Mis-selling claims in the DIFC: product innovation and regulatory expectations

September 2026 | SPOTLIGHT | BANKING & FINANCE

Financier Worldwide Magazine

September 2026 Issue

Periods of heightened market volatility, whether driven by macroeconomic shifts, interest-rate cycles or broader global uncertainty, have consistently been followed by a number of mis-selling allegations against financial institutions (FIs). In the Dubai International Financial Centre (DIFC), this pattern is no exception. As asset values fluctuate sharply across equities, commodities, structured instruments and foreign exchange, investors that have sustained unexpected losses increasingly turn to litigation and regulatory complaint mechanisms to seek redress.

The mis-selling risk profile for DIFC-authorised firms has evolved in recent years, principally by the pace of product innovation, particularly in structured notes, thematic investment products and novel derivative payoff structures. This article examines the implications of these developments within the DIFC’s regulatory and litigation landscape and offers practical guidance for firms seeking to manage their exposure.

Product innovation and the evolving mis-selling landscape

The financial products available to investors in the DIFC have grown significantly in both complexity and variety. Structured notes with bespoke payoff profiles, thematic investment products linked to emerging sectors and complex derivative structures offering leveraged or contingent returns have become increasingly prevalent. While product innovation delivers genuine benefits, including tailored risk-return profiles and access to new asset classes, it also creates fresh challenges for the FIs selling these instruments.

Leveraged and margin-traded products present a particularly acute set of risks. Contracts for difference, spread bets and other margin-traded derivatives expose clients to losses that can exceed their initial investment. For retail clients in particular, these loss dynamics may not be intuitively understood. Firms offering leveraged products are subject to specific regulatory obligations, including the provision of standardised risk warnings, the implementation of negative balance protection mechanisms and adherence to margin close-out rules. However, as leveraged product structures evolve, for example through the introduction of tiered margin requirements, dynamic leverage adjustments or hybrid structures combining leverage with structured payoff features, the adequacy of existing risk warnings and close-out protocols should be continuously reassessed.

For complex or structured instruments, the obligation to explain product mechanics in a manner that the client can reasonably be expected to understand remains a frequent source of claims. A product term sheet or key information document that is technically accurate but practically incomprehensible to an investor will offer limited protection to the FI. The challenge is particularly pronounced for products with novel or unfamiliar payoff structures, where the client’s prior investment experience may provide no meaningful frame of reference for evaluating the risk. Firms should ensure that their product explanation processes go beyond documentary compliance and include meaningful interaction, whether through recorded advisory calls, structured suitability dialogues or supplementary explanatory materials, to demonstrate that the client was given a genuine opportunity to understand the product.

Causes of action: how mis-selling claims arise in the DIFC

Mis-selling claims pursued in the DIFC courts are rarely based on a single legal argument. Claimants typically advance a number of causes of action spanning contract, tort and regulatory breach, albeit relying on overlapping aspects of the firm’s conduct during the advisory or sales process.

Contract and tort claims commonly arise from allegations of negligent misstatement, namely that the firm or its representatives made inaccurate or incomplete statements about a product’s risk profile, expected returns or suitability for the client’s circumstances; or from allegations of advisory negligence, where the firm assumed an advisory role and failed to exercise reasonable skill and care.

A distinct and increasingly significant avenue of claim arises under article 94 of the Dubai Financial Services Authority (DFSA) Regulatory Law 2004, which permits a private right of action where a person suffers loss as a result of a contravention of DFSA rules. This provision enables claimants to convert alleged breaches of the DFSA’s Rulebook, including obligations relating to suitability, disclosure and the fairness of communications, into actionable civil claims for damages. Importantly, as confirmed by the DIFC courts confirmed in the seminal decision of Rafed Abdel Mohsen Bader Al Khorafi & Ors v Bank Sarasin‑Alpen (ME) Ltd & Bank Sarasin & Co Ltd, a claimant proceeding under article 94 must still establish causation, quantifiable loss and remoteness in the ordinary way.

DFSA conduct standards and general principles

The most common regulatory contraventions alleged by a claimant when pursuing a claim under article 94 relate to breaches of the DFSA’s General Module and Conduct of Business (COB) Rulebook.

General principles. Firms and individuals are required to observe high standards of integrity; in a mis-selling context, a claimant may contend that the firm’s sales practices or representations fell short of this standard. Equally, the requirement of fair dealing obliges firms to have proper regard to their clients’ interests and to treat them equitably, a duty that carries particular weight where the firm is dealing with a less sophisticated client who may be ill-equipped to protect their own interests. The obligation to maintain proper standards of market conduct imposes a broad duty that may extend to allegations of aggressive sales tactics, failures to act in the client’s best interests, or departures from accepted industry practice.

Conduct of business obligations. At the level of specific conduct rules in COB, two obligations are central to most mis-selling disputes. The suitability and appropriateness requirement mandates that, where a firm makes a personal recommendation, it must take reasonable steps to ensure the product is suitable having regard to the client’s knowledge, experience, financial resources and investment objectives. Where the firm acted in an advisory capacity, a failure to conduct an adequate suitability assessment can form the foundation of a claim. In addition, the obligation to ensure fair, clear and not misleading communications applies across all client-facing materials, including marketing documents, product literature, term sheets and oral representations, and is a frequent focal point of dispute where promotional materials are alleged to have understated risk or presented an unbalanced picture of potential returns.

