk
IFR 5.4.8
An
Authorised Firm Managing a PSIA , which is anUnrestricted PSIA , must calculate its PSIACOMmarket in relation to all underlyingIslamic Contracts in the manner prescribed in PIB chapter 5, except as may be provided in Rules IFR 5.4.8 to IFR 5.4.17.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM115/2012 (Made 15th October 2012). [VER5/12-12]IFR 5.4.9
An
Authorised Firm must treatSukuk held in itsTrading Book as equity for the purpose of calculating itsEquity Risk Capital Requirement and determine the same in accordance with PIB Rule 5.5.2.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 5.4.10
Where investments are made using
Musharaka orMudaraba contracts with commodities as the underlying assets, anAuthorised Firm must calculate itsCommodities Risk Capital Requirement in accordance with PIB Rule 5.7.2.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 5.4.11
An
Authorised Firm which is exposed to the risk of foreign currencies and gold under anyIslamic Contract , must calculate itsForeign Exchange Risk Capital Requirement in accordance with PIB Rule 5.6.2.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 5.4.12
An
Authorised Firm which is exposed to commodities including precious metals but excluding gold under anyIslamic Contract , must calculate itsCommodities Risk Capital Requirement in accordance with PIB Rule 5.7.2.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 5.4.13
(1) Commodities held by anAuthorised Firm for selling or leasing when executing aMurabaha , non-binding MPO,Salam orParallel Salam Contract must be included in the calculation of itsCommodities Risk Capital Requirement .(2) Where anAuthorised Firm executesSalam and parallelSalam contracts, the resultant long and short positions may be set off for calculating the net open position, provided that the positions are in the same commodity, regardless of how itsCommodities Risk Capital Requirement is calculated.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 5.4.14
Where an
Authorised Firm executesMusharaka orMudaraba contracts for investing in entities or investment vehicles that trade in foreign exchange, equities or commodities, it must include the relevant underlying assets in the calculation of itsMarket Risk Capital Requirement in accordance with PIB chapter 5.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]Concentration Risk
IFR 5.4.14 Guidance
1. This section sets specificLarge Exposure limits for assets financed byPSIAs , which areUnrestricted PSIAs . The DFSA uses these limits to provide constraints on the amount ofConcentration Risk to which anAuthorised Firm is subject in respect of itsPSIA holdings. In assessingPSIA Large Exposures , anAuthorised Firms may take advantage of the exemptions and partial exemptions set out in PIB section A4.11.2. AnAuthorised Firm has aLarge Exposure where itsPSIA holders' creditExposure to a singleCounterparty or issuer, or group ofClosely Related orConnected Counterparties , is large in relation to theAuthorised Firm's Capital Resources . WhereExposure to aCounterparty or issuer is large,PSIA holders risk a large loss should theCounterparty default.3.Exposures arising from assets that are financed by anAuthorised Firm's own funds are dealt with in PIB section 4.15.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM115/2012 (Made 15th October 2012). [VER5/12-12]Exposure Limits
IFR 5.4.15 IFR 5.4.15
An
Authorised Firm Managing a PSIA , which is anUnrestricted PSIA , must not have anExposure to aCounterparty or to a group ofClosely Related Counterparties or to a group ofConnected Counterparties that exceeds any one of the following percentages of itsCapital Resources :(a) 25% if financed by itsCapital Resources orUnrestricted PSIAs ; or(b) 40% if financed by the total of its ownCapital Resources and,Unrestricted PSIAs .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM115/2012 (Made 15th October 2012). [VER5/12-12]IFR 5.4.15 Guidance
In accordance with PIB section 4.15, the aggregate of an
Authorised Firm's Exposure to aCounterparty or to a group ofClosely Related Counterparties may not exceed 25% of theAuthorised Firm's Capital Resources .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM115/2012 (Made 15th October 2012). [VER5/12-12]IFR 5.4.16
The sum of an
Authorised Firm's non-exemptLarge Exposures must not exceed 800% of its Capital Resources forExposures funded by theAuthorised Firm's Capital Resources andUnrestricted PSIAs .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM115/2012 (Made 15th October 2012). [VER5/12-12]IFR 5.4.17
An
Authorised Firm must:(a) monitor and control itsExposures funded byPSIAs , which areUnrestricted PSIAs , on a daily basis to ensure they remain within the concentration risk limits specified in IFR Rule 5.4.15; and(b) if a breach occurs, notify the DFSA immediately and confirm it in writing.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM115/2012 (Made 15th October 2012). [VER5/12-12]IFR 6 IFR 6 Islamic Collective Investment Funds
