1.1. Application

These IFR Rules apply to:

(a) every Person who carries on, or holds itself out as carrying on, a Financial Service or making an offer of Securities, in or from the AIFC in a Shari’ah-compliant manner;

(b) a Domestic Fund which is operated or held out as being operated as an Islamic Fund; and

(c) an Authorised Firm which carries on, or holds itself out as carrying on, a Regulated Activity in a Shari’ah compliant manner.

1.2. Purpose

The purpose of this IFR Rules is to establish the regulatory framework based on:

(a) the standards and guidelines issued by the Islamic Financial Services Board (IFSB) on the conduct of Islamic finance activities;

(b) the standards and guidelines issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) on accounting, auditing and Shari’ah governance of Islamic financial institutions; and

(c) international standards in the form of Core Principles for Effective regulation and Supervision, issued by International Association of Insurance Supervisors, International Organization of Securities Commissions (IOSCO) and the Basel Committee on Banking Supervision.

Guidance: Overview of the IFR Rules The IFR Rules include specific regulatory requirements that apply to Persons conducting Financial Services or providing financial products in a Shari’ah-compliant manner. In addition to the specific regulatory requirements specified in these rules, other general requirements relating to such financial services activities or products are set out in the relevant AFSA Regulations and Rules

1.3. Commencement

These rules commence on 1 January 2018.

1.4. Effect of definitions, notes, examples and references

(a) A note in or to these rules is explanatory and is not part of these rules. However, examples and guidance are part of these rules.

(b) An example is not exhaustive, and may extend, but does not limit, the meaning of these rules or the provision of these rules to which it relates.

(c) Unless the contrary intention appears, a reference in these rules to an accord, principle, standard or other similar instrument is a reference to that instrument as amended from time to time.

1.5. Islamic Financial Business

Conducting Islamic Financial Business means carrying out one or more Regulated Activities and/or providing financial products or services to customers in a Shari’ah-compliant manner.

1.6. Prohibition from conducting Islamic Financial Business

An Authorised Firm must not conduct or hold itself out as conducting Islamic Financial Business unless it is authorised to conduct Islamic Financial Business either:

• (a) as an Islamic Financial Institution; or
• (b) by operating an Islamic Window.

1.7. Islamic Financial Institution

(1) An Islamic Financial Institution is an Authorised Person whose license or authorisation includes a specific condition that the whole of its business is conducted in a manner fully compliant with Shari’ah.

(2) An Islamic Financial Institution must ensure that its constitutional documents state that its entire business will be conducted in a manner fully compliant with Shari’ah.

1.8. Islamic Window

An Authorised Firm other than an Islamic Financial Institution, operates an Islamic Window if it conducts Islamic Financial Business as a part of its business operations.

1.9. Islamic Banking Business

Islamic Banking Business is a defined as a Regulated Activity in Schedule 1 of AIFC GEN Rules, as carrying out the following activities, in a Shariah-compliant manner:

• (a) Raising, accepting and managing funds or money placements; and/or
• (b) Managing Unrestricted Profit Sharing Investment Accounts; and
• (c) Providing financing or making Investments by entering as principal or agent into any Islamic Financial Contract.

Guidance: Regulated Activity of Islamic Banking Business

The Regulated Activity of Islamic Banking Business includes three primary determinant activities which must be carried out in a Shari’ah-compliant manner:

i) raising, accepting and managing funds or money placements;

ii) managing Unrestricted Profit Sharing Investment Accounts (UPSIAs); and

iii) providing financing or making investments by using a range of Islamic Financial Contracts.

In other words, Islamic Banking Business must involve at least one of the two following activities - raising, accepting and managing funds or money placements or managing Unrestricted Profit Sharing Investment Accounts (UPSIAs). It must involve the activity of providing financing or making investments by using a range of Islamic Financial Contracts. In addition, various supplementary activities may also be undertaken which normally form part of banking business. These supplementary activities may include, but are not limited to, providing remittance and/or money exchange services and issuing or administering means of payment. Authorised Firms licensed to carry out Regulated Activity of Islamic Banking Business may carry out the activity of Managing Restricted Profit Sharing Investment Accounts (RPSIAs), though that would not be a determinant factor for considering them as eligible to carry out Islamic Banking Business. A Person who does not qualify as an Islamic Financial Institution or Islamic Windows, will not be licensed by the AFSA to carry out Islamic Banking Business. Such entities which do not qualify as Islamic Financial Institutions or Islamic Windows are prohibited from carrying out Islamic Banking Business.

1.10. Providing Islamic Financing

(1) Providing Islamic Financing is a defined as a Regulated Activity in Schedule 1 of AIFC GEN Rules, as providing financing in a Shari’ah-compliant manner by entering into any Islamic Financial Contract.

(2) The Regulated Activity of Providing Islamic Financing may be carried out only by an Islamic Financial Institution or by an Islamic Window.

Guidance: Regulated Activity of Providing Islamic Financing A Person who does not qualify as an Islamic Financial Institution or an Islamic Window, will not be licensed by the AFSA to carry out the Regulated Activity of Providing Islamic Financing. Such Persons which do not qualify as Islamic Financial Institutions or Islamic Windows are prohibited from carrying out the Regulated Activity of Providing Islamic Financing.

1.11. Managing a Restricted Profit Sharing Investment Account (RPSIA)

Managing a Restricted Profit Sharing Investment Account means managing an account or portfolio which is a Restricted Profit Sharing Investment Account (RPSIA).

Guidance: Regulated Activity of a Restricted Profit Sharing Investment Account An Islamic Financial Institution or an Islamic Window can be licensed to carry out the Regulated activity of either Managing Unrestricted PSIAs or for Managing Restricted PSIAs or both. The application of rules including but not limited to AIFC PRU Rules and AIFC COB Rules may differ based on the type of PSIAs, an Authorised Firm is licensed to manage.

1.12. Definition of Islamic Financial Contract

An Islamic Financial Contract may include any of the following:

(i) murabahah and its variations;

(ii) salam and its variations;

(iii) tawarruq and its variations;

(iv) istisna and its variations;

(v) ijarah and its variations;

(vi) musharakah and its variations;

(vii) mudarabah and its variations;

(viii) qard;

(ix) any other Islamic Financial Contract that is approved to be so by the relevant Authorised Firm’s SSB.