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  • IFR 5 Managing Profit Sharing Investment Accounts

    • IFR 5.1 Application

      • IFR 5.1.1

        This chapter applies to an Authorised FirmG which conducts the Financial ServiceG of Managing Profit Sharing Investment AccountsG (PSIAs).

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

        • IFR 5.1.1 Guidance

          1. A PSIAG does not constitute a DepositG , because a PSIAG is managed in relation to property of any kind, and the risk of loss of capital, to the extent of the Client'sG contribution, remains with the ClientG . Accordingly, an Authorised FirmG should take great care to ensure that a PSIAG is not represented as a DepositG , either directly or indirectly. The DFSA may conclude that the Authorised FirmG is Accepting a DepositG instead of Managing a PSIAG in certain circumstances, for example, where the Authorised FirmG attaches to the investment account characteristics or facilities that are generally regarded to be those of a DepositG or current account such as providing:
          a. an explicit or implicit guarantee to the ClientG against the risk of loss of capital; or
          b. a cheque book, an ATM card or a debit card.
          2. The prudential CategoryG for Islamic Financial InstitutionsG and other Authorised FirmsG Managing PSIAsG is determined in accordance with the Rules in PIB. Prudential Category 5G firms are Islamic Financial InstitutionsG whose entire business is conducted according to Shari'aG and are authorised to manage Profit Sharing Investment AccountsG . An Authorised FirmG which manages PSIAsG , whether as an Islamic Financial InstitutionG or through an Islamic WindowG , must also comply with the requirements in PIB in relation to specific prudential requirements relating to Trading BookG and Non-Trading BookG activities, including Credit RiskG , Market RiskG , Liquidity RiskG and Group RiskG .
          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 [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 Additional Disclosure Requirements for PSIAs

      • IFR 5.2.1

        An Authorised FirmG must, prior to Managing a PSIAG , provide written notice to the ClientG that the ClientG alone will bear any losses arising from the PSIAG , which are limited to the amount of his contribution, unless there is negligence, misconduct or breach of contract on the part of the Authorised FirmG .

        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 FirmG must ensure that the following information is included in the Client AgreementG relating to a PSIAG :

          (a) how and by whom the funds of the ClientG will be managed and invested including details of its policy on diversification of the portfolio;
          (b) the basis for the allocation of profit between the Authorised FirmG and the ClientG ;
          (c) confirmation of the Client'sG investment objectives including details of any restrictions requested by the ClientG , as agreed between the ClientG and the Authorised FirmG ;
          (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 the Profit Equalisation ReserveG or Investment Risk ReserveG accounts, if applicable;
          (f) particulars of the management of the PSIAG and of any third party to whom the Authorised FirmG has or will delegate or outsource the management of the PSIAG , 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 a ClientG as a result thereof;
          (h) details of segregation of the funds of the ClientG from the funds of the Authorised FirmG and from any claims by the creditors of the Authorised FirmG ;
          (i) details of whether funds from one PSIAG will be commingled with the funds of another PSIAG ; 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 the Authorised FirmG from the profits of the PSIAG .
          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 an Authorised FirmG as if the Authorised FirmG is an investment manager in respect of those ClientsG who are PSIAG holders.
          (2) In addition to the requirements of COB section 6.10, an Authorised Firm must ensure that a periodic statement provided to a ClientG contains the following information:
          (a) details of the performance of the Client'sG investment;
          (b) the allocation of profit between the Authorised FirmG and the ClientG ; and (c) where applicable, details of changes to the investment strategies that may affect the Client'sG account or portfolio
          Derived 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

          Where an Authorised FirmG Manages a PSIAG , its Islamic Financial BusinessG policy and procedures manual must address the following additional matters:

          (a) the basis upon which a PSIAG will be deemed restricted or unrestricted;
          (b) the basis for allocation of profit or loss to the PSIAG ;
          (c) the basis for allocation of expenses to the PSIAG ;
          (d) the manner in which an Authorised Firm'sG own funds, funds of restricted PSIAsG and funds from unrestricted PSIAsG 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 unrestricted PSIAsG ;
          (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 the Authorised FirmG 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 FirmG manages the accounts of Profit Sharing Investment AccountG 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 Funds of PSIA Holders

      • IFR 5.3.1

        Unless clearly expressed in the contract between an Authorised FirmG and a PSIAG holder, the Authorised FirmG may not use funds provided by a PSIAG holder to fund its own corporate activities.