IFR 6 Guidance
This chapter contains additional requirements that apply to a
Collective Investment Fund operated or held out as being operated as anIslamic Fund . ACollective Investment Fund is defined in Article 11 of the Collective Investment Law 2010 (the Law). The definition in Article 11 of the Law is very wide and can capture some Islamic financial activities. However, under Article 12 of the Law, the DFSA can make Rules excluding certain arrangements or types of arrangements from constituting aFund . Certain types ofIslamic Financial Business are not regulated asCollective Investment Funds due to express exclusions provided. KeyIslamic Financial Business related exclusions under the collective investment regime areManaging Insurance , participation rights evidenced bySukuk certificates and managingPSIAs .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]IFR 6.1 IFR 6.1 Application
IFR 6.1.1 IFR 6.1.1
(1) This section applies in the case of aDomestic Fund :(a) which is anIslamic Fund , to itsFund Manager and where appointed, itsTrustee ;(b) which is anUmbrella Fund with one or more IslamicSub-Funds , to itsFund Manager and where appointed, itsTrustee in respect of thoseSub-Funds; or (c) which is an Islamic Fund on a Fund Platform, to the Fund Manager using the Fund Platform, in respect of that Fund.(2) The requirements that apply to a conventionalFund under the Collective Investment Law 2010 and CIR apply equally to anIslamic Fund , except as otherwise provided in this chapter.(3) The requirements in MKT chapter 6 that apply to a conventionalListed Fund apply equally to anIslamic Fund , if it is or is to be aListed Fund , except as otherwise provided in this chapter.(4) In this chapter, except where otherwise provided, any reference to aFund is to anIslamic Fund, to an IslamicSub-Fund of anUmbrella Fund, or to an Islamic Fund on a Fund Platform, as the case may be and any reference to aFund Manager is a reference to aFund Manager of such aFund .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]
[Amended] DFSA RM272/2010 (Made 11th July 2010). [VER2/07-10]
[Amended] DFSA RM220/2018 (Made 22nd February 2018). [VER13/12-18]
[Amended] DFSA RMI249/2019 (Made 18th December 2019). [VER14/12-19]IFR 6.1.1 Guidance
1. While the CIR module contains the key requirements relating to the management and operation of conventionalCollective Investment Funds , this module sets out the additional requirements that apply where such aFund is managed or held out as being managed as anIslamic Fund . There are other requirements that applying to such firms which are found in other modules of the DFSA rulebook, such as the GEN module, COB module and PIB module.2. While section 3 contains the requirements that apply toAuthorised Firms which areFund Managers ofCollective Investment Funds , the requirements in this section mainly focuses on Shari'a compliance related requirements that apply at theFund level. For example, while the systems and controls required under IFR section 3.3 relate to the systems and controls that a firm must have in order to comply with its Shari'a obligations, IFR Rule 6.1.3 sets out systems and controls that must be established and maintained at theFund level.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]Systems and Controls
IFR 6.1.2 IFR 6.1.2
(1) TheFund Manager of aFund must establish and maintain systems and controls which ensure that its management of theFund and theFund Property is Shari'a compliant.(2) AFund Manager may, where it is practicable to do so, include the systems and controls required under (1) within those it is required to establish and maintain pursuant to IFR Rule 3.3.1.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]IFR 6.1.2 Guidance
1. Article 38 of the Collective Investment Law 2010 requires theFund Manager to establish and maintain systems and controls, including, but not limited, to financial and risk controls to ensure sound management of theFund in accordance with theFund's Constitution and its most recentProspectus , taking due account of the nature, scale and complexity of theFund's investments and operations.2. IFR Rule 3.3.1 requires aFund Manager ofIslamic Funds to establish and maintain systems and controls to ensure its Shari'a compliance.[Added] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]Fund's Constitutional Documents
IFR 6.1.3 IFR 6.1.3
(1) TheFund Manager of aDomestic Fund that is aPublic Fund must ensure that itsFund's Constitution andProspectus are, and remain, approved by theFund's Shari'a Supervisory Board .(2) TheFund Manager of anExempt Fund must ensure that theFund 'sConstitution andProspectus are, and remain, approved by theFund Manager 'sShari'a Supervisory Board .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]
[Amended] DFSA RM139/2014 (Made 21st August 2014). [VER8/06-14]IFR 6.1.3 Guidance
See Guidance note 3 under IFR Rule 6.2.1.
