DFSA Consultation Paper 173 proposes the biggest rework of DIFC fund rules since 2010: no more fixed specialist fund classes, an end to the External Fund Manager route, and new room for employee co-investment. None of it is law yet. Here is what is proposed, what is commonly misreported, and what managers should do before the final rules arrive.
The short answer
- Nothing has been enacted. DIFC funds still run under the existing Collective Investment Law and Rules. CP173 was published on 7 July 2026 and its consultation closed on 7 September 2026.
- The External Fund Manager route would close. Managers outside the DIFC would need full DFSA authorisation, or a DIFC-licensed manager, to run a DIFC fund. The DFSA says it will discuss the position of existing EFMs with them.
- The USD 50,000 and USD 500,000 minimums stay for ordinary investors. CP173 lifts them only for eligible employees of the fund manager who invest in the funds it manages.
- Specialist fund classes would go. Private Equity and Money Market overlays for Exempt Funds, and the Credit Fund class, would give way to rules based on what a fund actually does.
- A three-month transition is proposed once final rules are made. Structure today against the rules in force.
Last reviewed 5 October 2026
On 7 July 2026 the Dubai Financial Services Authority published Consultation Paper No. 173, the first comprehensive review of its collective investment fund framework since 2010. The consultation closed on 7 September 2026. At the time of writing the DFSA has not published final rules, so everything below is a proposal: the rules that apply to a DIFC fund today are the existing Collective Investment Law and Collective Investment Rules.
That matters in both directions. A manager who restructures against a proposal is acting on a document that may change. A manager who ignores it will be caught out when final rules land with a short transition. This guide sets out what CP173 proposes, the point most often misreported, and what each kind of manager should do now.
A note on this article. Earlier versions of this page said CP173 would remove the Exempt Fund and Qualified Investor Fund minimum subscriptions for all investors. That was wrong. The proposal lifts those minimums only for eligible employees of the fund manager. We have corrected it here and across our other fund guides.
The short answer
CP173 proposes to replace fixed specialist fund classes with risk-based rules, close the External Fund Manager route, simplify licensing for delegated fund management, modernise master-feeder structures and let eligible employees invest in their employer's funds. It also opens a discussion on tokenised funds and a Long-Term Investment Fund regime for retail investors. None of it is law. Final rules would come with a proposed three-month transition.
What CP173 proposes
| Area | Current position | CP173 proposal |
|---|---|---|
| Specialist fund classes | Private Equity and Money Market overlays for Exempt Funds; Credit Funds as a separate class | Classes removed; rules follow the fund's activities, with risk management, borrowing disclosure and prime broker safeguards applying across all funds |
| Credit funds | At least 90% of Fund Property must be used to provide credit | 90% test removed; core lending prohibitions kept, including no credit to natural persons |
| External Fund Managers | A manager outside the DIFC can run a DIFC fund without a DIFC presence | Route abolished; the DFSA will discuss the position of existing EFMs |
| Delegated fund management | Separate permissions can be needed for dealing and arranging | A Managing Assets authorisation would cover the dealing and arranging needed to run the portfolio |
| Master-feeder | 20% cap on a feeder's holding; three market maker condition; master open only to feeders | Cap and market maker condition removed; master funds may take direct professional investors |
| Employee investment | Employees must meet Professional Client and minimum subscription tests | Eligible employees exempt from those tests, with disclosure and conflicts controls |
| First annual report | Covers up to 12 months | Up to 18 months from registration or notification |
Sources: the DFSA notice, and the summaries published by Clyde & Co, CMS and King & Spalding.
The point most often misreported: minimum subscriptions
A good deal of commentary, including earlier versions of this article, said CP173 would scrap the USD 50,000 Exempt Fund and USD 500,000 Qualified Investor Fund minimums. It does not propose that for investors generally. The relief is narrow: employees of the fund manager, or of a DFSA-licensed delegated investment manager, who are directly involved in investment decisions or advice could invest in the funds their employer manages without meeting the minimum subscription or the Professional Client tests, and the fund would keep its Exempt Fund or QIF status. Ordinary investors would still need to meet the existing thresholds.
Our guide to Exempt Funds and Qualified Investor Funds explains how the two categories work today.
The External Fund Manager route: who is affected
Today a fund manager based outside the DIFC can establish and manage a DIFC domestic fund without a physical presence in the Centre. CP173 proposes to abolish that route. The DFSA's reasons are its limited supervisory reach over managers outside the DIFC and the growing number of managers seeking full DFSA authorisation anyway.
If the proposal is adopted, a manager outside the DIFC that wants to run a DIFC fund would broadly have two options:
- Become a DFSA-authorised fund manager in the DIFC, with a licensed entity, approved individuals and the systems that come with it. Our DIFC fund manager licence guide covers the process.