Available defences to mis-selling claims

For FIs facing mis-selling proceedings, the DIFC framework offers a range of legal and procedural defences. The strength of any defence will depend on the quality of the underlying documentation and the contemporaneous record of interactions with the client.

The evidential record is often decisive. The DIFC courts place significant weight on the documentary trail, including client agreements, risk disclosures, suitability assessments, trade confirmations, call logs and correspondence. Importantly, off-channel communications, including messages exchanged via WhatsApp or other informal platforms between relationship managers and clients, may be adduced in evidence. Where advice has been provided on unrecorded lines in contravention of internal or regulatory requirements, the admissibility and handling of such evidence can become contested, generating satellite issues that prolong proceedings and increase costs. Firms are well advised to enforce rigorous communication channel discipline to minimise this risk.

Contractual defences are frequently deployed by FIs to resist mis-selling claims. Well-drafted client agreements will typically contain provisions designed to allocate risk and define the scope of the firm’s obligations. Key contractual tools include sophistication acknowledgements, in which the client confirms that it possesses the knowledge and experience necessary to evaluate the transaction and its risks; non-advisory confirmations, establishing that the firm has not provided, and the client has not sought, personal investment advice in relation to the product; and non-reliance clauses, under which the client acknowledges that it has not relied on any representation made by the firm other than those expressly set out in the contract.

The doctrine of contractual estoppel, which prevents a party from asserting a factual position inconsistent with an agreed contractual term, has been successfully invoked by financial institutions in the courts of England and Wales to defeat mis-selling claims and uphold the agreement as recorded. While contractual estoppel has not, to our knowledge, been directly tested in the DIFC courts, it represents a potentially powerful line of defence available to firms that have ensured their contractual documentation clearly records the agreed position between the parties.

Limitation periods provide a further procedural defence. Under article 28 of the DIFC Court Law, proceedings must generally be commenced within six years of the date on which the cause of action arose. A claim brought outside this window is time-barred and the DIFC courts should dismiss it accordingly. Given that mis-selling disputes often emerge long after the relevant transaction, limitation is a defence that should be assessed at the earliest opportunity.

Jurisdictional challenges may also be available where the claim involves a cross-border dimension. Complex distribution arrangements, in which, for example, the client relationship is governed by an agreement subject to one jurisdiction’s courts while the products are booked through an entity in another jurisdiction with a different dispute resolution mechanism, can give rise to legitimate challenges as to the proper forum for the dispute.

Regulatory enforcement and its consequences

Beyond private litigation, mis-selling conduct can attract the attention of the DFSA and expose firms to regulatory enforcement proceedings. The DFSA may become involved upon receipt of a direct complaint from a client or where the firm itself reports the allegation pursuant to its own regulatory notification obligations. Firms operating in the DIFC should recognise that unresolved client grievances carry an inherent risk of escalation from private dispute to regulatory investigation.

Once an investigation is commenced, the DFSA possesses extensive powers to compel the production of documents, require individuals to attend for interview and obtain any further information it deems necessary. The scope and intrusiveness of these powers mean that an investigation can impose a substantial operational and financial burden on the firm under review well before any formal finding of misconduct.

Where misconduct is established, the DFSA’s enforcement toolkit is broad. Available sanctions include the publication of a decision notice outlining the contraventions, along with the imposition of financial penalties on the firm or an undertaking requiring the firm to take remediation steps to rectify systemic failures in its controls framework. In rare but serious cases, the DFSA can trigger the commencement of civil proceedings in the DIFC courts to recover damages or compensation on behalf of affected clients. Enforcement action is not limited to the corporate entity – where individuals are found to have been knowingly involved in the firm’s contravention, or to have contravened any DIFC Law or regulation, the DFSA may take action against them directly, including by withdrawing their authorised individual status and prohibiting them from performing any regulated function in or from the DIFC.

Proactive risk management in volatile markets

Market-cycle volatility and shifting macroeconomic conditions do not, in themselves, give rise to legal or regulatory liability. However, experience demonstrates that periods of significant market stress are frequently followed by an increase in mis-selling allegations, as clients that have suffered losses scrutinise the advice and disclosures they received at the point of sale. It is during these periods that the quality of the firm’s client relationships and its exposure to litigation and regulatory risk is most acutely tested.

Firms can take concrete steps to manage this risk. As a starting point, firms should remind employees of the importance of conducting all client communications through approved channels of communication in a transparent manner and only in relation to products that are assessed as suitable for their clients. These issues should be the subject of internal training, with attendance recorded. When complaints are received, responses should be carefully calibrated to avoid language that could be construed as an admission of liability or as a minimisation of the client’s losses. In our experience, prompt and measured engagement with dissatisfied clients is often critical to mitigating the risk of escalation. In this regard, DFSA-regulated firms should be assessing on an ongoing basis whether their regulatory notification obligations are engaged by the complaint or facts that are uncovered by any subsequent investigation.

Nicholas Sharratt is head of Middle East dispute resolution and Karl Masi and Ben Mellett are counsel at Norton Rose Fulbright. Mr Sharratt can be contacted on +971 4 369 6301 or by email: nicholas.sharratt@nortonrosefulbright.com. Mr Masi can be contacted on +971 4 563 7309 or by email: karl.masi@nortonrosefulbright.com. Mr Mellett can be contacted on +971 4 369 6338 or by email: ben.mellett@nortonrosefulbright.com.

Nicholas Sharratt, Karl Masi and Ben Mellett

Norton Rose Fulbright