[Added] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]Islamic Financial Business Policy and Procedures Manual
Guidance
A
Fund Manager may, instead of having a separateIslamic Financial Business policy and procedures manual both at the firm level and at theFund level, maintain a singleIslamic Financial Business policy and procedures manual for the firm and theFunds it manages.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]IFR 6.1.4
The
Fund Manager of aFund must implement and maintain anIslamic Financial Business policy and procedures manual for theFund which addresses the following matters:(a) the manner in which the compliance function will be undertaken, in respect of Shari'a compliance;(b) the manner in which theShari'a Supervisory Board will oversee and advise in regard to theIslamic Financial Business conducted by theFund Manager ;(c) the manner in whichShari'a Supervisory Board fatwas, rulings and guidelines will be recorded, disseminated and implemented and the internal Shari'a review undertaken;(d) the manner in which disputes between theShari'a Supervisory Board and theFund Manager in respect of Shari'a compliance will be addressed;(e) the process for approving those internal systems and controls which are in place to ensure not only that theIslamic Financial Business is carried out in compliance with Shari'a, but that information is disseminated toUnitholders in an appropriate manner; and(f) the manner in which conflicts of interest will be identified and managed, including as prescribed in IFR Rule 6.2.4.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]IFR 6.2 IFR 6.2 Shari'a Supervisory Board for an Islamic Fund
IFR 6.2.1 IFR 6.2.1
(1) AFund Manager of aDomestic Fund that is aPublic Fund must, subject to (3), appoint aShari'a Supervisory Board to itsFund that meets the following requirements:(a) theShari'a Supervisory Board has at least three members;(b) the members appointed to theShari'a Supervisory Board are competent to perform their functions asShari'a Supervisory Board members of theFund ;(c) any appointments, dismissals or changes in respect of members of theShari'a Supervisory Board are approved by theGoverning Body of theFund Manager ; and(d) no member of theShari'a Supervisory Board is a director orController of the Fund or itsFund Manager .(2) AFund Manager may comply with the requirement in (1) by appointing to theFund the sameShari'a Supervisory Board as it has appointed to the firm in accordance with IFR Rule 3.5.1, provided the requirements in (1) are also met.(3) AFund Manager is not required to comply with the requirement in (1) where it relies, for the purposes of making investments for theFund , on a widely accepted Shari'a screening process such as investing in securities included in, or recognised by reference to, an Islamic index, sukuk, or treasury instruments issued by a Shari'a compliant financial services provider regulated by aFinancial Services Regulator .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]
[Amended] DFSA RM139/2014 (Made 21st August 2014). [VER8/06-14]IFR 6.2.1 Guidance
1. In appointing aShari'a Supervisory Board for the purposes of IFR Rule 6.2.1(1), theFund Manager should consider the previous experience and qualifications of the proposedShari'a Supervisory Board members to assess whether the proposedShari'a Supervisory Board member is competent to advise on the activities undertaken by theIslamic Fund . If theFund Manager is appointing the sameShari'a Supervisory Board as it has appointed to the firm pursuant to IFR Rule 6.2.1(2), theFund Manager should still consider whether the requirements in both Rule IFR 3.5.1(1) and IFR 6.2.1(1) are met in respect of that board.2. If theFund Manager is relying on Shari'a screening methodologies such as the Dow Jones Shari'a index, such screening is generally regarded as widely accepted and accessible. However, if less widely known methodologies are used, theFund Manager should be able, upon request by theDFSA , to demonstrate to the satisfaction of theDFSA the grounds on which it considers the particular methodology used to be acceptable and reliable.3. Although theFund Managers ofExempt Funds andQualified Investor Funds are not subject to the requirement for the appointment of aShari'a Supervisory Board for such a Fund, they would need to ensure that theExempt Funds orQualified Investor Funds they manage continue to meet the applicable Shari'a requirements applicable to theFund . They may use a member of theShari'a Supervisory Board appointed at the firm level for the purposes of ascertaining compliance with the Shari'a requirements. The manner in which they demonstrate to theUnitholder of theExempt Fund orQualified Investor Fund as to how they achieve such compliance is a matter left to negotiation (i.e. subject to contractual terms) between theUnitholders and theFund Manager .4. An External Fund Manager may not be able to take advantage of IFR 6.2.1(2), unless it has a Shari'a Supervisory Board appointed at the firm level. In contrast the Fund Manager of an External Fund will be able to use itsShari'a Supervisory Board to meet theShari'a Supervisory Board requirement relating to theFund as set out in IFR 6.2.1(2).Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]
[Amended] DFSA RM139/2014 (Made 21st August 2014). [VER8/06-14]IFR 6.2.2
(1) Subject to (2), theFund Manager of aFund must document theFund's policy in relation to:(a) how appointments, dismissals or changes will be made to theShari'a Supervisory Board ;(b) the process through which the suitability ofShari'a Supervisory Board members will be considered; and(c) the remuneration of the members of theShari'a Supervisory Board .(2) If theFund Manager , pursuant to IFR Rule 6.2.1(2), appoints to theFund the same Shari'a Supervisory Board it has appointed to the firm, the documents required under IFR Rule 6.2.2(1) must be included in or otherwise form part of the records required under IFR Rule 3.5.2.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]IFR 6.2.3 IFR 6.2.3