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

    • IFR 5.4 Prudential Requirements

      • Application and Interpretation

        • IFR 5.4.1

          (1) This section applies when calculating Credit RiskG or Market RiskG in respect of Islamic ContractsG invested in or held by an Authorised FirmG Managing a PSIAG , which is an Unrestricted PSIAG .
          (2) In (1), the Islamic ContractsG referred to are contracts which are funded by the PSIAG .
          (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. An Authorised FirmG undertaking Islamic Financial BusinessG is required to maintain initial and ongoing Capital RequirementsG 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, an Authorised FirmG undertaking Islamic Financial BusinessG 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, an Authorised FirmG undertaking Islamic Financial BusinessG is required to exclude from T2 CapitalG any amount by which the total of the Profit Equalisation ReserveG and the Investment Risk ReserveG exceeds the Displaced Commercial Risk Capital RequirementG .
          4. For the purpose of calculating Capital RequirementsG , an Authorised FirmG undertaking Islamic Financial BusinessG or otherwise investing in or holding Islamic ContractsG should give due importance to the economic substance of the transaction, in addition to the legal form of the Islamic ContractsG .
          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 5.4.2

        In addition to Rule PIB 3.2.4, PIB 3.2.5, GEN Rule 5.3.1 and this module, an Authorised FirmG Managing a PSIAG must ensure that its senior management establishes and maintains systems and controls that ensure that the Authorised FirmG 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

        (1) In addition to Rules in IFR 5.2.4, an Authorised FirmG Managing a PSIAG 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 and PSIAG holders are safeguarded;
        (b) how the Authorised FirmG will limit exposures of PSIAG holders to the Authorised FirmG ;
        (c) a description of the controls to ensure that the funds of the PSIAG are invested in accordance with the investment guidelines agreed in the investment contract;
        (d) the basis for allocating profits and losses to the PSIAG holders;
        (e) the policy for making provisions and reserves and, in respect of PSIAsG , to whom these provisions and reserves revert in the event of a write-off or recovery;
        (f) the Authorised Firm'sG policy on the prioritisation of investment of own funds and those of Unrestricted PSIAG holders;
        (g) how liquidity mismatch will be monitored;
        (h) the basis for allocating expenses to PSIAG holders; and
        (i) how the Authorised FirmG 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

          An Authorised FirmG Managing a PSIAG , which is an Unrestricted PSIAG , must calculate a Displaced Commercial Risk Capital RequirementG in respect of its PSIAG 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. An Authorised FirmsG Managing a PSIAG , on an unrestricted basis is subject to a unique type of risk referred to as Displaced Commercial RiskG . This risk reflects the fact that an Authorised FirmG may be liable to find itself under commercial pressure to pay a rate of return to its PSIAG holders which is sufficient to induce those investors to maintain their funds with the Authorised FirmG , 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, the Authorised FirmG 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 the Authorised Firm'sG commercial position (or, in an extreme case, its solvency). Thus, part of the commercial risk attaching to the returns attributable to the PSIAG is, in effect, transferred to the shareholders' funds or the Authorised Firm'sG 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 the Authorised FirmG in certain circumstances may provide for the shortfalls.
            2. In an Unrestricted PSIAG , the account holder authorises the Authorised FirmG to invest the account holder's funds in a manner which the Authorised FirmG 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, the Authorised FirmG can commingle the investment account holder's funds with its own funds or with other funds which the Authorised FirmG has the right to use. The investment account holders and the Authorised FirmG generally participate in the returns on the invested funds.
            3. In a Restricted PSIAG , the account holder imposes certain restrictions as to where, how and for what purpose the funds are to be invested. Further, the Authorised FirmG 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 of Restricted PSIAsG are managed by the Authorised FirmG which does not have the right to use or dispose of the investments except within the conditions of the contract.
            4. An Authorised FirmsG undertaking Islamic Financial BusinessG is also exposed to fiduciary risk which arises where the terms of the contract between the Authorised FirmG and the investor are breached and where the Authorised FirmG does not act in compliance with Shari'a.
            5. An Authorised FirmG is required to apply the Capital RequirementsG 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) An Authorised Firm'sG Displaced Commercial Risk Capital RequirementG is based on 35% of the CRCOMG and Market RiskG capital requirement of assets funded by Unrestricted PSIAG holders, and is calculated using the following formula:

