Important: This article presents an independent analysis and does not represent the official position of the Dubai Financial Services Authority (DFSA) or of any other regulatory authority of the United Arab Emirates. The content herein does not constitute legal advice and is exclusively informational in nature, intended for entrepreneurs, executives, legal professionals and financial services specialists seeking to understand the regulatory framework applicable to Islamic finance in the Dubai International Financial Centre (DIFC).
In October 2026, the Dubai Financial Services Authority (DFSA) published the IFR Rule-Making Instrument No. 445 of 2026, which introduces significant amendments to the Islamic Finance Rules (IFR) module of its Rulebook.
The changes will come into force on 1 January 2027 and result from two consultative processes, Consultation Papers CP 172 and CP 174, conducted by the authority over recent years with the aim of modernising and clarifying the regulatory framework applicable to Islamic finance in the Dubai International Financial Centre (DIFC).
The central point of the amendments lies in the redefinition of the criterion for the applicability of the Islamic finance rules. Until now, the IFR applied to every Authorised Person that carried on Islamic Financial Business, a broad criterion that generated uncertainty about the scope of the regulation.
As of January 2027, Rule 1.1.1(1)(a) makes the applicability of the IFR conditional on whether the Authorised Person holds itself out as conducting that type of business. The new wording shifts the regulatory axis from the objective nature of the activity to the public representation that the market participant makes of itself.
To eliminate ambiguities about what it means to hold itself out as an operator of Islamic Financial Business, the instrument introduces the new Rule 1.1.1(2), made under Article 9(2) of the Law Regulating Islamic Financial Business 2004.
This new rule establishes three specific circumstances that constitute holding itself out:
• the Authorised Person presents its general operations as being conducted in accordance with Shari’a;
• it provides a Financial Service in relation to a product that it itself presents as Islamic; or
• it manages a Fund that is held out as Islamic.
The three circumstances reflect a substance-over-form approach, what matters is the message conveyed to the market, not merely the formal structure of the product or service.
The new framework is complemented by four guidance items (items 3 to 6 under the updated version of the Rule 1.1.1 of the IFR) that illustrate, in concrete terms, what does and does not constitute holding itself out. The DFSA clarifies that distributing third-party Islamic products without producing them or approving their marketing material is not sufficient to characterise the distributor as an operator of Islamic Financial Business.
These four items provide concrete examples to guide application of the new rule. Item 3 sets out positive indicators of holding itself out: an Authorised Person will be considered to do so if, in its advertising or marketing, it states that its operations or Financial Services are conducted in accordance with Shari’a, including descriptions such as “Shari’a compliant,” “Islamic,” or “halal,” or references to oversight by a Shari’a Supervisory Board, or if it makes representations that a financial product or Fund it manages is Islamic or Shari’a-compliant, or if it offers advice, guidance, or opinions on whether a Financial Service, product, or Fund meets Islamic requirements.
In turn, Item 4 addresses the negative scenario, establishing that an Authorised Person will not be considered to hold itself out merely by providing a Financial Service in relation to a product or Fund whose marketing material is being held out as Islamic, provided the Authorised Person did not produce or approve that material, nor by identifying a product by its commonly understood market designation, such as sukuk.
Additionally, Item 5 establishes a substance-over-form approach, under which the DFSA will look beyond labels and formal structures to assess whether the conduct of an Authorised Person genuinely constitutes Islamic Financial Business.
Finally, Item 6 notes that requirements applicable to the offer of units in Domestic Funds that are Islamic Funds are addressed separately under Part 7 of the Collective Investment Rules (CIR).
Equally, identifying a product by its common market name, such as referring to a debt instrument structured as a sukuk, does not, in itself, mean that the institution holds itself out as an Islamic operator. These clarifications have immediate practical value for banks, asset managers and distributors operating in the DIFC with hybrid products, or that incidentally deal in assets structured as Islamic. Alongside the reformulation of the applicability criterion, the instrument promotes a significant structural reorganisation of the IFR. Chapter 2, which contained general guidance on the activities that constitute Islamic Financial Business and on Islamic financial instruments and products, including PSIAs (Profit Sharing Investment Accounts), Investments and Crypto Tokens, has been deleted in its entirety. Rules 1.1.1(1)(b) and (d), which addressed Domestic Islamic Funds and offers of fund units, have likewise been removed, with those matters now governed by Chapter 6 of the IFR and Part 7 of the CIR (Collective Investment Rules) module. Rather than creating a new substantive regime, this structural consolidation removes redundant guidance while centralising fund-level
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