If your firm manages a DIFC fund from London, Riyadh or Singapore under the External Fund Manager route, DFSA Consultation Paper 173 proposes to take that route away, with a three-month transition once final rules are made. It is still a proposal. Here is how to choose between a DIFC licence, a licensed third-party manager and moving the fund, and what to get ready now.
The short answer
- DFSA Consultation Paper 173 proposes to remove the External Fund Manager route, under which a manager outside the DIFC can run a DIFC fund without a DFSA licence. As at 13 October 2026 no final rules have been published.
- An affected manager has three broad options: set up and license its own DIFC manager, hand the management role to a DFSA-licensed manager, or move or restructure the fund.
- CP173 proposes a general three-month transition once final rules are made, which is shorter than a typical DFSA authorisation, so the licensing option needs early work.
- The DFSA says it will discuss with existing External Fund Managers whether they can keep managing funds that existed when CP173 was published on 7 July 2026.
- DFSA-licensed managers based in the DIFC would still be able to manage funds domiciled outside the DIFC.
Last reviewed 13 October 2026
A manager in London, Riyadh or Singapore that runs a DIFC fund today may do so without a DFSA licence or an office in the Centre. That is the External Fund Manager route, and DFSA Consultation Paper No. 173, published on 7 July 2026, proposes to remove it. Comments closed on 7 September 2026. As at 13 October 2026 the DFSA has not published a feedback statement or final rules, so the route still works and nothing below is law yet.
The proposal comes with a short clock. CP173 suggests a general transition of three months once final rules are made. For a manager that would need a DFSA licence, that is not long, so the decision is worth making before the rules land.
Our explainer on CP173 and the proposed DIFC fund reforms covers the whole paper. This note is narrower: it is for the manager outside the DIFC that runs a DIFC fund now, or a sponsor that was planning to launch one on that basis.
What CP173 actually says about External Fund Managers
The route dates from 2010, when the DFSA let managers located outside the DIFC manage domestic funds. It came with safeguards. An External Fund Manager has to come from a jurisdiction on the DFSA's Recognised Jurisdictions list or one otherwise acceptable to it, submit to DIFC law and the jurisdiction of the DIFC Courts, and appoint a DFSA-licensed fund administrator or trustee.
In the consultation paper itself the DFSA gives two reasons for removing it: its powers over firms not established in the DIFC are limited in practice, and demand has shifted towards full DFSA authorisation. Two further points in the paper shape the options. A footnote says the DFSA will discuss with existing External Fund Managers whether they can continue to manage funds that existed at the date the paper was launched. And managers based in the DIFC would still be allowed to manage funds domiciled outside it.
The practical reading is this. A fund launched under the route after 7 July 2026 is the most exposed. A fund that existed before then may get some accommodation, but nobody knows what yet. Commentary from Ocorian, Clyde & Co and King & Spalding reads the proposal the same way: establish a DIFC presence, move management to a licensed manager, or restructure.
Option one: license your own DIFC manager
This suits a firm that sees the DIFC as a lasting base. If you expect to launch more DIFC funds, want portfolio staff in Dubai or are already building regional investor relationships, owning the licensed manager gives you control over the fund and a platform for the next one. Because CP173 keeps the right of DIFC managers to run foreign funds, the same entity could later manage vehicles domiciled elsewhere.
In corporate terms, the work starts with a DIFC entity, usually a private company owned by the group, though some firms look at a branch. The entity then needs a board, constitutional documents that permit regulated activity, a registered office and premises in the DIFC, and its beneficial ownership records in order before the DFSA application goes in. The regulatory work runs alongside: a Category 3C application for managing a collective investment fund, a business plan, compliance and risk frameworks, capital, and the individuals who will hold Licensed Functions such as Senior Executive Officer, Finance Officer, Compliance Officer and MLRO. Our DIFC fund manager licence guide covers the categories and process, and our guide to setting up a fund management company in the DIFC covers the build.
Timing is the catch. Our licence guide puts a straightforward authorisation at four to six months from formal submission, and preparing the submission takes time before that. Against a proposed three-month transition, a manager that waits for the final rules before starting is likely to be late. Once the licence is granted, the DIFC entity replaces the external manager as fund manager of the existing fund, which brings its own documents and approvals.
Option two: appoint a DFSA-licensed manager
For a firm with one DIFC fund and no wish to build a regulated business in Dubai, appointing an existing DFSA-licensed fund manager is usually quicker. The licensed manager becomes the fund manager and takes the regulatory responsibility that goes with it.
The questions here are mostly commercial: which licensed manager will accept your strategy and investors, and what role your own team keeps. CP173 also proposes that a firm authorised for Managing Assets could carry out the dealing and arranging needed to manage fund property under a delegation, but whether an offshore team can keep the portfolio role, and on what terms, is a question for regulatory counsel against the final rules. Expect a management agreement, a revised offering document and amendments to the fund's constitution. The fund's administrator or trustee, which the route already requires, will need to be brought into the change early.
Option three: move or restructure the fund
The third route is to stop being a DIFC domestic fund. That could mean moving the fund to a domicile where your existing manager can run it, launching a replacement vehicle elsewhere and moving investors across, or, for a closed fund near the end of its life, running it off if the DFSA's discussions with existing managers allow that.
