On 7 July 2026, the Dubai Financial Services Authority (DFSA) published Consultation Paper No. 173 (CP173), setting out wide-ranging proposals to modernise its regulatory framework for Collective Investment Funds in the Dubai International Financial Centre (DIFC). The proposals represent the most significant review of the regime since 2010 and are designed to align more closely with international standards and regulatory best practices, while streamlining requirements and reducing unnecessary regulatory burden. The DFSA is inviting public comment by 7 September 2026.
This alert summarises the key proposals and their practical implications for fund managers, asset managers, custody providers, and their advisers, with a focus on areas of particular significance to fund managers and sponsors operating in the DIFC.
The DFSA's funds regime was established in 2006 and last comprehensively reviewed in 2010. In the intervening years, the DIFC’s funds and asset management industry has evolved significantly, as have international standards. CP173 is the product of an extensive review informed by supervisory experience and market engagement, with the dual objectives of strengthening investor protection through a proportionate, risk-based approach and supporting the DIFC's continued development as a global financial centre and funds hub.
The consultation encompasses proposed amendments to the Collective Investment Law No. 2 of 2010 (CIL), the Investment Trust Law No. 5 of 2006, the Regulatory Law 2004, and multiple Rulebook modules (CIR, GEN, GLO, PIB, FER, IFR, and MKT).
Key Proposals
1. Removal of Fixed Fund Classifications
The DFSA proposes a targeted move away from specialist class designations for Exempt Funds and Qualified Investor Funds (QIFs). Market feedback has indicated that fixed classifications are overly restrictive and do not adequately accommodate hybrid or multi-strategy investing. Under the proposed approach, the DFSA would focus more directly on the activities undertaken by a fund, the associated risks, and the safeguards needed to manage those risks, rather than requiring every fund to fit within a specialist classification. The proposal is not, however, a wholesale removal of all specialist fund requirements: CP173 identifies Money Market Funds, Private Equity Funds and Credit Funds for removal of certain specialist class requirements. Notably, Property Funds are not explicitly identified in CP173 as part of that removal proposal.
Specifically, the DFSA proposes to:
- Remove specialist class requirements for Exempt Funds constituted as Money Market Funds and Private Equity Funds;
- Remove specialist class requirements for both Exempt Funds and QIFs constituted as Credit Funds, with certain safeguards retained as described below; and
- Shift the regulatory focus towards enhanced disclosures.
To maintain robust regulatory standards, the DFSA proposes to apply key risk-management requirements across all fund managers, including managers of Public Funds, rather than confining those requirements to individual specialist classes. It also proposes to introduce new requirements on risk management systems and fund risk profiles.
Other proposed measures include requiring QIFs and Exempt Funds to calculate borrowing limitations in a reasonable and prudent manner and to disclose expected maximum borrowing levels. The proposal would apply existing prime-broker requirements where a QIF or Exempt Fund authorises a prime broker to pool, re-hypothecate, or use fund assets as collateral for financing and securities lending activities.
2. Revised Framework for Funds with Investment Strategies that Involve Providing Credit
For funds with an investment strategy that involves Providing Credit, the DFSA proposes to remove the current requirement that 90% of Fund Property must be used to Provide Credit. However, certain safeguards would be retained, including prohibitions on providing credit facilities such as letters of credit or financial guarantees and prohibitions on Providing Credit to natural persons, persons who intend to utilise the credit for trading, or persons who intend to use the credit for the purpose of providing credit.
For fund managers of those strategies, the DFSA also proposes to reduce the base capital requirement from USD 140,000 to USD 40,000, aligning it with the requirement applicable to other fund managers, and to remove the separate Credit Fund fee regime, which currently requires a USD 10,000 application fee and a USD 10,000 annual fee.
3. Venture Capital Funds
The existing Venture Capital Fund framework, which provides regulatory relief including reduced fees, exemptions from internal audit requirements, and relaxed capital requirements, would be retained and extended to fund managers that manage funds dedicated to investing in Venture Capital Funds, effectively enabling fund-of-venture-capital-funds strategies to access the regime.
4. Clarification of the Managing Assets Licence
The DFSA proposes to clarify that an authorisation to Manage Assets covers Dealing in Investments as Agent and Arranging Deals in Investments, to the extent these activities are necessary for the discretionary investment management of Fund Property under a delegation from a Fund Manager. This removes a longstanding source of regulatory ambiguity and may allow some firms to apply for the removal of authorisations they currently hold solely to support delegated portfolio management.
Separately, an investment manager that subscribes for initial units or interests in a Venture Capital Fund using its own capital would no longer need a separate authorisation for Dealing in Investments as Principal, extending an exclusion that currently applies only to Private Equity Funds. This proposal to expand this exclusion does not apply to investments in other categories of funds.
5. Fund Structures: Master-Feeder Reforms
The DFSA proposes to remove certain Master Fund eligibility criteria for public Feeder Funds that have proven difficult to satisfy in practice, including:
- The requirement for a Master Fund's Units to be offered by at least three market makers (viewed as duplicative of existing liquidity management rules); and
- The 20% cap on a Feeder Fund's holding of Master Fund Units (viewed as disproportionate given the sole investment objective of a Feeder Fund).
Additionally, the definition of Master Fund would be broadened to permit subscriptions from non-Feeder Fund investors alongside Feeder Fund subscriptions, reflecting common practice in international master-feeder structures.
