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Dubai Financial Services Authority (DFSA): Contents

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  • IFR 3 General Obligations

    • IFR 3.1 Application

      • IFR 3.1.1

        This chapter applies to an Authorised PersonG which carries on Islamic Financial BusinessG 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 FirmG or Authorised Market InstitutionG .

          Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]

    • IFR 3.2 Constitution of an Islamic Financial Institution

      • IFR 3.2.1

        An Authorised PersonG which is an Islamic Financial InstitutionG 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 InstitutionG is an Authorised PersonG 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 Systems and Controls

      • IFR 3.3.1

        An Authorised FirmG conducting Islamic Finance BusinessG must establish and maintain systems and controls which enable it to comply with the applicable Shari'a requirements.

        Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]

        • 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 PersonG 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 BodyG 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 FunctionsG of the firm, particularly compliance and internal audit, should have easy access to the Shari'a Supervisory BoardG in relation to matters involving Shari'a compliance.
          5. The members of the SSB should also have adequate access to the Governing BodyG , senior management and the Persons Undertaking Key Control FunctionsG as appropriate to ensure that their roles can be effectively discharged.

          Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]
          [Amended] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]

    • IFR 3.4 Policy and Procedures Manual

      • IFR 3.4.1

        An Authorised PersonG undertaking Islamic Financial BusinessG must implement and maintain an Islamic Financial BusinessG 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 BoardG will oversee and advise in regard to the Islamic Financial BusinessG conducted by the Authorised PersonG ;
        (c) the manner in which Shari'a Supervisory BoardG 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 BoardG and the Authorised PersonG 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 BusinessG 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 InstitutionG , PersonsG 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 PersonG operating an Islamic WindowG , the systems and controls in place to ensure the appropriate separation of the Islamic Financial BusinessG of the Authorised PersonG from its conventional business.
        Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]

    • IFR 3.5 Shari'a Supervisory Board

      • IFR 3.5 Guidance

        Article 13 of the Law Regulating Islamic Financial Business 2004 requires an Authorised PersonG undertaking Islamic Financial BusinessG to appoint a Shari'a Supervisory BoardG .

        Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]

      • IFR 3.5.1

        When an Authorised PersonG appoints a Shari'a Supervisory BoardG , it must ensure that:

        (a) the Shari'a Supervisory BoardG has at least three members;
        (b) the members appointed to the Shari'a Supervisory BoardG are competent to perform their functions as Shari'a Supervisory BoardG members;
        (c) any appointments, dismissals or changes in respect of members of the Shari'a Supervisory BoardG are approved by the Governing BodyG of the Authorised PersonG ; and
        (d) no member of the Shari'a Supervisory BoardG is a director or ControllerG of the Authorised PersonG .
        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 PersonG should consider the previous experience and qualifications of the proposed Shari'a Supervisory BoardG members to assess whether the proposed Shari'a Supervisory BoardG member is competent to advise on the Islamic Financial BusinessG to be undertaken by the Authorised PersonG .

          Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]

      • IFR 3.5.2

        An Authorised PersonG must document its policy in relation to:

        (a) how appointments, dismissals or changes will be made to the Shari'a Supervisory BoardG ;
        (b) the process through which the suitability of Shari'a Supervisory BoardG members will be considered; and
        (c) the remuneration of the members of the Shari'a Supervisory BoardG .
        Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]

      • IFR 3.5.3

        An Authorised PersonG must establish and maintain, for six years, records of:

        (a) its assessment of the competency of the Shari'a Supervisory BoardG members;
        (b) the agreed terms of engagement of each member of the Shari'a Supervisory BoardG ; 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 BoardG 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 BoardG members;
          c. the basis upon which the Authorised PersonG has deemed that the proposed Shari'a Supervisory BoardG member is suitable; and
          d. details of any other Shari'a Supervisory BoardsG of which the proposed Shari'a Supervisory BoardG 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 PersonG must ensure that the Islamic Financial BusinessG 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 BoardG is obliged to notify the Authorised PersonG of any conflict of interest that such member may have with respect to the Authorised PersonG or, in the case of an Investment TrustG , the TrusteeG ; and
        (b) the Authorised PersonG will take appropriate steps to manage any such conflict of interest so that the Islamic Financial BusinessG is carried out appropriately and in compliance with Shari'a, the interest of a ClientG is not adversely affected and all ClientsG are fairly treated and not prejudiced by any such interests.
        (2) If an Authorised PersonG 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 PersonG must provide the DFSA with information on its appointed or proposed Shari'a Supervisory BoardG members with regard to the qualifications, skills, experience and independence of the Shari'a Supervisory BoardG members.

        Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]

      • IFR 3.5.6

        An Authorised PersonG must take reasonable steps to ensure that it and its EmployeesG :

        (a) provide such assistance as the Shari'a Supervisory BoardG reasonably requires to discharge its duties;
        (b) give the Shari'a Supervisory BoardG right of access at all reasonable times to relevant records and information;
        (c) do not interfere with the Shari'a Supervisory Board'sG ability to discharge its duties; and
        (d) do not provide false or misleading information to the Shari'a Supervisory BoardG .
        Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]

    • IFR 3.6 Shari'a Reviews

      • IFR 3.6.1

        An Authorised PersonG 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 PersonG must commission an annual report from the Shari'a Supervisory BoardG which complies with AAOIFI GSIFI No 1.
        (2) An Authorised PersonG must deliver a copy of the annual report of the Shari'a Supervisory BoardG 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 Internal Shari'a Review

      • IFR 3.7.1

        An Authorised PersonG must perform an internal Shari'a review to assess the extent to which the Authorised PersonG complies with fatwas, rulings and guidelines issued by its Shari'a Supervisory BoardG .

        Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]

      • IFR 3.7.2

        An Islamic Financial InstitutionG 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

        An Authorised PersonG which operates an Islamic WindowG 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 ReviewG ;
          c. independence and objectivity;
          d. professional proficiency;
          e. scope of work;
          f. performance of the internal Shari'a ReviewG work;
          g. management of the internal Shari'a ReviewG ;
          h. quality assurance; and
          i. elements of an effective internal Shari'a ReviewG control system.
          Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]

      • IFR 3.7.4

        An Authorised PersonG must ensure that the internal Shari'a review is performed by the internal audit function or the compliance function of the Authorised PersonG 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 PersonG 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 Additional Conduct Requirements

      • IFR 3.8 Guidance

        The COB module contains conduct of business requirements that apply to Authorised FirmsG conducting Financial ServicesG . The AMI module contains additional conduct standards that apply to Authorised Market InstitutionsG . Set out below are additional conduct requirements that apply to an Authorised PersonG carrying out any Financial ServiceG 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

          (1) An Authorised FirmG , subject to (2), must disclose to each ClientG :
          (a) at the outset of the relationship and thereafter at any time on request, details of the members of the Authorised Firm'sG Shari'a Supervisory BoardG ; and
          (b) at any time on request, details of the manner and frequency of Shari'a reviews.
          (2) An Authorised FirmG does not have to make the disclosure required under (1) if it is a Fund ManagerG of a FundG and is making an OfferG of UnitsG of that FundG in accordance with the disclosure requirements in the Collective Investment Law 2010, the CIR module and this module.
          (3) An Authorised Market InstitutionG must disclose the following information to each PersonG 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'sG Shari'a Supervisory BoardG ; and
          (b) if the PersonG 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 FirmG may make the initial disclosures required under IFR Rule 3.8.1(a) by including such information in the Client AgreementG provided under COB chapter 3.
            2. An Authorised FirmG Managing a PSIAG may make additional disclosure required to be made relating to PSIAG by including such information in the Client AgreementG . See IFR chapter 5 for additional disclosure for PSIAsG .
            3. A Fund ManagerG making an OfferG of a UnitG of a FundG 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 ProspectusG which it must prepare and make available to ClientsG , hence the exemption in IFR Rule 3.8.1(2). A similar exemption is available to Fund ManagersG 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

          In addition to information required by COB 3.2, any marketing material communicated by an Authorised FirmG to a PersonG must state which Shari'a Supervisory BoardG 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. An Authorised FirmG may be able to rely on the Transitional RulesG 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

          (1) An Authorised FirmG which operates an Islamic WindowG must, subject to (3), disclose to its ClientsG whether or not it commingles funds attributable to its Islamic Financial BusinessG with funds attributable to conventional financial business.
          (2) An Authorised Market InstitutionG which operates an Islamic WindowG must disclose to any PersonG granted access to its facilities whether or not it commingles funds attributable to its Islamic Financial BusinessG with funds attributable to conventional financial business.
          (3) An Authorised FirmG does not have to make the disclosure required under (1) if it is a Fund ManagerG of a FundG and is making an OfferG of UnitsG of that FundG 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]

          • IFR 3.8.3 Guidance

            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 ClientG or with a person granted access to an Authorised Market Institution'sG facilities. Additional disclosure should also be made if the Authorised FirmG changes its policy relating to commingling of funds attributable to its Islamic Financial BusinessG with funds attributable to conventional financial business.

            [Added] DFSA RM72/2010 (Made 11th July 2010). [VER2/07-10]
            [Amended] DFSA RM106/2012 (Made 23rd December 2012). [VER6/12-12]

      • Disclosure Relating to Client Money Provisions

        • IFR 3.8.4

          An Authorised FirmG must disclose to its ClientsG details about how any Client MoneyG arising out of Islamic Financial BusinessG is or will be held.

          Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]

    • IFR 3.9 Prudential Requirements

      • IFR 3.9.1

        An Authorised FirmG in Prudential Category 1, 2, 3 or 5 which invests in or holds Islamic ContractsG for purposes other than managing PSIAsG must calculate its Credit RiskG or Market RiskG in respect of those contracts in the same way as a firm holding or investing in Islamic ContractsG for the purposes of managing PSIAsG 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 BusinessG continue to apply in the same way to firms conducting Islamic Financial BusinessG , except to the extent added to or otherwise provided in this module.

          Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]