(1) Subject to (2), theFund Manager of aFund must establish and retain, for six years, records of:(a) its assessment of the competency of theShari'a Supervisory Board members;(b) the agreed terms of engagement of each member of theShari'a Supervisory Board ; and(2) If theFund Manager , pursuant to IFR Rule 6.2.1(2), appoints to theFund the sameShari'a Supervisory Board it has appointed to the firm, the records required under IFR Rule 6.2.3(1) must be included in or otherwise form part of the records required under IFR Rule 3.5.3.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]IFR 6.2.3 Guidance
1. The records of the assessment of competency ofShari'a Supervisory Board members should clearly indicate, at least:a. the factors that have been taken into account when making the assessment of competency;b. the qualifications and experience of theShari'a Supervisory Board members;c. the basis upon which theFund Manager has deemed that the proposedShari'a Supervisory Board member is suitable; andd. details of any otherShari'a Supervisory Boards of which the proposedShari'a Supervisory Board member is, or has been, a member.2. If theFund Manager is relying on IFR Rule 6.2.1(2), then the due diligence process, and the records maintained under Rules IFR 3.5.2 and IFR 3.5.3, should be augmented with the matters specified under IFR Rule 6.2.1(1).Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]IFR 6.2.4
(1) TheIslamic Financial Business policy and procedures manual must provide that:(a) a member of theShari'a Supervisory Board is obliged to notify theFund Manager of any conflict of interest that such member may have with respect to theFund or theFund Manager , and if appointed, or in the case of anInvestment Trust , theTrustee ; and(b) theFund Manager will take appropriate steps to manage any such conflict of interest so that theIslamic Financial Business is carried out appropriately and in compliance with Shari'a, the interest of aUnitholder is not adversely affected and allUnitholders are fairly treated and not prejudiced by any such interests.(2) If aFund Manager is unable to manage a conflict of interest as provided above, it must dismiss or replace the member as appropriate.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]IFR 6.2.5
The
Fund Manager of aFund must provide theDFSA at its request with information on the qualifications, skills, experience and independence of the individuals who are appointed or proposed to be approved as members of theShari'a Supervisory Board .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]IFR 6.2.6
(1) TheFund Manager of aFund must take reasonable steps to ensure that theFund Manager and theFund's Employees :(a) provide such assistance as theShari'a Supervisory Board reasonably requires to discharge its duties;(b) give theShari'a Supervisory Board right of access at all reasonable times to relevant records and information;(c) do not interfere with theShari'a Supervisory Board's ability to discharge its duties; and(d) do not provide false or misleading information to theShari'a Supervisory Board .(2) If appointed, theTrustee must also take reasonable steps to ensure that itsEmployees comply with (1)(a)–(d).Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]IFR 6.3 IFR 6.3 External Shari'a reviews and periodic reports
IFR 6.3.1
A
Fund Manager of aDomestic Fund that is aPublic Fund , other than aFund relying on the exemption in IFR Rule 6.2.1(3), must ensure that all Shari'a reviews of theFund are undertaken by theShari'a Supervisory Board in accordance with AAOIFI GSIFI No 2.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]
[Amended] DFSA RM139/2014 (Made 21st August 2014). [VER8/06-14]IFR 6.3.2 IFR 6.3.2
(1) In the case of aDomestic Fund that is aPublic Fund other than aFund relying on the exemptions in IFR Rule 6.2.1(3), theFund Manager must commission an interim and an annual report relating to theFund operations from theShari'a Supervisory Board which complies with AAOIFI GSIFI No 1.(2) TheFund Manager must deliver a copy of the annual interim report referred to in (1) to theUnitholders in accordance with CIR Rule 9.4.4 and must include the report of theShari'a Supervisory Board in the annual report required under CIR Rule 9.4.5.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]
Amended in accordance with Notice of Amendments to Legislation April 2011 [VER3/02-11]
[Amended] DFSA RM139/2014 (Made 21st August 2014). [VER8/06-14]IFR 6.3.2 Guidance
Although the
Fund Managers ofExempt Funds andQualified Investor Funds are not subject to the Shari'a review process required under IFR section 6.3, they would need to ensure that theExempt Fund orQualified Investor Fund continues to meet the Shari'a requirements, particularly for the purposes of their annual and interim reports, which are required to be prepared under CIR section 9.4. However, the manner in which they demonstrate to theUnitholders of theFund how they achieve such compliance is a matter left to negotiation (i.e. subject to contractual terms) between theUnitholders and theFund Manager .[Added] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]
[Amended] DFSA RM139/2014 (Made 21st August 2014). [VER8/06-14]IFR 6.4 IFR 6.4 Internal Shari'a Review
IFR 6.4.1 IFR 6.4.1
(1) TheFund Manager of aDomestic Fund that is aPublic Fund must perform an internal Shari'a review to assess the extent to which theFund complies with fatwas, rulings and guidelines issued by theFund's Shari'a Supervisory Board .(2) TheFund Manager must perform the internal Shari'a review in accordance with AAOIFI GSIFI No. 3.(3) TheFund Manager of anUmbrella Fund which has anIslamic Sub-Fund must, to the extent possible, perform the internal Shari'a review in accordance with AAOIFI GSIFI No. 3 and must document the manner in which it will conduct that part of the internal Shari'a review that is not conducted in accordance with AAOIFI GSIFI No. 3.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]
[Amended] DFSA RM139/2014 (Made 21st August 2014). [VER8/06-14]IFR 6.4.1 Guidance