6. Removal of the External Fund Manager Regime
The DFSA proposes to abolish the External Fund Manager (EFM) framework, which currently allows non-DIFC fund managers to establish and manage Domestic Funds without a physical presence in the DIFC. This is distinct from the continued ability of DIFC-based fund managers to manage External Funds. The proposal reflects the DFSA's limited supervisory reach over non-DIFC entities and strong market demand for full DFSA authorisation. CP173 notes that the DFSA will discuss with existing EFMs whether they may continue managing funds that exist as at the date of publication of CP173.
7. Employee Investment in Funds
Recognising market demand for alignment mechanisms between fund manager staff and investors, the DFSA proposes to permit certain employees to invest, either directly or through dedicated vehicles, in the private funds their employer manages, without the fund losing its QIF or Exempt Fund status.
Eligible employees would be those directly involved in investment decision execution or the provision of investment advice to the fund manager. The requirement to be a Professional Client, the minimum subscription amounts, and the minimum net asset requirements would be disapplied for those employees, provided they meet the relevant experience criteria. Additional disclosure requirements would be introduced so that investors are informed of employee participation and how related conflicts of interest will be managed.
8. Extended First Reporting Period
The DFSA proposes to extend the accounting period for a fund's first annual report from 12 months to 18 months (measured from the date of registration or notification, as applicable). This acknowledges the practical reality that newly established funds often experience delays before launch, and ensures the first reporting period more accurately reflects actual fund activity.
9. Technical and Structural Amendments
Several technical reforms are proposed:
- Fund Manager definition: In many global fund structures, a Fund Manager's contractual obligations run to the fund vehicle or its governing body (such as a board, trustee, or general partner) rather than directly to investors. The CIL's current concept of "legal accountability to Unitholders" has created difficulties for such structures, particularly in the context of Foreign Fund management from the DIFC. The DFSA proposes to amend the definition so that a person is not excluded from being a Fund Manager merely because it is not legally accountable directly to Unitholders. The obligation to act in the best interests of Unitholders would be retained.
- Waiver and modification power: A proposal to grant the DFSA formal power to waive or modify provisions of the CIL itself, in addition to its existing power over Rules, subject to robust internal processes.
- Streamlining: Deletion of redundant provisions and consolidation of overlapping rules to enhance clarity.
10. Transition Period
A general transition period of three months is proposed for all changes to take effect following finalisation. It is unclear how the transition period is expected to operate for existing funds, including whether any updates to constitutional documents, offering memoranda or other fund agreements would be required and how any associated unitholder approval, notice or supplementary prospectus processes should be managed.
Discussion Items: Future Policy Development
CP173 also invites initial feedback on two forward-looking topics that may be the subject of future policy proposals:
- Tokenisation. The DFSA seeks views on whether its current rules, introduced following CP138 in 2021, present barriers to the issuance of tokenised Fund Units, the use of tokenised Money Market Funds as collateral, or the holding of tokenised investments and Crypto Tokens as Fund Property. The DFSA is particularly interested in practical challenges to scaling fund activity involving distributed ledger technology.
- Long-Term Investment Funds(LTIFs). LTIFs typically provide long-term financing to the real economy by investing in real assets, such as immovable property, equipment, transport, and energy-transition assets, and/or investing or offering loans to unlisted companies. These asset classes are inherently illiquid and are currently available in the DIFC only to professional investors through Exempt Funds or QIFs. The DFSA is now exploring whether to introduce a regime that would grant retail investors, or a restricted retail segment, access to LTIFs, drawing on comparable frameworks in the EU and the UK (and is a concept that was recently introduced in Saudi Arabia under the Capital Market Authority’s revised Investment Funds Regulations). The key safeguards under consideration include: (i) investor access and suitability, including whether LTIFs should be available to all retail investors or only to a restricted segment, and whether a suitability assessment should be required; (ii) redemption mechanisms, including what proportion of the LTIF should be held in liquid assets (such as cash or easily realisable investments) to meet redemption requests, the frequency and notice periods for redemptions, and the minimum amount of Net Asset Value to be offered for redemption; and (iii) investor awareness, including whether a key information document should be required to explain the LTIF's features and risks. The DFSA will consider feedback received and may develop policy proposals for retail access to LTIFs in the future.
Next Steps
Stakeholders are invited to provide comments via the DFSA's online response form by 7 September 2026. King & Spalding intends to provide feedback to the DFSA on certain proposed revisions and potential gaps in the proposed framework.
Following the consultation, the DFSA will consider feedback, finalise its legislative proposals, and submit the proposed changes to the CIL, Investment Trust Law, and Regulatory Law for the necessary approvals. Rulebook amendments will be made in parallel. Firms should not act on the proposals until the relevant legislative changes are finalised; the DFSA will issue a public notice upon completion.
Practical Implications
Fund managers, asset managers, institutional investors, and service providers operating in or considering the DIFC should:
- Assess whether existing fund structures, authorisations, and internal processes may be affected by the proposed changes, particularly firms currently operating under specialist class requirements or holding authorisations that may become redundant;
- Consider opportunities arising from the increased flexibility, including hybrid strategies, simplified structures for funds that provide credit, employee co-investment, and expanded venture capital mandates;
- Engage with the consultation process to shape the final framework, particularly on items where the DFSA has expressly invited market input, including tokenisation, LTIFs, borrowing and prime broker arrangements; and
- Review any existing waivers or modifications granted by the DFSA that may be affected by the proposed deletions or amendments.
*For more information on how these proposals may affect your business, please contact the King & Spalding contacts below.
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