The Riffle
The Dubai Financial Services Authority (DFSA) has issued Consultation Paper No. 173 (CP173), proposing significant enhancements to the Collective Investment Fund framework within the Dubai International Financial Centre (DIFC).
The proposals represent a comprehensive review of the DIFC funds regime, which has not undergone a major update since 2010. The amendments aim to modernise the framework, reduce unnecessary regulatory complexity, support innovation, and align DIFC’s asset management ecosystem with evolving international standards.
Key Highlights
1. Moving Towards Risk-Based Fund Regulation
The DFSA proposes moving away from rigid specialist fund classifications for certain Exempt Funds and Qualified Investor Funds (QIFs).
Instead of applying separate requirements based on specific fund categories, the framework will focus on:
• Fund activities
• Underlying risks
• Appropriate disclosures
• Risk management safeguards
The proposed approach aims to provide greater flexibility for hybrid and evolving investment strategies while ensuring transparency for investors.
2. Refinements to the Credit Fund Framework
Following industry feedback, the DFSA has proposed changes to streamline the Credit Fund regime.
Key proposals include:
• Removing the requirement that 90% of Fund Property must be used to provide credit
• Reducing the base capital requirement for Credit Fund Managers from USD 140,000 to USD 40,000
• Removing additional Credit Fund-specific application and annual fees
The DFSA intends to reduce regulatory barriers while maintaining safeguards around lending activities.
3. Greater Flexibility for Venture Capital and Fund Structures
The proposals introduce further flexibility for investment structures, including:
• Extending Venture Capital Fund relief to Funds of Funds investing in VC Funds
• Removing certain restrictions for Master-Feeder Fund structures
• Allowing Master Funds to accept direct institutional or professional investment alongside Feeder Fund subscriptions
These changes aim to support broader investment strategies and more efficient fund structuring.
4. Streamlining Fund Manager Operations
To provide greater clarity for Fund Managers, the DFSA proposes operational enhancements including:
• Clarifying that Managing Assets authorisation includes related dealing and arranging activities required for delegated investment management
• Extending the first annual reporting period from 12 months to up to 18 months
• Updating legal definitions to better reflect fund management arrangements
The objective is to simplify operational requirements and provide greater certainty for firms operating in the DIFC.
5. Employee Participation in Private Funds
To encourage stronger alignment between investment teams and investors, the DFSA proposes allowing eligible employees involved in investment management or advisory activities to invest in the private funds managed by their employer.
Such investments would be supported by appropriate disclosure requirements and conflict management measures.
6. Removal of the External Fund Manager Regime
The DFSA proposes removing the External Fund Manager (EFM) regime.
The regime was originally introduced to allow non-DIFC managers to access the DIFC funds ecosystem. However, the DFSA has noted limitations around supervisory oversight and increased interest from firms seeking full DFSA authorisation within DIFC.
Looking Ahead: Tokenisation and Long-Term Investment Funds
CP173 also explores future developments that could shape the next phase of the funds industry.
The DFSA is considering:
Fund Tokenisation
Use of Distributed Ledger Technology (DLT) for fund operations
Tokenised fund units and digital registers
Potential applications of tokenised money market funds
Long-Term Investment Funds (LTIFs)
Potential structures allowing retail investors access to long-term assets
Investment into areas such as real estate, energy-transition assets, and unlisted companies
Appropriate safeguards for liquidity and investor awareness
The Riffle Takeaway
CP173 represents an important step in the evolution of the DIFC funds ecosystem.
By shifting towards a more flexible, disclosure-led, and risk-based framework, the DFSA aims to support innovation while maintaining strong regulatory standards.
