DFSA Initiates Public Consultation on Islamic Finance Regulatory Changes

Proposed Changes to Islamic Finance Regulations

The Dubai Financial Services Authority (DFSA) has initiated a public consultation regarding proposed modifications to its Islamic finance regulatory framework, aiming to provide firms within the Dubai International Financial Centre (DIFC) with clearer guidelines on endorsement requirements and disclosure standards. The consultation, identified as Consultation Paper No. 172, seeks to enhance clarity on when authorized firms and market institutions must obtain an endorsement to engage in Islamic financial business, alongside fortifying disclosure requirements for Takaful products.

The DFSA emphasized that these proposed changes are in alignment with national objectives, including the UAE Strategy for Islamic Finance and Halal Industry, as well as Dubai’s Economic Agenda D33. This agenda is designed to bolster the UAE’s position as a prominent global hub for Islamic finance.

The UAE ranks as one of the leading markets for Islamic finance worldwide. According to the Islamic Finance Development Indicator, the country was positioned fourth globally in terms of Islamic finance assets in 2024. Furthermore, it secured the third spot based on financial performance and metrics supporting the ecosystem. The DIFC stands out as one of the largest global venues for Sukuk listings, boasting over $100 billion in outstanding Sukuk, including those linked to Environmental, Social, and Governance (ESG) criteria.

Endorsement and Disclosure Requirements

Charlotte Robins, Managing Director of Policy and Legal at the DFSA, highlighted the importance of providing clarity and certainty within the regulatory framework as the Islamic finance sector continues to grow within the DIFC, the UAE, and globally. She stated, ‘These proposals reflect our ongoing engagement with the industry and our commitment to supporting the development of this strategically important sector.’ Under the proposed regulations, authorized persons would be required to obtain an Islamic endorsement if they claim that their business operations align with Shari’a principles, offer financial services tied to products labeled as Islamic, or manage funds represented as Islamic or Shari’a-compliant.

The DFSA has also proposed that firms offering access to or distributing Islamic financial products, without asserting claims regarding Shari’a compliance, would not need an endorsement, provided they adhere to existing client protection obligations. The DFSA operates as a ‘Shari’a systems regulator,’ meaning it does not assess whether products or services comply with Shari’a principles but mandates that authorized firms maintain systems and controls to support Islamic financial operations and manage associated risks.

Consumer Protection Measures for Takaful

The consultation further includes proposed regulations for Takaful, the Shari’a-compliant mutual insurance mechanism where members share risks and support each other. To enhance consumer protection, the DFSA intends to require all Takaful sales to include specific disclosures detailing contract features, fee calculations, surplus-sharing arrangements, and potential additional contributions. This requirement will be applicable regardless of whether the authorized entity has an Islamic endorsement.

The consultation is open to contributions from authorized firms, market institutions, employees, applicants, professional advisers, and other stakeholders within the industry. Feedback submissions are due by June 19, 2026, after which the DFSA will consider the responses and amend its rulebook as necessary.

Frequently Asked Questions

What is the purpose of the DFSA’s public consultation?

The consultation aims to clarify endorsement requirements and disclosure standards for Islamic finance within the DIFC.

Who can participate in the consultation?

Authorized firms, market institutions, employees, applicants, and professional advisers can submit feedback.

When is the deadline for submissions?

Submissions are due by June 19, 2026.

What changes are proposed for Takaful products?

The DFSA proposes specific disclosure requirements for Takaful sales to enhance consumer protection.

How does the DFSA regulate Shari’a compliance?

The DFSA operates as a Shari’a systems regulator, requiring firms to maintain systems that support Islamic financial business.