This is the most involved option in corporate terms and the one most sensitive to legal form. Whether a fund can transfer out of the DIFC, or has to be replaced, depends on the vehicle and on the law of the destination. Investor consents and tax treatment in the new home both matter. Before choosing it, compare the alternatives inside the UAE as well: our DIFC and ADGM fund setup comparison sets out how the two centres differ.
Which option fits which manager
| Your position | Option that usually fits | Main constraint |
|---|---|---|
| Several DIFC funds planned, or a Dubai team in view | License your own DIFC manager | Authorisation timeline against a three-month transition |
| One open-ended or evergreen DIFC fund, no Dubai team planned | Appoint a DFSA-licensed manager | Finding a manager and agreeing your team's role |
| Closed fund near the end of its term, launched before 7 July 2026 | Wait for the DFSA's discussions, then decide | The outcome for existing funds is not yet known |
| Fund launched after 7 July 2026, or still being planned | Decide now between licensing and a third-party manager | Most exposed to the proposal as drafted |
| DIFC domicile no longer matters to investors | Move or restructure | Legal form, investor consent and tax in the new home |
A sponsor still planning a launch has the most freedom. A fund registered now is registered under the current rules, but launching on the External Fund Manager route this year means planning a second change within months. Most sponsors in that position will do better to choose a licensed manager, their own or a third party's, from the start.
What to prepare before the final rules
Whatever option you lean towards, some preparation is the same, and doing it now is what makes a three-month window workable:
- Pull the fund's constitution, offering document and material contracts, and mark every clause that names the fund manager or sets out how it can be replaced.
- Speak to the fund's administrator or trustee about the change and what it will need from you.
- Confirm the fund's register of unitholders and its beneficial ownership filings are current, so an investor notice or consent can go out without a records exercise first.
- If you are leaning towards your own licence, settle the entity structure, directors and premises now, and line up the people for each Licensed Function.
- If you are leaning towards a third-party manager, shortlist candidates and start the commercial discussion.
- Brief regulatory counsel to watch for the DFSA's feedback statement and to raise the position of your existing fund with the DFSA.
One thing CP173 does not change for most investors: the Exempt Fund and Qualified Investor Fund minimum subscriptions stay in place for ordinary investors, and the proposal lifts them only for eligible employees of the manager. If your plan involves employee co-investment, that relief is still a proposal too. Our note on Exempt Funds and Qualified Investor Funds explains the current thresholds.
How Atlas helps
We handle the corporate side of whichever option you choose. That means forming the DIFC manager entity, its board and constitutional documents, setting up new fund vehicles where a restructure calls for them, and keeping the corporate records, registers and filings for the manager and the fund in order through the change. See our DIFC fund setup service for the detail.
Some of this work is not ours. DFSA licensing applications and regulatory advice on CP173 belong with a regulatory lawyer or compliance consultant, and we work alongside them. Atlas is a DFSA-registered corporate service provider, not an authorised firm, and we do not provide fund administration. If you want the corporate groundwork done before the final rules start the clock, speak with our team.
This article is general information and does not constitute legal, tax or regulatory advice. CP173 is a consultation and its proposals, including the transition period and the treatment of existing External Fund Managers, may change before final rules are made. Confirm the position for your fund and manager with a qualified adviser before acting.
Frequently Asked Questions
What is the DIFC External Fund Manager route?
It is the arrangement, introduced in 2010, that lets a fund manager based outside the DIFC establish and manage a DIFC domestic fund without a place of business in the Centre or a DFSA licence. It comes with conditions: the manager must come from a recognised or otherwise acceptable jurisdiction, submit to DIFC law and the DIFC Courts, and appoint a DFSA-licensed fund administrator or trustee.
Has the DFSA abolished the External Fund Manager route?
Not yet. Consultation Paper 173 proposes removing it. The paper was published on 7 July 2026 and comments closed on 7 September 2026. As at 13 October 2026 the DFSA had not published a feedback statement or final rules, so the route remains available under the current Collective Investment Law and Rules. Final rules could change the proposal or its timing.
How long will External Fund Managers have to comply if CP173 is adopted?
CP173 proposes a general transition period of three months for all of its changes to take effect once final rules are made. The DFSA has also said it will discuss with existing External Fund Managers whether they may continue to manage funds that existed when the paper was launched. Treat three months as the planning assumption until the final rules say otherwise.
Can a DFSA-licensed DIFC fund manager still manage a fund domiciled outside the DIFC?
Yes. CP173 states that fund managers based in the DIFC will continue to be permitted to manage external funds, meaning funds domiciled outside the DIFC. A manager that sets up a licensed DIFC entity could therefore run its DIFC funds and, subject to the rules of the fund's home jurisdiction, funds established elsewhere.
Does CP173 remove the minimum subscription for DIFC Exempt Funds and QIFs?
Not for investors generally. The Exempt Fund and Qualified Investor Fund minimum subscriptions would stay for ordinary investors. CP173 proposes lifting them only for eligible employees of the fund manager, or of a firm it appoints for Managing Assets, who are directly involved in executing investment decisions or advising on the fund and who meet the experience criteria.
Should a manager using the External Fund Manager route apply for a DFSA licence now?
It depends on how committed the firm is to the DIFC. If it plans further DIFC funds or wants a team in Dubai, starting the licensing work before final rules is sensible, because authorisation usually takes longer than the proposed three-month transition. If the DIFC fund is a single, closed vehicle, waiting for the DFSA's discussions with existing managers may be reasonable.