Transcript Slide 1
DIFC – The Legal &
Regulatory Environment
of the Takaful industry
Simon Gray, Director Supervision
Dubai Financial Services Authority
Dubai International Financial Centre
(DIFC) Region
Fills gap between Europe
and Asia
Integrity
Transparency
Efficiency
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Characteristics of the DIFC
Financial Free Zone
Foreign Currency Denominated / Zero Tax Rate
Wholesale Centre for Qualified Investors
Onshore Capital Market / International Standards
No Local Partner Requirements
Co-operation With Other Local and International
Regulators
Legal Jurisdiction
Independent Judiciary
Tailor Made Laws for the DIFC.
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The Structure of the DIFC
Dubai International
Financial Centre
DIFC Authority
Provide overall direction
for the development and
marketing of the DIFC.
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Dubai Financial
Services Authority
Independent integrated
Regulatory Authority with
risk- based regulations on
par with International
Standards.
DIFC
Judicial Authority
Own Court system with
DIFC Laws and
Regulations applicable
within the DIFC.
DFSA – what is it
Purpose built integrated regulator of all
financial and ancillary services conducted
in or from the DIFC
Setting world class standards based on
international best-practice and expertise
An independent body whose autonomy is
guaranteed by law
A risk based regulator actively seeking
opportunities to reduce regulatory burdens
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Risk Management Cycle
• The DFSA has adopted a continuous Risk Management
Cycle.
Business Risk
Identification
Assessment
Financial Risk
Systems and
Control Risk
Mitigation
Prioritization
Management and
Governance Risk
• This risk based approach to supervision and the risk
management cycle are common to both conventional and
Islamic financial institutions such as Takaful.
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The Shari’a Approach
The fundamental difference between conventional
insurers and Takaful is the requirement to be Shari’a
compliant.
An authorised firm may operate either as a DIFC
incorporated Takaful or as a conventional insurer through an
Islamic Window.
There is no consensus on the role of the regulator in
the area of Shari’a compliance; in essence the debate is
whether the regulator should be a “Shari’a regulator” or a
“Shari’a systems regulator” as is the DFSA.
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Challenges facing the regulation of
Takaful
The 4 main issues identified are:
♂ Corporate Governance
♂ Financial and prudential regulation
♂ Transparency, reporting and market conduct
♂ Supervisory review process
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Corporate Governance
• The DFSA has high level principles and
rules for Authorised Firms to deal with
corporate governance
• There are also Corporate Governance and
System & Control requirements specific to
Islamic Financial Institutions such as
Takaful.
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Financial & Prudential Regulation
All insurers are required to apply IFRS or AAOIFI
accounting standards, and the rules have been written
on that basis. A risk-based capital framework has
been adopted, which deals with the major areas of risk
and includes an explicit size component.
The DFSA Capital requirements are observant with
IAIS Core Principle 23 (Capital Adequacy), however,
The IAIS/IFSB joint working paper identified certain
areas in ICP 23 in which differences between a
Takaful and a conventional insurer need to be
considered.
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Transparency, Reporting
and Market Conduct
• These issues are to a certain extent covered
in the COB/ISF rules and the DFSA largely
observes the IAIS core principles.
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Supervisory Review Process
The DFSA has an established risk based approach to
supervision which applies to both conventional insurers
and Takaful.
It also has in place specific rules which apply to
Takaful.
However it is cognisant of the work carried out by the
IAIS/IFSB in identifying those core principles which
may need to be adapted for the Takaful industry.
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Thank you
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