          PSIACOM = [PSIACOMcredit + PSIACOMmarket] × 35%.
          (2) PSIACOM is the Displaced Commercial Risk Capital RequirementG ;
          (3) PSIACOMcredit is the Credit RiskG capital requirement for assets funded by Unrestricted PSIAG holders and is calculated in accordance with Rules in part 3 of chapter 4 of PIB; and
          (4) PSIACOMmarket is the Market RiskG capital requirement for assets funded by Unrestricted PSIAG 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) An Authorised FirmG Managing a PSIAG , which is an Unrestricted PSIAG , must calculate its PSIAComcredit in relation to all Islamic ContractsG financed by Unrestricted PSIAsG in the manner prescribed in this section.
          (2) An Authorised FirmG must, when undertaking the calculation in (1), apply an appropriate risk weighting for the relevant Islamic ContractG .
          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

          (1) In this section:
          (a) "E" represents the ExposureG determined by an Authorised FirmG as applicable to an Islamic ContractG ; and
          (b) "CRW represents the risk weighting or capital charge assessed by an Authorised FirmG as appropriate to that Islamic ContractG .
          (2) Where an Islamic ContractG is in the Non-Trading BookG , an Authorised FirmG must determine the PSIACOMcredit for that contract by applying the following formula:
          E × CRW × 8%.
          (3) Where an Islamic ContractG is in the Trading BookG , an Authorised FirmG must determine the PSIACOMcredit for that contract in accordance with the methodology in PIB A4.7 and PIB A4.8 as appropriate.
          (4) An Authorised FirmG must calculate its PSIACOMcredit of all contracts by:
          (a) identifying all Islamic ContractsG 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 the Authorised FirmG .
          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 this GuidanceG will assist an Authorised FirmG in applying the appropriate risk weighting or capital charge to each Islamic ContractG for the purpose of IFR Rule 5.4.7. Accordingly, the DFSA expects an Authorised FirmG managing PSIAsG , which are Unrestricted PSIAsG to pay due regard to this GuidanceG .
            2. The Rules in this section and this GuidanceG are also relevant to an Authorised FirmG which invests in or holds Islamic ContractsG , when calculating CRCOMG for Islamic ContractsG under PIB chapter 4.
            3. Table 2 contains Guidance on how an Authorised FirmG Managing a PSIAG , which is an Unrestricted PSIAG should apply risk weightings for Islamic ContractsG in respect of calculating relevant E and CRW for its PSIACOMcredit component of the PSIACOM.