1. Although theFund Managers ofExempt Funds andQualified Investor Funds are not subject to the specific internal Shari'a requirements under section 6.4, they would need to ensure that theExempt Fund orQualified Investor Fund continues to meet the applicable Shari'a requirements. However, the manner in which they demonstrate to theUnitholders of theFund how they achieve such compliance is a matter left to negotiation (i.e. subject to contractual terms) between theUnitholders and theFund Manager .2. GSIFI No. (3) (Internal Shari'a Review) establishes standards and provides guidance on the internal Shari'a review in institutions that conduct business in conformity with Shari'a. The standard covers the following:a. objectives;b. internalShari'a Review ;c. independence and objectivity;d. professional proficiency;e. scope of work;f. performance of the internalShari'a Review work;g. management of the internalShari'a Review ;h. quality assurance; andi. elements of an effective internalShari'a Review control system.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]
[Amended] DFSA RM139/2014 (Made 21st August 2014). [VER8/06-14]IFR 6.4.2 IFR 6.4.2
The
Fund Manager must ensure that the internal Shari'a review referred to in this section is performed by the internal audit function of theFund or the compliance function of theFund and that the individuals or departments involved in performing the review are competent and sufficiently independent to assess compliance with Shari'a.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]IFR 6.4.2 Guidance
For the purposes of assessing competency of personnel or departments which perform the internal Shari'a review,
Fund Manager should consult AAOIFI GSIFI No. 3 paragraphs 9 to 16 inclusive.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]IFR 6.4.2 [Deleted]
[Deleted] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]IFR 6.4.3 [Deleted]
[Deleted] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]IFR 6.5 IFR 6.5 Additional Disclosure in a Prospectus of an Islamic Fund which is a Public Fund
Amended in accordance with Notice of Amendments to Legislation April 2011 [VER3/02-11]IFR 6.5 Guidance
Chapter 14 and in particular Rule 14.3.1 of the CIR module set out the
Public Fund Prospectus requirements. In addition to complying with those requirements as applicable to the particularFund , theFund Manager of anIslamic Fund that is aPublic Fund must comply with the additional requirements set out in this section. If anIslamic Fund is to be aListed Fund , it must comply with chapter 6 of MKT and also comply with the additional requirements in this chapter.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]
[Amended] DFSA RM220/2018 (Made 22nd February 2018). [VER13/12-18]IFR 6.5.1 IFR 6.5.1
A
Fund Manager of anIslamic Fund which is aPublic Fund must state in theFund's Prospectus :(a) that all the operations in relation to theFund will be conducted in accordance with Shari'a;(b) if the Fund has aShari'a Supervisory Board appointed to it, the names of the members of theShari'a Supervisory Board and their qualifications and experience and, whether or not theFund Manager's Shari'a Supervisory Board is appointed to theFund pursuant to IFR Rule 6.2.1(2);(c) if theFund does not have aShari'a Supervisory Board appointed to it pursuant to IFR Rule 6.2.1(3), what widely acceptable screening methodologies are used by theFund to ensure Shari'a compliance with respect to investments made for theFund , and the board that has approved them;(d) if applicable, the manner and frequency of Shari'a reviews;(e) how earnings prohibited by Shari'a will be disposed of;(f) whether Zakah is the responsibility of theFund or the responsibility of theUnitholders ;(g) the additional disclosure, if applicable, prescribed under IFR section A1.1 of App 1; and(h) in place of the disclaimer required under CIR App 7 for conventionalFunds , a prominent disclaimer in bold, on the front page of theProspectus , as follows:
"TheDFSA does not accept responsibility for the content of the information included in theProspectus , including the accuracy or completeness of such information. The liability for the content of theProspectus lies with theIssuer of theProspectus and otherPersons , such asExperts , whose opinions are included in theProspectus with their consent. TheDFSA has also not assessed the suitability of theSecurities to which theProspectus relates to any particular investor or type of investor and has not determined whether they are Shari'a compliant. If you do not understand the contents of thisProspectus or are unsure whether theSecurities to which theProspectus relates are suitable for your individual investment objectives and circumstances, you should consult an authorised financial advisor."(i) If theIslamic Fund is not aListed Fund , in addition to the disclaimer specified in (h), an additional statement that:
"TheSecurities to which thisProspectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of suchSecurities should conduct their own due diligence."Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]
[Amended] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]
[Amended] DFSA RM220/2018 (Made 22nd February 2018). [VER13/12-18]IFR 6.5.1 Guidance
1. AFund Manager should consider providing additional information to support the statement under IFR Rule 6.5.1 (a) as indicated in 2 and 3 below.2. TheFund Manager should provide sufficient details setting out the basis upon which theFund has been approved and certified as Shari'a compliant by itsShari'a Supervisory Board . Such details should include the basis of the underlying principles, i.e. the Fatwas or rulings, including reference to any relevant Ijtihad, Ijma, Qiyas or other. Where applicable, reference should be made to any Islamic indices to be used. In addition, where applicable, the screening process and any filters used should be identified.3. TheFund Manager should set out each of the key features of theFund and explain the rationale for determining why each of these features are considered Shari'a compliant by theFund's Shari'a Supervisory Board .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]
[Amended] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 6.6 IFR 6.6 [Deleted]
[Deleted] DFSA RM139/2014 (Made 21st August 2014). [VER8/06-14]IFR 6.6 [Deleted]
[Deleted] DFSA RM139/2014 (Made 21st August 2014). [VER8/06-14]IFR 6.6.1 [Deleted]
