The underpinning law is the Law Regulating Islamic Financial Business.Under this law, any firm that holds itself out as conducting Islamic financial business must have a special endorsement on its licence.This may allow the firm to operate as a wholly Islamic firm, or to operate an Islamic window.
The DFSA is a Sharia Systems Regulator not a Sharia Regulator.Any firm which conducts Islamic financial business must put systems in place to ensure that the business is conducted in accordance with;Sharia. This includes the appointment of a Sharia Supervisory Board (SSB), of at least three competent scholars.The firm must have systems in place to disseminate the SSBs rulings, conduct regular Sharia reviews and also conduct an internal audit. (See the Islamic Finance Rules Module of the DFSA Rulebook – IFR - click here) These systems requirements provide the DFSA, and firms, with a clear measure against which to assess the firms performance.
Firms who offer Profit Sharing Investment Accounts (PSIAs) are subject to special prudential requirements, which reflect the possibility of Displaced Commercial Risk, ie the fact that the firm may find itself under commercial pressure to pay PSIA holders a rate of return higher than that which would normally be payable under the contract.The relevant rules are contained in the DFSA Rulebook.The rulebook also deals with the capital treatment of various Islamic contracts. (See Chapter 5 of the IFR Module of the DFSA Rulebook - click here).
There are specific provisions relating to Takaful companies in the PIN Module (click here). Islamic firms must in general follow the AAOIFI accounting standards.
There are specific disclosure requirements for Islamic firms.The firm must disclose details of its Sharia Supervisory Board, as well as disclosures about the special characteristics of the products offered.
While DFSAs collective investment Funds regime is substantially contained in the Collective Investment Law, the Investment Trust Law and the Collective Investment Rules (CIR) specific provisions relating to Islamic funds are found in the Law Regulating Islamic Financial Business and Islamic Finance Rules (IFR) modile.These are broadly similar to those for firms conducting Islamic financial business, and include the appointment of a Sharia Supervisory Board, and disclosures in the fund prospectus.
Islamic Finance Tailored Handbooks
The DFSA's tailored handbooks for Islamic finance are designed to help firms undertaking particular activities to locate the requirements in the DFSA Rulebook that apply to their activities.
Islamic securities may be listed on an exchange in the DIFC, and there are disclosure requirements mainly related to Sharia Board approval.