            Table 2

            1.
            Islamic Contract type
            2.
            Underlying investment or asset
            3.
            CRW
            Binding Murabaha for the Purchase Orderer (MPO) Asset with an Authorised FirmG before purchase by the CounterpartyG 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 CounterpartyG less any provision for doubtful debts CRWG in accordance with PIB chapter 4
            Murabaha and Non-binding Murabaha for the Purchase Orderer (MPO) Accounts receivable for the contract, i.e. amounts due from the CounterpartyG less any provision for doubtful debts CRWG in accordance with PIB chapter 4
            Mudaraba and Musharaka Where the underlying investment meets the requirements for inclusion in the Trading BookG Market Risk Capital RequirementG for the exposure associated with the underlying investment determined in accordance with PIB chapter 5
            Investment in commercial enterprise to undertake business ventures other than trading activities (or other than those which meet the requirements for inclusion in the Trading BookG ) CRW of 400% on the exposure
            Investment in real estate assets and other movable assets, using underlying IjarahG and MurabahaG contracts CRW of the lessee for the underlying Ijarah contracts or the CRW of the counterparty of the underlying MurabahaG contract, in accordance with PIB App4
            Ijarah/Ijarah Muntahia Bittamleek Asset with an Authorised FirmG available for lease before purchase by the CounterpartyG — for both contracts with both binding or non-binding promise to lease Apply 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 IjarahG lessee, in accordance with PIB Section 4.12
            Full recourse Istisna'aG — with or without parallel Istisna'aG and limited / non-recourse
            Istisna'a with/without parallel Istisna'a
            Net balance of the work-in-progress CRW of the Istisna'aG buyer, in accordance with PIB Section 4.12
            Total amount receivable from the counterparty, pursuant to contract billings CRW of Istisna'aG buyer, in accordance with PIB Section 4.12
            Salam and parallel Salam Value of the underlying asset receivable for the SalamG contract CRW 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
            SukukG held in the Non-Trading BookG Receivables from the SukukG structure, including the principal and any returns associated with it, arising from any of the following as underlying contracts:

            SalamG
            Istisna'aG
            IjarahG
            MurabahaG
            MudarabaG
            MusharakaG
            CRW applicable to underlying IjarahG , SalamG or MurabahaG contracts, in accordance with PIB Section 4.12

            If the SukukG provides recourse to the issuer, CRW applicable to the issuer or CRW applicable to underlying contracts of the SukukG is in accordance with PIB Section 4.12, whichever is higher
              Usufructs/services CRW applicable to underlying service provider or usufruct owner, in accordance with PIB Section 4.12. If the SukukG 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 higher
              Leased 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'aG (share of produce of the land) MusaqaG (share of produce of the trees) MugarasaG (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 BookG Market Risk Capital RequirementG for the exposure associated with the underlying investment determined in accordance with PIB chapter 5
            Bai' Bithaman Ajil Residential and commercial properties
            Plant and equipment
            Motor vehicles
            Shares
            Land
            CRW in accordance with PIB chapter 4
            Arboun Where an Authorised FirmG has made the purchase deposit CRW in accordance with PIB chapter 4
              Where an Authorised FirmG has received the purchase deposit No CRW is applicable
              Where the contract would meet the requirements for inclusion in the Trading BookG Market Risk Capital RequirementG for the exposure associated with the underlying investment determined in accordance with PIB chapter 5
            4. Where an Islamic ContractG is not listed in Table 2, an Authorised FirmG 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; and
            b. 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 a Binding MurabahaG for the Purchase OrdererG (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 of IjarahG / Ijarah Munthia BittamleekG 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 any ArbounG (earnest money deposit received from the potential lessee).
            8. In addition to paragraph 7 above, in the case of an Ijarah Muntahia BittamleekG 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 another CounterpartyG . This is important because the asset leased under the Ijarah Muntahia BittamleekG 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 an Istisna'aG contract, the exposures arising from such a contract should not be netted off against exposures arising from a Parallel Istisna'aG contract entered into by an Authorised FirmG for procuring the underlying investment for the Istisna'aG contract.
            10. In determining the E of a SalamG contract, the exposures arising from such a contract should not be netted off against exposures arising from a Parallel SalamG contract entered into by an Authorised FirmG for procuring the underlying asset for the SalamG contract.
            11. Off-balance sheet exposures for import or export financing contracts based on MurabahaG , where the underlying goods or shipment are collateralised and insured, should attract a 20% CCF to an Authorised FirmG that issues or confirms the letter of credit.
            12. Where MudarabaG and MusharakaG 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 the Trading BookG ), 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 relevant RulesG prescribed in PIB chapter 4 and PIB App4, an Authorised FirmG may consider the following types of collateral as eligible collateral for Credit RiskG management:
            a. Hamish JiddiyyahG (security deposit) only for agreements to purchase or lease preceded by a binding promise;
            b. ArbounG where earnest money deposit held after a contract is established as collateral to guarantee contract performance; and
            c. in MudarabaG investment in project finance, an Authorised FirmG may use the collateralisation of the progress payments made by the ultimate customers to mitigate the exposures of unsatisfactory performance by the MudaribG .
            14. Where an Authorised FirmG places funds under a MudarabaG contract, subject to a Shari'a compliant guarantee from a third party and such a guarantee relates only to the MudarabaG 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 the MudaribG (as a CounterpartyG ). Otherwise, the CRW of the MudaribG will apply.
            15. An Authorised FirmG placing liquid funds with a central bank or another financial institution on a short-term MudarabaG basis in order to obtain a return on those funds, may apply the CRW applicable to the MudaribG (as a CounterpartyG ), provided the MudaribG effectively treats the liquid funds placement as its liability, although normally such placements are not treated as liabilities of the MudaribG .
            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 FirmG Managing a PSIAG , which is an Unrestricted PSIAG , must calculate its PSIACOMmarket in relation to all underlying Islamic ContractsG 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 FirmG must treat SukukG held in its Trading BookG as equity for the purpose of calculating its Equity Risk Capital RequirementG 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 MusharakaG or MudarabaG contracts with commodities as the underlying assets, an Authorised FirmG must calculate its Commodities Risk Capital RequirementG 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 FirmG which is exposed to the risk of foreign currencies and gold under any Islamic ContractG , must calculate its Foreign Exchange Risk Capital RequirementG 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 FirmG which is exposed to commodities including precious metals but excluding gold under any Islamic ContractG , must calculate its Commodities Risk Capital RequirementG 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 an Authorised FirmG for selling or leasing when executing a MurabahaG , non-binding MPO, SalamG or Parallel Salam ContractG must be included in the calculation of its Commodities Risk Capital RequirementG .
          (2) Where an Authorised FirmG executes SalamG and parallel SalamG 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 its Commodities Risk Capital RequirementG is calculated.
          Derived from DFSA RM69/2010 (Made 1st March 2010). [VER1/03-10]