[Deleted] DFSA RM139/2014 (Made 21st August 2014). [VER8/06-14]IFR 6.7 IFR 6.7 Investments in Other Funds
IFR 6.7.1
(1) AnIslamic Fund which is aPublic Fund may invest inUnits of anotherFund only where theFund Manager has taken reasonable care to determine that:(a) the otherFund is the subject of an independent annual audit conducted in accordance with relevant IFRS or other standards as applicable;(b) the otherFund has mechanisms in place to enableUnitholders to redeem theirUnits within a reasonable time; and(c) the otherFund is prohibited from having more than 20% of its value in theUnits ofFunds .(2) TheFund Manager must also have ascertained that there is a proper and disclosed basis for asset valuation and the pricing before investing inUnits in the otherFund .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]
[Amended] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 6.8 IFR 6.8 [Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 6.8.1 IFR 6.8.1 [Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12][Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 6.9 IFR 6.9 [Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 6.9.1 IFR 6.9.1 [Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12][Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 6.10 IFR 6.10 Periodic Reports of an Islamic Fund
IFR 6.10 Guidance
CIR Chapter 9 of CIR sets out the periodic reports and related requirements. These are additional requirements that apply to
Islamic Funds .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 6.10.1
In addition to the matters specified in CIR section 9.4, an annual report of an
Islamic Fund , other than aFund which is anUmbrella Fund , must contain the report specified in IFR Rule 6.3.2(2).Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]IFR 6.11 IFR 6.11 Islamic Real Estate Investment Trusts (Islamic REITs)
IFR 6.11.1
(1) AFund Manager must ensure that it does not call, or otherwise hold out, aFund as being anIslamic Real Estate Investment Trust or as being anIslamic REIT unless it is aPublic Property Fund which is constituted in accordance with (2).(2) AnIslamic REIT is aPublic Property Fund which:(a) is constituted either as anInvestment Company or as anInvestment Trust ;(b) is primarily aimed at investments in income generatingReal Property which complies with Shari'a principles; and(c) distributes to theUnitholders at least 80% of its audited annual net income.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]IFR 6.11.2
(1) AFund Manager of anIslamic REIT must ensure that it distributes to theUnitholders as dividends each year an amount not less than 80% of its audited annual net income.(2) ThePersons providing oversight functions in respect of theFund must determine if any;(a) revaluation surplus credited to income, or(b) gains on disposal ofReal Property ,shall form part of net income for distribution toUnitholders .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]IFR 6.11.3
Where an
Islamic REIT holds anyReal Property via one or moreSpecial Purpose Vehicles , theFund Manager must ensure that eachSpecial Purpose Vehicle distributes to theFund all of its income as permitted by the laws and regulations of the jurisdiction where theSpecial Purpose Vehicle is established.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]IFR 6.11.4 IFR 6.11.4
(1) AFund Manager of anIslamic REIT must ensure, subject to (2), that any investment made in respect of property under development whether on its own or in a joint venture is undertaken only where theREIT intends to hold the developed property upon completion.(2) The total contract value of the property under development in (1) must not exceed 30% of the net asset value of theFund Property of theIslamic REIT .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]IFR 6.11.4 Guidance
For the purposes of this Rule, the DFSA would not consider property development activities to include refurbishment, retrofitting and renovation.
Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 6.11.5 IFR 6.11.5
A
Fund Manager of anIslamic REIT may borrow either directly or through itsSpecial Purpose Vehicle up to 65% of the gross asset value of theFund provided that such borrowings are Shari'a compliant.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]
[Amended] RM160/2015 (Made 9th December 2015). [VER9/02-16]
[Amended] DFSA RMI274/2020 (Made 26th February 2020). [VER15/04-20]IFR 6.11.5 Guidance
1. The gross asset value of aFund should be calculated as the total value of theFund Property based on the most recent valuation under CIR Rule 8.4.1(1), but without making the deductions provided for in the other paragraphs of that Rule.2. As there are no specific risks that arise by virtue of aFund being anIslamic Fund , the prudential requirements that apply to a Category 3 firm as set out in the PIB module apply to suchFund Managers . However, if the underlying assets of theFund are invested in financial products or instruments that are Islamic and have certain features which would raise any prudential risks, it is the responsibility of theFund Manager to address such risks. The DFSA would provide any additional clarifications regarding such matters upon request.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]
[Amended] RM160/2015 (Made 9th December 2015). [VER9/02-16]IFR 6.12 IFR 6.12 Islamic Money Market Funds
IFR 6.12.1 IFR 6.12.1
CIR Rules 13.8.1(2) and (3) and 13.8.2 apply to aFund Manager of anIslamic Fund that is aMoney Market Fund as if a reference to:(a) aDeposit or aDebenture includes an Islamic financial instrument or product with similar economic characteristics to aDeposit or aDebenture ; and(b) an interest rate reset date is, in relation to an Islamic financial instrument or product, a reference to the date on which the rate of profit of return for that instrument or product is reset.[Added] RM160/2015 (Made 9th December 2015). [VER9/02-16]IFR 6.12.1 Guidance
A