- Appoint a DFSA-authorised manager to manage the fund, with the offshore firm acting as adviser or sponsor where the rules allow.
What happens to funds already run by External Fund Managers is not settled. The DFSA has said it will discuss with existing EFMs whether they may continue managing funds that exist at the date CP173 was published. Funds launched after that date are the most exposed. DIFC-based managers can still manage funds domiciled outside the DIFC; that part is unaffected.
Other proposals worth knowing
- Venture capital. The existing venture capital relief would extend to managers of funds that invest in Venture Capital Funds, and initial subscriptions into a Venture Capital Fund would not need a separate dealing as principal permission. Our note on the DIFC venture capital fund regime covers how that relief works today.
- Fund manager definition. A person would no longer be excluded from being a Fund Manager just because it is not legally accountable directly to unitholders. The duty to act in their best interests stays.
- DFSA waiver power. The DFSA would gain power to waive or modify provisions of the Collective Investment Law itself, not only the Rules.
Discussion only: tokenisation and long-term funds
Part II of CP173 asks questions rather than proposing rules. The DFSA wants views on barriers to tokenised fund units, tokenised money market funds used as collateral and funds holding tokenised assets, and on whether to create a Long-Term Investment Fund regime that would give some retail investors access to illiquid assets, drawing on EU and UK models. There is nothing to act on yet. Any rules would come through a later consultation.
What to do now
- Launching a fund now: structure against the rules in force. A fund launching this year is registered under the current framework. Build offering documents on the current law, not the consultation.
- Using the External Fund Manager route: plan for it closing. Decide whether a DIFC-licensed entity or an appointed DFSA-authorised manager fits your business, and how long each takes, before the final rules start a short transition clock.
- Running a credit, private equity or money market fund: note the documents likely to change. Removal of the specialist classes may simplify your rules, but your constitution and offering document may refer to the class. Review them once final rules are published, not before.
- Planning employee co-investment: wait for the final wording. The eligibility criteria and disclosure requirements will decide whether a plan works, and they may change.
- Watch for the DFSA's feedback statement. It will show what changed after consultation and set the commencement date.
How this affects choosing the DIFC
The direction is positive for professional investor funds: fewer labels, more flexible master-feeder structures and simpler licensing for delegated management. The cost falls on managers who relied on running a DIFC fund from outside the Centre. Our comparison of DIFC and ADGM for fund setup covers the choice between the UAE's two centres, and our guide to setting up a fund management company in the DIFC covers the manager's own licensing.
Atlas Corporate Services supports fund managers with DIFC fund setup, entity formation, corporate secretarial work and ongoing fund and SPV support. We are not a law firm, and regulatory analysis of the consultation belongs with fund counsel. What we can do is build the corporate infrastructure for a DIFC manager or fund correctly against the rules as they stand. Speak with our team if the External Fund Manager proposal affects you.
Frequently Asked Questions
What is DFSA Consultation Paper 173?
CP173 is the DFSA's proposal to modernise the DIFC collective investment fund framework, the first comprehensive review since 2010. It was published on 7 July 2026 and the consultation closed on 7 September 2026. It proposes removing fixed specialist fund classes, abolishing the External Fund Manager route, simplifying licensing for delegated fund management, modernising master-feeder rules and allowing eligible employees to invest in their employer's funds.
Are the CP173 changes in force?
No. As at 5 October 2026 the DFSA had not published final rules, so DIFC funds remain subject to the existing Collective Investment Law and Collective Investment Rules. CP173 proposes a three-month transition after the final rules are made.
Does CP173 remove the USD 50,000 and USD 500,000 minimum subscriptions?
Not for investors generally. The Exempt Fund and Qualified Investor Fund minimums would stay for ordinary investors. CP173 proposes that eligible employees of the fund manager, who are directly involved in investment decisions or advice, could invest in the funds it manages without meeting the minimum subscription or Professional Client tests.
What happens to External Fund Managers under CP173?
CP173 proposes to abolish the External Fund Manager route, which lets a manager outside the DIFC run a DIFC domestic fund without a presence in the Centre. Such managers would need DFSA authorisation in the DIFC or would need to appoint a DFSA-authorised manager. The DFSA has said it will discuss with existing External Fund Managers whether they may continue managing funds that existed when CP173 was published.
Should I delay launching a DIFC fund until the final rules are published?
Usually not. A fund launched now is registered under the current rules, and most launch decisions are not affected. The exceptions are a launch that depends on the External Fund Manager route, or an employee co-investment plan that relies on the proposed relief. There, if the timetable allows, it can make sense to wait for the final rules.
Does CP173 introduce rules for tokenised funds?
Not yet. Tokenisation and a possible Long-Term Investment Fund regime for retail investors are discussion topics in Part II of CP173, with no formal proposals. The DFSA may develop proposals after considering feedback, through a later consultation.