Abu Dhabi Global Market eases compliance requirements for smaller fund managers

The reforms, announced by the Financial Services Regulatory Authority (FSRA), create three new categories of fund manager: sub-threshold, venture capital and institutional. Each will benefit from a range of regulatory concessions, with all three exempt from requirements to maintain an internal audit function and appoint a finance officer.

Marie Chowdhry, a financial regulation expert at Pinsent Masons in the UAE, said: “These changes reflect the FSRA's recognition that a one-size-fits-all regulatory framework is not always appropriate for the diversity of fund managers operating in ADGM.”

“By introducing lighter-touch regimes for smaller and lower-risk managers, the ADGM is positioning itself as a more competitive and accessible jurisdiction for venture capital and institutional fund managers alike,” she said.

“Firms should assess which regime they fall into and whether applying to vary their permission offers a more proportionate regulatory footprint for their business. Existing venture capital managers have less choice in the matter: their exemption from most prudential rules has been removed.”

Sub-threshold managers are permitted to manage closed-ended, non-retail funds with an aggregate committed capital of up to US$200 million across all the funds they manage, provided they do not operate as host fund managers. Venture capital fund managers sit within the sub-threshold category and may manage only venture capital funds. Their authorisation and annual supervisory fees are capped at US$10,000. Institutional fund managers are limited to managing qualified investor funds or equivalent foreign funds with a minimum subscription of US$5 million and cannot accept investments from natural persons.

Sub-threshold and venture capital managers are subject to a base capital requirement of US$50,000 without any additional expenditure-based capital threshold. Institutional fund managers will also benefit from reduced capital requirements, needing to hold the higher of US$50,000 or six weeks audited annual expenditure, compared with the standard requirement of 13 weeks expenditure. They are additionally exempt from professional indemnity insurance requirements, although those obligations will continue to apply to sub-threshold and venture capital managers.

David Young, a funds specialist at Pinsent Masons, said: “The reforms are expected to be of particular interest to managers of smaller private funds, venture capital firms and institutional-only fund structures.”

“Existing fund managers may also apply to vary their permission in order to use one of the new regimes, although a firm that itself acts as a host fund manager for others cannot apply  the sub-threshold framework,” he said.

“The concessions will also be available to institutional fund asset managers, allowing in-group entities that hold only asset management permissions for those funds to operate under the streamlined framework.”

Alongside the changes, the FSRA has tightened requirements for foreign managers of ADGM-domiciled funds. Foreign managers will now be required to ensure that a UAE-resident natural person is appointed to the board of the fund where it is an investment company, or to the board of the general partner where it is an investment partnership, and appoint a licensed corporate service provider to act as an agent for service of process.