DFSA regulations: A comprehensive guide

As the regulatory body in the special freezone Dubai International Financial Center (DIFC) supporting company formation in Dubai, the Dubai Financial Service Authority (DFSA) oversees all business activities in the freezone by developing, administering and enforcing world-class regulations of financial services.

By providing a business-friendly environment of international standard, DFSA covers a large range of activities including but not limited to: 

  • Custody and trust services
  • Commodities future and other derivatives trading services
  • Islamic finance services
  • International equities exchange
  • Asset management 
  • Banking and credit services

In addition to regulating the above operations, DFSA is responsible for providing anti-money laundry and counter-terrorist financing requirements applicable to DIFC. It is important to note that DFSA is distinct from the UAE Federal Securities and Commodities authority whose jurisdiction covers the wider UAE outside the boundaries of DIFC. 

DFSA is also delegated by the DIFC Registrar of Companies to investigate suspicious companies and partnership activities with a potential breach of DIFC Companies Law and to pursue enforcement measures available to the Registrar.

The following sections outline an overview of DFSA and its legal framework for company formation in Dubai.

Overview of DFSA regulation

As a regulator in DIFC, DFSA:

  • Authorise and register institutions and individuals who wish to undertake financial services in or from DIFC
  • Supervise participants and monitor their compliance with the rules and laws that apply within DIFC
  • Enforce set legislations   

By taking a risk-based approach and avoiding unnecessary regulatory burden, DFSA set out to carry the following objectives under statutory obligation:

  • To foster fairness and maintain transparency and efficiency in all financial services and operations performed in DIFC
  • To build and maintain professional confidence and trust in the financial industry of DIFC
  • To detect, restrain and prevent detrimental practices that damage the reputation of DIFC or its financial services via appropriate means including the imposition of sanctions
  • To provide protection for direct, indirect and prospective users of DIFC financial services
  • To promote public awareness and understanding of the regulations of the financial services in DIFC
  • To pursue any other obligations issued by the Ruler under DIFC Law

DFSA regulations accord with the following guidelines in exercising its powers and performing its functions: 

  • Cultivating the advancement of DIFC as an international financial centre
  • Liaising and assisting with authorities in the UAE and other jurisdictions 
  • Minimizing adverse effects of competitions in the financial market
  • Maximizing utilities from available resources
  • Ensuring a proportionate balance between regulation costs and benefits
  • Complying with the principles of good governance
  • Ensuring transparency in power exercise and other functional performances

DFSA regulations,Rules and Laws

DIFC was established Under Article 121 of the UAE Constitution that enables the creation of freezones and excludes the application of certain federal laws within them. DFSA and other bodies are created by a set of laws that set out the objectives, rules and powers of these central bodies. 

Below are the most important of these laws:

Federal Law no.8 of 2004

As the cornerstone legislation of the regulatory regime Law 2004 states the following:

  • Allowing the creation of financial freezones in any emirate of the UAE under Federal Decree
  • Exemption of the financial freezones and their activities from all Federal civil and commercial laws
  • Confirmation of the application of the Federal Criminal Law in the financial freezone including anti-money laundry laws
  • Restrictions of DIFC authorised insurers’ dealings in the States to only reinsurance activities 

Cabinet Resolution no.28 of 2007

Resolution no.28 of 2007 implement Federal Law no.8 of 2004 and further details the provisions of the Financial Freezone Law

Federal Decree no.35 of 2004

This is more commonly known as the Financial Free zone in Dubai or as DIFC Law. Two cabinet resolutions have accompanied this law that:

  • Set the geographical boundaries of the DIFC
  • Allowed DIFC centre bodies and other authorised companies to operate outside DIFC for 4 years due to construction limitations

Dubai Law no.5 of 2021

This law acts as a replacement to Dubai Law no.9 of 2004 that acknowledges the creation of DIFC and provides the following:

  • More clarity on the duties and responsibilities of the Governor, the President and the Centre bodies including DFSA
  • Financial and administrative independence of DIFC operations
  • Adherence of the Centre bodies to highest governance and accountability principles

DIFC Law no.1 of 2004

This is the cornerstone of DFSA regulatory powers, functions and objectives:

  • Sets out the powers of the Board and the Executives Chiefs
  • Grants DFSA the power for making rules and implementing them
  • Establishes the criteria and processes for authorising firms and individuals
  • Sets the foundations for the Financial Market Tribunal
  • Sets up the decision-making process followed by DFSA

      

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