The FSRA launches first set of enhancements to its funds framework

On 24 November 2025, the Financial Services Regulatory Authority (the “FSRA”) of the Abu Dhabi Global Market (the “ADGM”) launched Consultation Paper No. 12 of 2025 proposing targeted but significant enhancements to its funds and fund manager framework (the “Consultation”). This consultation represents the first set of proposed changes to the overall framework within the ADGM with a second consultation paper covering additional private fund topics and enhancements to the public funds regime expected later in 2026. 

We summarise below some of the key proposals introduced by the Consultation and how these proposals may impact businesses operating or looking to operate within the ADGM.  The consultation closes on 30 January 2026.

Sub‑threshold Fund Manager (“STFM”) framework

The FSRA proposes a streamlined framework for Fund Managers of smaller private funds (the “STFM”), inspired by sub‑threshold approaches in the EU and UK but tailored to ADGM. Eligibility would be limited to Fund Managers of closed‑ended Qualified Investor Funds (“QIFs”) or those funds which are considered “Exempt Funds” under the regulatory framework.  The conditions for the STFM framework is a maximum committed capital of USD 200 million (or foreign currency equivalent), and specifically proposes to exclude “host” manager models where investment management is delegated or materially advised out.

An STFM would not be limited in terms of the assets in which it may invest. Therefore, subject to meeting the relevant eligibility criteria and complying with any obligations specific to specialist classes of Fund such as Private Credit Funds, STFMs would be permitted to manage such Funds.  The Consultation proposes that STFMs are provided with the same dispensations currently granted to Venture Capital Fund Managers (“VCFMs”).  From a market perspective, a proportionate, “light‑touch” regime for genuinely small managers is welcomed. Many managers operating at this scale are often thinly staffed and raise capital from sophisticated, professional investors who are well placed to assess the risks of participating and the capabilities of the manager. Calibrating compliance burdens for smaller managers serving professional clients reduces barriers to entry relative to full‑scope regimes aimed at broader investor bases.

If eligible, the STFM would still be required to obtain the FSRA financial services permission of “Managing a Collective Investment Fund”, however, as with the VCFMs, the STFMs would benefit from newly proposed proportionate requirements, including a Base Capital Requirement of USD 50,000 without an expenditure‑based capital minimum,  The appointment of a Finance Officer and an internal audit function would no longer be mandatory, with the Senior Executive Officer (the “SEO”) then expressly responsible for prudential compliance. Offering and marketing materials would be required to explicitly disclose the reliance on the STFM framework and associated dispensations. The FSRA is also seeking views on imposing a leverage limit set at 100% of fund Net Asset Value (“NAV”) and on transition mechanics for managers exceeding the capital threshold.

This is directionally similar to “sub‑threshold” concepts seen under the EU Alternative Investment Fund Managers Directive (“AIFMD”) and the UK’s implementation for small authorised managers, although the calibration differs. Notably, the STFM cap is expressed by reference to committed capital rather than fluctuating Assets Under Management (“AUM”), which is generally helpful for certainty and reduces the need for complex “temporary exceedance” rules. Given the scale often required for private Funds to be economically viable, stakeholders may wish to consider whether the USD 200 million level strikes the right balance or could be increased while retaining a proportionate oversight model.

In practice, where investor bases are exclusively sophisticated, market discipline typically limits tolerance for high fund‑level borrowing. Accordingly, the proposed leverage cap appears sensible and should not present a significant compliance burden for most STFMs.

Institutional fund manager framework

A second streamlined regime is proposed for Fund Managers of QIFs targeting exclusively institutional investors (the “IFM”). Eligibility would require a minimum subscription of USD 5 million per investor and prohibit natural person unitholders. These Fund Managers under the IFM framework would benefit from simplified authorisation and proportionate systems and controls, with no mandatory Finance Officer or internal audit function and the SEO accountable for prudential compliance where relevant.

Prudential requirements would be calibrated to the lower risk profile of this client base, with the higher of a USD 50,000 base capital or an expenditure‑based minimum set at 6/52 of annual audited expenditure. Professional indemnity insurance would not be required. The FSRA also seeks feedback on extending these calibrations to a limited subset of ADGM investment managers holding a Managing Assets permission who act only for affiliated fund managers and do not hold client money or assets. Transition provisions would allow existing managers to opt in or move to full‑scope permissions as their business model evolves.

Facilitating employee co‑investment via EIVs

To align incentives and respond to market demands and practices, the FSRA proposes to permit employee participation in Exempt Funds and QIFs through Employee Investment Vehicles (“EIVs”). EIVs would be excluded from the definition of a “Fund” and therefore exempt from applicable minimum subscription thresholds and from the FSRA COB rulebook client classification rules but will however be subject to strict eligibility and conduct conditions.

Participation would be limited to employees or directors, or of an appointed investment manager or investment adviser, directly involved in executing the vehicle’s strategy, with Fund Managers required to pre‑disclose EIV terms, confirm participants’ expertise and obtain written risk acknowledgements.

Strengthening the foreign fund manager (FFM) framework

Acknowledging the reputational and supervisory risks where Funds are established or domiciled in the ADGM (“Domestic Funds”) are managed by non‑ADGM entities, the FSRA proposes to:

• limit fund managers that are neither established in, nor operate from a place of business in the ADGM (“FFMs”), to managing closed‑ended QIFs but has proposed a grandfathering period for existing open‑ended funds launched before the change takes effect;
• require a UAE‑resident director for Domestic Funds structured as companies or partnerships (a director of the GP in the latter case) and therefore creating local accountability;
• mandate the appointment of an ADGM‑based fund administrator and an ADGM‑licensed corporate service provider to act as agent for regulatory filings;
• require the FFMs to subject themselves to ADGM laws and the jurisdiction of the ADGM Courts for activities relating to the Domestic Fund; and
• prohibit “host” manager models by FFMs where investment management is delegated out.

The FSRA would have discretion to waive the requirement for an eligible custodian for FFMs in appropriate cases (e.g., where asset types make custody impractical).  The FSRA also signals a future review of recognised jurisdiction lists in 2026, which may further impact the FFM framework.

Next steps

The FSRA invites broader feedback on the effectiveness and scope of specialist fund categories, including private credit funds, ADGM Green Funds and ADGM Climate Transition Funds, the private REIT framework, as well as on current ADGM fund vehicles more generally.

Firms should assess whether they may benefit from the proposed STFM or IFM frameworks and provide feedback accordingly.