UAE's New Takaful Regulation Took Effect on September 14: Separate Legal Funds, a Mandatory Wakala Model and Strict Rules for Islamic Windows at Conventional Insurers

The Central Bank of the UAE has replaced its rulebook for takaful, or Islamic insurance, with a new regulation that took effect on September 14, 2026. The change was reported by the law firm Pinsent Masons on September 29, by Emirates 24|7 on September 30 and discussed earlier by the Dubai law firm Al Tamimi & Company on August 11. Together, the sources describe a regime that tightens how takaful money is separated and governed, while at the same time allowing conventional insurers to enter the market through Islamic windows.

First, some background on how takaful differs from conventional insurance. In a takaful arrangement, participants contribute money to a common fund that pays claims for members who suffer a loss, and an operator manages the fund for a fee. The central legal and sharia questions concern who owns the fund, how the operator is paid, and whether a deficit or surplus belongs to participants or to the company. Regulators therefore tend to focus on how the fund is separated from the operator's own balance sheet. The new UAE regulation, called the Regulation regarding takaful insurance, addresses this directly.

The most significant requirement is a dedicated takaful insurance fund. Pinsent Masons reports that every licensed takaful operator must establish a fund with its own legal personality and separate financial liability, and the fund's assets and liabilities must be fully segregated from those of the company. Policy obligations are met from the assets of the fund, but claims remain enforceable against the company, which stays responsible for settling them properly and on time. Al Tamimi, writing about the underlying standards, adds that the fund must be independent of the company and registered with the Central Bank, that its charter requires approval from the board, the internal sharia supervision committee, the Central Bank and the Higher Shari'ah Authority, and that it must own its assets, bear its liabilities and show an independent financial position in the company's accounts. The firm also reports that the fund has a renewable term of 100 years and that a company with more than one takaful line must run a separate fund for each.

The second requirement concerns the operating model. According to Pinsent Masons, operators must use a wakala-based model at all times. Wakala is an agency structure in which the operator manages the fund on behalf of participants in return for a fee. Under the 2022 rules, wakala could be combined with mudaraba, a profit-sharing arrangement, or another model approved by the Central Bank and the Higher Shari'ah Authority. Firms that currently use a mudaraba element may therefore need to restructure. Al Tamimi notes that the operating model must be approved by the internal sharia committee, the Central Bank and the Higher Shari'ah Authority, and published on the company's website, and that a new agency agreement regime governs how the company manages the fund's insurance and investment activities. If no board of trustees is appointed for the fund, an independent third party must sign the agency agreement on the fund's behalf.

Third, the regulation sets out what conventional insurers must do if they offer takaful through a window, which is a dedicated Islamic unit inside a conventional company. They must obtain Central Bank approval, establish a dedicated sharia governance framework, appoint an internal sharia supervision committee, designate a dedicated head for the business and keep separate accounts, including the fund, distinct from the insurance company's accounts. Al Tamimi explains that this reflects a change in the underlying law: Federal Decree-Law No. 6 of 2025, which took effect on September 16, 2025, allows conventional insurers to write takaful through an Islamic window without a separate dedicated takaful license. Previously, only a company licensed and incorporated as a takaful insurer could conduct takaful business, and conventional insurers were expressly barred from Islamic windows. The firm's assessment is that conventional insurers gain a lower-cost route into the takaful market and that existing takaful operators should expect more competition and review their fund charters, operating models and agency agreements against the new standards.

The Emirates 24|7 summary lists additional elements of the framework. It says takaful funds must have independent legal status, that each insurance type must have its own separate account, that any transfer of funds requires prior approval from the Central Bank, that solvency checks are enhanced, and that oversight of takaful windows is stronger. A photo caption says the Central Bank can subject a takaful fund to an independent solvency assessment. The captured page contained only this summary, so the detail behind those points was not available, and readers should consult the regulation itself for the exact text.

What is not known is also worth stating. Pinsent Masons reported no transition period or compliance deadline beyond the September 14 effective date, and the sources do not give capital figures, the number of firms affected or the cost of compliance. The articles do not say how many conventional insurers plan to open windows, and they do not describe the penalties for non-compliance. The commentary from Pinsent Masons lawyers describes the regulation as a significant step in modernising the UAE's takaful framework and says the fund requirement is intended to strengthen the segregation of policyholder funds, but these are expert views and not results.

This rule change sits alongside other developments in the UAE market. Earlier articles on this site covered the Central Bank's new insurance licensing rules, which make a firm's business plan central to its license. The takaful regulation is a separate instrument, aimed at one segment of the market, but it follows the same direction of travel: more explicit structure, clearer separation of customer money and tighter supervision.

For takaful participants, the practical effect should be a clearer legal structure around the money they contribute. For operators, the immediate tasks are to check whether their funds meet the legal-personality and segregation rules, to review whether their models comply with the wakala requirement, and, for conventional insurers with windows, to file for approval and set up separate accounts. For brokers and corporate buyers, the main point is that the market may soon have more suppliers of sharia-compliant cover, although the sources do not say when.