Dominique Lecocq, lecocqassociate

Formation procedure for Islamic Funds in the DIFC

Download the special report Middle East Hedge Fund Services 2012

By Dominique Lecocq, lecocqassociate – This article will focus on the formation requirements of a domestic exempt Islamic fund (“IEF”) in the Dubai International Financial Centre (“DIFC”) – a recognised free zone in the United Arab Emirates with its independent regulator named the Dubai Financial Services Authority (“DFSA”).

An exempt fund requires a maximum of 100 or fewer subscribers with a minimum subscription of $50,000. Its subscribers should fulfil the requirements of a Professional Client defined in the DFSA rulebook.

Formation requirements and procedure

  • It is a three stage process whereby the fund manager (“Manager”) has to first register as a DFSA authorised firm in order to manage a collective investment Islamic fund. Mandatory appointments (listed below), directors and other individuals should also be registered as DFSA authorised individuals.
     
  • Second; the authorised firm must also attain a DFSA Islamic endorsement.
     
  • Third; while the above two applications are being submitted to the DFSA the process of the Registrar of Companies with the DIFC can be initiated alongside.

Sharia compliance

  • The Manager needs to ensure that a Sharia Supervisory Board (“SSB”) is appointed at the firm level. The Manager is not subject to the requirement for the appointment of a SSB for an IEF; however it would need to ensure that the IEF is being managed in accordance with Sharia. A member of the SSB at the firm level may be appointed at the Manager’s discretion to ensure Sharia compliance.
     
  • The Manager would also need to ensure that the IEF continues to meet Sharia requirements, particularly for the purposes of their annual and interim reports, which are required to be prepared.
     
  • The Manager must ensure that preparation and maintenance of financial accounts and statements are in accordance with the accounting standards of the Accounting & Auditing Organization for Islamic Financial Institutions FAS 14.
     
  • The systems and controls established and maintained by the Manager should ensure that the management of the fund and fund property is Sharia compliant.
     
  • A Sharia compliant Islamic Financial Business Policy and Procedures Manual for the IEF must also be maintained by the Manager.

Required documentation

  • Fund Constitution and Prospectus. The Manager should ensure that these are and remain approved by the Manager’s SSB;
     
  • Compliance Manual and Monitoring Programme;
     
  • Anti-money laundering procedures;
     
  • Risk Management Policies;
     
  • Information and due diligence documents of all entities and individuals involved and employed;
     
  • Quarterly cash flow, profit and loss, forecast of capital requirements and capital resources and balance sheet;
     
  • Source of funds (start up evidence);
     
  • Draft delegation agreements with service providers.

For the Registrar of Companies requirements please contact lecocqassociate.

Mandatory Appointments: Senior Executive Officer (UAE resident), Finance Officer, Compliance Officer (UAE resident) and Money Laundering Reporting Officer (UAE resident)

Service Providers: The investment manager, administrator, custodian etc. can be a firm registered outside the DIFC in a recognised jurisdiction. However an auditor should be registered with the DFSA in order to be appointed.

Further reading


Download the special report Middle East Hedge Fund Services 2012


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