Entire Section

  • 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 on Islamic 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 or Authorised 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 an Islamic 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 an Authorised 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) An Authorised Firm conducting Islamic 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 an Authorised 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. The Governing 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 the Shari'a Supervisory Board in relation to matters involving Shari'a compliance.
          5. The members of the SSB should also have adequate access to the Governing Body, senior management and the Persons 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 undertaking Islamic Financial Business must implement and maintain an Islamic 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 the Shari'a Supervisory Board will oversee and advise in regard to the Islamic Financial Business conducted by the Authorised Person;
        (c) the manner in which Shari'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 the Shari'a Supervisory Board and the Authorised 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 the Islamic 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 an Authorised 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 an Authorised Person operating an Islamic Window, the systems and controls in place to ensure the appropriate separation of the Islamic Financial Business of the Authorised 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 undertaking Islamic Financial Business to appoint a Shari'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 a Shari'a Supervisory Board, it must ensure that:

        (a) the Shari'a Supervisory Board has at least three members;
        (b) the members appointed to the Shari'a Supervisory Board are competent to perform their functions as Shari'a Supervisory Board members;
        (c) any appointments, dismissals or changes in respect of members of the Shari'a Supervisory Board are approved by the Governing Body of the Authorised Person; and
        (d) no member of the Shari'a Supervisory Board is a director or Controller of the Authorised 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 proposed Shari'a Supervisory Board members to assess whether the proposed Shari'a Supervisory Board member is competent to advise on the Islamic Financial Business to be undertaken by the Authorised 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 the Shari'a Supervisory Board;
        (b) the process through which the suitability of Shari'a Supervisory Board members will be considered; and
        (c) the remuneration of the members of the Shari'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 the Shari'a Supervisory Board members;
        (b) the agreed terms of engagement of each member of the Shari'a Supervisory Board; and
        (c) the matters in Rules IFR 3.5.1(c) and IFR 3.5.2.
        Derived 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 the Shari'a Supervisory Board members;
          c. the basis upon which the Authorised Person has deemed that the proposed Shari'a Supervisory Board member is suitable; and
          d. details of any other Shari'a Supervisory Boards of which the proposed Shari'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) The Authorised Person must ensure that the Islamic Financial Business policy and procedures manual it is required to maintain under IFR Rule 3.4.1 provides that:
        (a) a member of the Shari'a Supervisory Board is obliged to notify the Authorised Person of any conflict of interest that such member may have with respect to the Authorised Person or, in the case of an Investment Trust, the Trustee; and
        (b) the Authorised Person will take appropriate steps to manage any such conflict of interest so that the Islamic Financial Business is carried out appropriately and in compliance with Shari'a, the interest of a Client is not adversely affected and all Clients are fairly treated and not prejudiced by any such interests.
        (2) If an Authorised 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 proposed Shari'a Supervisory Board members with regard to the qualifications, skills, experience and independence of the Shari'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 its Employees:

        (a) provide such assistance as the Shari'a Supervisory Board reasonably requires to discharge its duties;
        (b) give the Shari'a Supervisory Board right of access at all reasonable times to relevant records and information;
        (c) do not interfere with the Shari'a Supervisory Board's ability to discharge its duties; and
        (d) do not provide false or misleading information to the Shari'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) An Authorised Person must commission an annual report from the Shari'a Supervisory Board which complies with AAOIFI GSIFI No 1.
        (2) An Authorised Person must deliver a copy of the annual report of the Shari'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 the Authorised Person complies with fatwas, rulings and guidelines issued by its Shari'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 an Islamic 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. internal Shari'a Review;
          c. independence and objectivity;
          d. professional proficiency;
          e. scope of work;
          f. performance of the internal Shari'a Review work;
          g. management of the internal Shari'a Review;
          h. quality assurance; and
          i. elements of an effective internal Shari'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 the Authorised 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 conducting Financial Services. The AMI module contains additional conduct standards that apply to Authorised Market Institutions. Set out below are additional conduct requirements that apply to an Authorised Person carrying out any Financial 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) An Authorised Firm, subject to (2), must disclose to each Client:
          (a) at the outset of the relationship and thereafter at any time on request, details of the members of the Authorised Firm's Shari'a Supervisory Board; and
          (b) at any time on request, details of the manner and frequency of Shari'a reviews.
          (2) An Authorised Firm does not have to make the disclosure required under (1) if it is a Fund Manager of a Fund and is making an Offer of Units of that Fund in accordance with the disclosure requirements in the Collective Investment Law 2010, the CIR module and this module.
          (3) An Authorised Market Institution must disclose the following information to each Person granted access to its facilities at the outset of the relationship, and thereafter whenever the information changes:
          (a) the members of the Authorised Market Institution's Shari'a Supervisory Board; and
          (b) if the Person 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. An Authorised Firm may make the initial disclosures required under IFR Rule 3.8.1(a) by including such information in the Client Agreement provided under COB chapter 3.
            2. An Authorised Firm Managing a PSIA may make additional disclosure required to be made relating to PSIA by including such information in the Client Agreement. See IFR chapter 5 for additional disclosure for PSIAs.
            3. A Fund Manager making an Offer of a Unit of a Fund 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 the Prospectus which it must prepare and make available to Clients, hence the exemption in IFR Rule 3.8.1(2). A similar exemption is available to Fund 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 a Person must state which Shari'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]

      • Islamic Window

        • IFR 3.8.3 IFR 3.8.3

          (1) An Authorised Firm which operates an Islamic Window must, subject to (3), disclose to its Clients whether or not it commingles funds attributable to its Islamic Financial Business with funds attributable to conventional financial business.
          (2) An Authorised Market Institution which operates an Islamic Window must disclose to any Person granted access to its facilities whether or not it commingles funds attributable to its Islamic Financial Business with funds attributable to conventional financial business.
          (3) An Authorised Firm does not have to make the disclosure required under (1) if it is a Fund Manager of an Islamic Fund and is making an Offer of Units of that Fund 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 a Client or with a person granted access to an Authorised Market Institution's facilities. Additional disclosure should also be made if the Authorised Firm changes its policy relating to commingling of funds attributable to its Islamic 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 its Clients details about how any Client Money arising out of Islamic 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 holds Islamic Contracts for purposes other than managing PSIAs must calculate its Credit Risk or Market Risk in respect of those contracts in the same way as a firm holding or investing in Islamic Contracts for the purposes of managing PSIAs 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 conducting Islamic 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]