Proposals to end the external fund manager regime

On 7 July 2026, the Dubai Financial Services Authority published Consultation Paper No. 173, proposing the most substantial reform of the DIFC collective investment funds framework since 2010. Among the headline changes is a proposal to remove the external fund manager (EFM) regime - a shift that would mark an important evolution in how fund management activity is authorised and supervised in the Dubai International Financial Centre.

Why the external fund manager proposal matters

The external fund manager regime was designed to allow a fund established in the DIFC to be managed by a manager based outside the DIFC, subject to conditions and oversight mechanisms. In practice, it offered a route for international managers to access the DIFC funds platform without necessarily establishing a fully authorised fund management presence in the DIFC.

CP 173 suggests that the DFSA now sees that route as less central to the market than it once was. The consultation reflects a broader judgment that the DIFC asset management sector has matured: more managers are seeking full DFSA authorisation, the local funds ecosystem is deeper, and the regulatory focus has shifted from facilitating early market entry to ensuring that governance, substance and supervision sit in the right place.

What would change for fund managers?

If implemented, the proposal would likely make full DIFC authorisation a more important planning assumption for managers seeking to manage DIFC funds. Managers that might previously have considered using an external fund manager structure would need to assess whether a DFSA-authorised presence is required, commercially attractive, or strategically preferable.

For existing structures, the key question will be transition. Firms will need to understand whether grandfathering, migration periods or alternative structuring options are introduced in the final rules. CP 173 is still a consultation paper, so managers should avoid assuming the final position will be identical to the proposal. However, the direction of travel is clear: the DFSA appears to favour a model in which fund management responsibility is more directly connected to DIFC authorisation and oversight.

Why DFSA are making this move

There are several drivers behind the proposal. First, the change supports the DFSA’s supervisory effectiveness. Where the fund manager is located outside the DIFC, the DFSA’s power over them are limited. Removing the EFM regime means a more direct relationship with the entity making key fund management decisions and strengthens the regulator’s ability to assess governance, systems and controls, senior management accountability and compliance arrangements.

Second, DFSA claim it has received strong interest from applicants seeking to seeking to establish as DFSA licensed fund managers and this change proposed reflects the increased demand for DFSA authorised (and the corresponding lack of appetite for the EFM regime).

Third, the proposals may reflect the competitive maturity of the DIFC. The external manager route may have been valuable when the funds regime was developing, but the market has since grown considerably. A more substance-based model could reinforce the DIFC’s position as a jurisdiction where asset managers do not merely domicile products but build operational and governance capability.

Implications for firms

International managers considering the DIFC should factor the proposal into their structuring analysis now. The removal of the external fund manager route could affect licensing strategy, staffing plans, delegation models, compliance budgets and timelines for launch. It may also influence whether managers choose to establish a full DIFC platform or use alternative regional structures.

Managers already involved with DIFC funds should map their current arrangements against the proposal. Particular attention should be given to who performs portfolio management, where investment decisions are made, which entity communicates with investors, and how responsibilities are documented across the fund manager, adviser, delegate and service provider chain.

Get in touch

Affected fund managers should be reviewing the proposals now and considering what they may mean for existing or planned DIFC fund structures. If you currently rely on, or are considering using, an external fund manager model, we would be pleased to discuss the potential impact of CP 173 on your licensing strategy, governance arrangements, delegation model and transition planning.