        • IFR 5.4.14

          Where an Authorised FirmG executes MusharakaG or MudarabaG 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 its Market Risk Capital RequirementG 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 specific Large ExposureG limits for assets financed by PSIAsG , which are Unrestricted PSIAsG . The DFSA uses these limits to provide constraints on the amount of Concentration RiskG to which an Authorised FirmG is subject in respect of its PSIAG holdings. In assessing PSIAG Large ExposuresG , an Authorised FirmsG may take advantage of the exemptions and partial exemptions set out in PIB section A4.11.
          2. An Authorised FirmG has a Large ExposureG where its PSIAG holders' credit ExposureG to a single CounterpartyG or issuer, or group of Closely RelatedG or Connected CounterpartiesG , is large in relation to the Authorised Firm'sG Capital ResourcesG . Where ExposureG to a CounterpartyG or issuer is large, PSIAG holders risk a large loss should the CounterpartyG default.
          3. ExposuresG arising from assets that are financed by an Authorised Firm'sG 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

          An Authorised FirmG Managing a PSIAG , which is an Unrestricted PSIAG , must not have an ExposureG to a CounterpartyG or to a group of Closely Related CounterpartiesG or to a group of Connected CounterpartiesG that exceeds any one of the following percentages of its Capital ResourcesG :

          (a) 25% if financed by its Capital ResourcesG or Unrestricted PSIAsG ; or
          (b) 40% if financed by the total of its own Capital ResourcesG and, Unrestricted PSIAsG .
          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'sG ExposureG to a CounterpartyG or to a group of Closely Related CounterpartiesG may not exceed 25% of the Authorised Firm'sG Capital ResourcesG .

            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'sG non-exempt Large ExposuresG must not exceed 800% of its Capital Resources for ExposuresG funded by the Authorised Firm'sG Capital ResourcesG and Unrestricted PSIAsG .

          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 FirmG must:

          (a) monitor and control its ExposuresG funded by PSIAsG , which are Unrestricted PSIAsG , 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]