Fund Manager of an IslamicMoney Market Fund must comply with the overriding obligation in CIR Rule 13.8.1 to ensure that theFund's investment strategy is consistent with the investment objectives of aMoney Market Fund as set out in CIR Rule 3.1.11. It must also comply with other applicable requirements forMoney Market Funds such as the requirement to include a warning in the Fund Prospectus under CIR Rule 14.4.7.[Added] RM160/2015 (Made 9th December 2015). [VER9/02-16]IFR 6.13 IFR 6.13 Islamic Exchange Traded Funds ("ETFs")
IFR 6.13.1 IFR 6.13.1
(1) A
Fund is anIslamic Exchange Traded Fund orIslamic ETF if it:(a) is constituted as an Open-ended Public Fund;(b) has itsUnits available for trading throughout the day on an exchange that meets the criteria in (2);(c) has at least one market maker (Authorised Participant ) who:
(i) purchases and redeems 'creationUnits ' of theFund from theFund Manager ; and(ii) is prepared to buy and sellUnits of theFund throughout the day on the relevant exchange; and(d) meets the Shari'a related requirements in this chapter.(2) An exchange meets the requirement in (1)(b) if it is:
(a) operated by anAuthorised Market Institution ;(b) regulated by aFinancial Services Regulator in a jurisdiction that is a signatory to the IOSCO Multilateral Memorandum of Understanding for sharing information; or(c) regulated by aFinancial Services Regulator in a jurisdiction which has entered into a bilateral memorandum of understanding with the DFSA for sharing information.(3) A
Fund Manager , or anyPerson making anOffer of aUnit ofFund or otherwise marketing aFund , must not describe theFund in its offer document or marketing material as an "Exchange Traded Fund " (or "ETF ") or otherwise hold out theFund as being anExchange Traded Fund orETF , unless theFund meets the criteria in (2).(4) The
Fund Manager of anIslamic ETF must ensure that theFund has an investment objective and strategy, which is to track the performance of a specified index or benchmark as specified in itsProspectus .Derived from DFSA RM220/2018 (Made 22nd February 2018). [VER13/12-18]IFR 6.13.1 Guidance
A
Fund Manager of anIslamic ETF is required to comply with the requirements applicable to a conventionalFund so far as they apply to thatETF – see IFR Rule 6.1.1.(2).Derived from DFSA RM220/2018 (Made 22nd February 2018). [VER13/12-18]IFR 7 IFR 7 Offers of Islamic Securities
IFR 7.1 IFR 7.1 Application
IFR 7.1.1 IFR 7.1.1
(1) Subject to (2), this chapter applies to anyPerson whoOffers Islamic Securities in or from the DIFC.(2) APerson makingOffers of Islamic Securities in or from the DIFC must comply with the requirements in the Markets Law 2012 and the MKT module except to the extent otherwise provided in this chapter.(3)Islamic Securities , for the purposes of this chapter, do not includeUnits of anIslamic Fund .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM94/2012 (Made 14th June 2012). [VER4/06-12]
[Amended] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 7.1.1 Guidance
1. The issue ofSecurities is not an activity that constitutes aFinancial Service . Therefore, the activities such as the issue ofShares ,Debentures (Sukuks ) orWarrants do not attract theFinancial Services prohibitions in the Regulatory Law 2004. However, theOffer ofSecurities is an activity to which the Markets Law 2012 and the MKT module apply. Under the Markets Law 2012, aPerson making anOffer ofSecurities in or from the DIFC is subject to numerous disclosure requirements, unless exempt.2.Offers of Islamic Securities which are Units of a Fund are not subject to the requirements in this section because the Collective Investment Law 2010 and CIR module provide for such activities to be regulated. IFR Chapter 6 of this module sets out additional requirements that apply to theFund Manager whenOffering Units of an Islamic Fund .3. The definition of the termIslamic Securities is in the GLO module.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]
[Amended] DFSA RM94/2012 (Made 14th June 2012). [VER4/06-12]
[Amended] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 7.2 IFR 7.2 Contents of a Prospectus for Islamic Securities
IFR 7.2.1 [Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 7.2.2 [Deleted]
[Deleted] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 7.2.3
Where the relevant
Securities are held out as being in accordance with Shari'a, theProspectus relating to thoseSecurities must include:(a) details of the members of theShari'a Supervisory Board appointed by theIssuer who have undertaken the review of the relevantSecurities ;(b) details of the qualifications and experience of each of thoseShari'a Supervisory Board members;(c) in the case of issuance ofSukuks :(i) the opinion of theShari'a Supervisory Board in respect of whether theSecurities are Shari'a compliant;(ii) a description of the structure of the underlying transaction and an explanation of the flow of funds; and(iii) where applicable, the disclosures required by theShari'a Standards published from time to time by AAOIFI in respect of investmentSukuks ; and(d) instead of the statement required under MKT Rule 2.5.1(3)(d), a prominent disclaimer in bold, on the front page of thisProspectus as follows:
"TheDFSA does not accept any responsibility for the content of the information included in theProspectus , including the accuracy or completeness of such information. The liability for the content of theProspectus lies with the issuer of theProspectus and other Persons, such as Experts, whose opinions are included in theProspectus with their consent. TheDFSA has also not assessed the suitability of the Securities to which theProspectus relates to any particular investor or type of investor and has not determined whether they are Shari'a compliant. If you do not understand the contents of thisProspectus or are unsure whether the Securities to which theProspectus relates are suitable for your individual investment objectives and circumstances, you should consult an authorised financial advisor."Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM94/2012 (Made 14th June 2012). [VER4/06-12]
[Amended] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]IFR 7.3 IFR 7.3 Continuing Disclosure Relating to Islamic Securities
IFR 7.3.1
The
