FSRA Proposes Significant Enhancements to ADGM’s Funds Framework

The ADGM Financial Services Regulatory Authority (FSRA) has published Consultation Paper No. 12 of 2025, setting out a wide-ranging package of reforms to modernise the funds regulatory regime. The proposals reflect a holistic review of the framework and focus primarily on private funds, with further changes to follow in 2026.

The objective is clear: ensure proportionality, support industry growth, enhance regulatory clarity, and align ADGM with international best practice while maintaining robust investor protections.
 
Below is a structured overview of the key reforms.
 
1. A New Streamlined Framework for Sub-Threshold Fund Managers (STFMs)
 
The FSRA proposes a new category of Fund Manager designed for smaller private fund managers with lower risk profiles. This framework is broadly inspired by international sub-threshold AIFM regimes but adapted for ADGM.
 

Eligibility
 
• Up to USD 200 million committed capital across all funds managed
• May manage closed-ended Exempt Funds and QIFs (and equivalent foreign funds)
• Not permitted to operate a host-manager model (i.e., no delegation of investment management to sponsors or third parties)
 
Key Features
 
• Streamlined authorisation and reduced governance requirements
• No mandatory Finance Officer or internal audit function
• Base Capital Requirement (BCR): USD 50,000 (with no EBCM)
• Mandatory PII coverage (aligned with VCFM rules)
• Required disclosure to investors that the manager falls under a lighter-touch regime
 
Additional Points
 
• FSRA is seeking feedback on imposing a 100% NAV leverage cap for funds managed by STFMs
• Existing managers may “opt-in” if they meet eligibility
• Firms exceeding the USD 200m threshold would need FSRA approval to transition into the full-scope regime
 
2. Integrating the Venture Capital Fund Manager (VCFM) Regime
 
The FSRA proposes consolidating the existing VCFM regime into the new STFM category.
 
Key Developments
 
• VCFMs become a sub-category of STFM, preserving certain VC-specific flexibilities
• VCFMs would also be subject to the USD 50,000 BCR
• Clarification that the fundraising cap applies across all funds, not per fund
• VCFMs will be required to manage the Master Fund in a master–feeder structure (not only the feeder)
 
This consolidation aims to reduce complexity and ensure consistency across smaller fund manager types.
 
3. A Streamlined Framework for Institutional Fund Managers (IFMs)
 
A new regime is proposed for managers exclusively targeting institutional investors such as sovereign wealth funds and pensions.
 
Eligibility
 
• May manage only QIFs or equivalent foreign funds
• Minimum subscription USD 5 million
• No natural persons may be unitholders
 
Key Features
 
• Streamlined authorisation similar to VCFMs and STFMs
• No mandatory Finance Officer or internal audit function
• Higher of USD 50,000 BCR or 6/52 of annual audited expenditure
• Exempt from PII requirements due to the institutional-only investor base
 
Transition
 
• Existing managers may opt-in; those no longer eligible must transition to full-scope with FSRA approval
 
The FSRA is also seeking feedback on extending the IFM framework to certain investment managers with an FSP for Managing Assets, where they act only for affiliated fund managers and do not hold client assets.
 
4. Facilitating Employee Investment Vehicles (EIVs)
 
To support alignment of interests between fund managers and investors, the FSRA proposes a new framework enabling employees to invest in the funds they manage through an Employee Investment Vehicle.
 
Key Features
 
• EIVs explicitly excluded from the definition of a Fund
• Exempt from minimum subscription thresholds
• Client classification rules in COBS do not apply
• Participation limited to front-office staff directly involved in investment decision-making
• Fund Managers must:
o Provide clear disclosures on risks
o Demonstrate participants possess sufficient financial knowledge
o Obtain written risk acknowledgements
 
If non-eligible employees are admitted, the EIV would immediately lose its exempt status.
 
5. Strengthened Requirements for Foreign Fund Managers (FFMs)
 
The FSRA proposes several measures to increase oversight and establish a stronger nexus between FFMs and the ADGM.
 
Key Enhancements
 
• FFMs may manage closed-ended QIFs only
• Domestic funds must appoint a UAE-resident director (or UAE-resident director of the GP for investment partnerships)
• Mandatory appointment of an ADGM-based Fund Administrator
• Mandatory appointment of an ADGM-licensed Corporate Service Provider
• FFMs must submit to ADGM laws and ADGM Court jurisdiction
• FFMs cannot operate a host-manager model
 
Certain changes will not apply retrospectively to funds launched before the effective date.
 
The FSRA also proposes giving itself discretion to waive the requirement for an Eligible Custodian where impractical or disproportionate—consistent with current practice for authorised managers.
 
6. Feedback on Specialist Fund Categories
 
The FSRA is seeking industry input on the effectiveness and relevance of:
 
• The Private Credit Fund framework
• The eligibility and attestation requirements for Green Funds and Climate Transition Funds
• The framework for private REITs
 
This reflects ADGM’s intention to ensure specialist regimes continue to meet market needs.
 
7. Miscellaneous Amendments
 
The consultation also proposes targeted updates to COBS, FUNDS and PRU, including:
• New obligations for MTFs trading units of Professional-Client Funds
(e.g., controls to prevent trading by non-Professional Clients)
 
Next Steps
 
Consultation closes on 30 January 2026. Following industry feedback, the FSRA will finalise the amendments ahead of a second consultation paper in 2026, which will include further changes to the private funds regime and updates to the Public Funds framework.
 
How Clarity Can Help
 
At Clarity, we support firms across ADGM and DIFC in interpreting and implementing regulatory change. Our team advises Fund Managers, Asset Managers and Foreign Fund Managers on:
 
• Gap analysis and implementation planning
• Optimising governance, operating models and fund structures
• Interpreting eligibility for the STFM, IFM or VCFM categories
• Designing compliant EIV arrangements
• Preparing for changes to the FFM and specialist fund regimes
 
We combine technical depth with practical insight to help firms meet regulatory expectations confidently and proportionately.