Reporting Entity responsible forIslamic Securities must, without delay, disclose to the markets and the DFSA details of any changes to the membership of itsShari'a Supervisory Board , the identity, qualifications and experience of any newShari'a Supervisory Board members and the identity of anyShari'a Supervisory Board members who resign or are dismissed.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 7.3.2
A
Listed Entity withIslamic Securities admitted to theOfficial List of Securities must make the required market disclosures in accordance with the requirements under section A2.1 and comply with the other continuing obligations under section A2.2.Derived from DFSA RM119/2013 (Made 13th June 2013). [VER7/07-13]IFR 7.4 IFR 7.4 [Deleted]
[Deleted] DFSA RM169/2016 (Made 10th February 2016). [VER10/04-16]IFR 7.4.1 [Deleted]
[Deleted] DFSA RM169/2016 (Made 10th February 2016). [VER10/04-16]IFR 8 IFR 8 Takaful Insurance
IFR 8.1 IFR 8.1 Application
IFR 8.1.1
(1) This chapter applies to aPerson who carries on or holds out as carrying onInsurance Business orInsurance Intermediation asTakaful Insurance .(2) In addition to the requirements in this chapter, the requirements that apply to conventionalInsurance Business orInsurance Intermediation continue to apply to such aPerson .Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 8.2 IFR 8.2 Specific Disclosure for Takaful Insurance
IFR 8.2.1 IFR 8.2.1
Where an
Insurer or anInsurance Intermediary conductsTakaful Insurance with aRetail Client , the disclosure for the purposes of COB section 7.7 must include:(a) the nature of the contracts between theTakaful fund and the operator;(b) the method of calculation of any fees or share of profits paid from theTakaful fund to the operator;(c) the basis on which any surpluses in theTakaful fund will be shared; and(d) any circumstances in which additional contributions to theTakaful fund may be required.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR 8.2.1 Guidance
1. Firms conductingInsurance Business comprisingTakaful must comply with the requirements in PIN.Takaful related prudential requirements are not included in this module because of the closely integrated nature of such requirements with the requirements that apply to conventional insurance.2. Note that structures ofTakaful Insurers (including reinsurers) vary, as do the Islamic contracts governing their business. As the DFSA has not as yet thought it appropriate to limit the permissible structures and contracts, the DFSA is willing to consider modifications to its Rules to apply the most appropriate prudential regime to aTakaful entity. For manyTakaful companies, this is likely to involve capital tests at the level of the Takaful participants' fund or funds, and for the firm as a whole.Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR App 1 IFR App 1 Prospectus Disclosures for Islamic Funds
IFR A1.1 IFR A1.1 Shari'a Approval Process Statement for Offers of Domestic Funds from the DIFC
IFR A1.1.1
In respect of the
Units of anIslamic Fund which are to be offered to prospectiveUnitholders in Malaysia, aFund Manager must ensure that theProspectus set out in a prominent position the following statement:"The Shari'a approval process which relates to this Fund has been carried out in accordance with the legislation applicable in the Dubai International Finance Centre (DIFC)".
Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
[Amended] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]IFR A1.2 IFR A1.2 Shari'a Approval Process Statement for Offers of Foreign Funds in or from the DIFC
IFR A1.2.1
In respect of an
Islamic Fund which is aFund domiciled in Malaysia and which is aDesignated Fund , anAuthorised Firm must ensure that theProspectus contains in a prominent position or has attached to it the following statement:"This Prospectus relates to an Islamic Fund, the Shari'a approval process of which is regulated by the Securities Commission of Malaysia."
Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]IFR App 2 IFR App 2 Continuing Obligations
IFR A2.1 IFR A2.1 Continuing obligations — Market disclosures for listed entities
IFR A2.1.1
This table forms part of Rule 7.3.2.
[Added] DFSA RM125/2013 (Made 13th June 2013) [VER7/07-13]IFR A2.1.2
A
Listed Entity must, on the occurrence of an event specified in column 1, make the required disclosure detailed in column 2, within the time specified in column 3, in respect of theSecurities identified with a “√” in column 4, of thisTable .
A2.1.1 EVENT GIVING RISE TO DISCLOSURE OBLIGATION DISCLOSURE REQUIRED TIME OF DISCLOSURE Structured Products Shares Warrants over Shares Warrants over Debentures Debentures Certificates over Shares Certificates over Debentures Units ISLAMIC SECURITIES 1. Any material change in the Shari'a nature of itsListed Securities as determined by theShari'a Supervisory Board Market disclosure of the material change As soon as possible √ √ √ √ √ √ √ √ 2. Where there are any material changes to the structure of the Listed Securities , or the use of proceeds, then theListed Entity must obtain and disclose a newShari'a opinionMarket disclosure of the new Shari'a opinionAs soon as possible √ √ √ √ √ √ √ √
[Added] DFSA RM125/2013 (Made 13th June 2013) [VER7/07-13]IFR A2.2 IFR A2.2 Other continuing obligations for listed entities
IFR A2.2.1
This table forms part of Rule 7.3.2.
[Added] DFSA RM125/2013 (Made 13th June 2013) [VER7/07-13]IFR A2.2.2
A
Listed Entity must, on the occurrence of an event specified in column 1, make the required disclosure detailed in column 2, within the time specified in column 3, in respect of theSecurities identified with a “√” in column 4, of thisTable .
A2.2.1 EVENT REQUIREMENTS TIME Structured Products Shares Warrants over Shares Warrants over Debentures Debentures Certificates over Shares Certificates over Debentures Units REGISTRATION 1. Appointment of an independent Shari'a Supervisory Board to evaluate theShari'a compliance of theIslamic equitySecurities on an annual basisNotify the DFSA Annually √ √ √ 2. Any proposed decision with regard to any change in its board of directors or Shari'a Supervisory Board .Consult with the DFSA In advance √ √ √ √ √ √ √ √
[Added] DFSA RM125/2013 (Made 13th June 2013) [VER7/07-13]