Key Features of the DFSA Funds Regime
Guide to the DFSA Fund Regime, please click here to view
Q&A - The DFSA's Collective Investment Fund Regime, please click here to view
The DFSA introduced its Collective Investment Funds regime (the Funds regime) in 2006. It was designed to provide adequate investor protection, while meeting international standards for regulation
Some of the key features of the DFSA's Funds regime are as follows:
• A Public Fund regime, which provides greater protection to retail investors through requirements such as the independent oversight of a Fund and detailed disclosure in a Prospectus;
• An Exempt Fund regime where Funds enjoy a fast-track notification process, where the DFSA aims to complete the notification process within a period of 5 days, with lesser regulatory requirements than a Public Fund;
• A Qualified Investor Fund (QIF) regime, which provides proportionate regulation, allowing flexibility for QIF Managers and QIFs, by relying on key requirements in the Collective Investment Law and the DFSA Rulebook. The regime requires self-certification regarding the adequacy of systems and controls. QIFs enjoy a fast-track notification process where the DFSA aims to complete the authorisation process within a period of 2 days;
• Domestic Fund Managers (i.e. DFSA-licensed Fund Managers) are DIFC-based and are able to establish and manage Funds in the DIFC, as well as in jurisdictions outside the DIFC under certain circumstances;
• Fund Managers coming from acceptable jurisdictions are able to establish and manage Funds in the DIFC under certain circumstances;
• DFSA-licensed Firms are allowed to market and sell units in a wide range of Foreign Funds in, or from, the DIFC;
• A competitive fee structure is applied to Fund Managers and Funds;
• Fund Managers of Umbrella Funds have the flexibility to use the Protected Cell Company (PCC) structure for open-ended Umbrella Funds. This gives investors in each Sub-Fund of the Umbrella legal segregation from liabilities arising in other Sub-Funds and the Umbrella;
• Ability to set up an Incorporated Cell Company with individual standalone cells and use the infrastructure of a Fund Platform;
• Bespoke Shari'a governance requirements applying to Islamic Funds, which promote high Shari'a governance standards with flexibility of application;
• Ability to set up specialist funds including Islamic Funds, Feeder Funds, Master Funds, Private Equity Funds, Property Funds, REITs, Hedge Funds, Umbrella Funds, Money Market Funds, ETFs, Venture Capital Funds and others;
• The DFSA also regulates the key players in the Fund management service sector, such as Fund Administrators, custody providers and Trustees. This is to ensure adequate investor protection by promoting high industry standards that meet international best practice.
• To establish and manage a Fund in the DIFC you need to be either:
• A Domestic Fund Manager (i.e. a DFSA-licensed Fund Manager); or
• An External Fund Manager.
Domestic Fund Manager
To become a Domestic Fund Manager i.e. to obtain a DFSA licence, you need to demonstrate to the DFSA that:
Once you have been granted a licence, the DFSA will supervise on an ongoing basis your activities which relate to the Funds you manage.
External Fund Manager
Under the applicable requirements, a Fund Manager from an acceptable jurisdiction may establish and manage a Domestic Fund established or domiciled in the DIFC, without having to obtain a DFSA licence, provided:
Types of Domestic Funds
There are three types of Funds that can be established in the DIFC, and be managed by either a DFSA licensed Fund Manager or an External Fund Manager:
| Type of Fund | Public Funds | Exempt Funds | Qualified Investor Funds |
|---|---|---|---|
|
Level of regulation |
Detailed regulation in line with IOSCO standards | Somewhat less stringent than for Public Funds | Significantly less stringent than for Exempt Funds |
|
Investors and Offer |
|
|
|
| Minimum subscription | N/A |
US $50,000 |
US $500,000 |
|
Application process time |
N/A |
5 business days |
2 business days |
A Public Fund regime provides greater protection to larger numbers of investors (and may include retail investors) through requirements such as the independent oversight of a Fund and detailed disclosure in a Prospectus.
An Exempt Fund enjoys a fast-track notification process, where the DFSA aims to complete the process within a period of five days, with lesser regulatory requirements than a Public Fund.
The Qualified Investor Fund (QIF) regime provides proportionate regulation, allowing flexibility for QIF Managers and QIFs, by relying on select key requirements in the Collective Investment Law and the DFSA Rulebook. The regime requires self-certification regarding the adequacy of systems and controls. QIFs enjoy a fast-track notification process where the DFSA aims to complete the process within a period of two days
Note the specialist Fund requirements do not apply to QIFs.
These are generally Exempt Funds and taking account of the practices and associated risks, the Fund Manager of an Exempt Fund, for example:
All Money Market Funds (i.e. Funds investing in high quality deposits and debentures to preserve the capital of the Fund and provide daily liquidity, while achieving returns that are in line with money market rates) must be structured as Variable Net Asset Value Funds only. Money Market Funds must only invest in certain investments.
All Property Funds (i.e. Funds investing predominantly in real estate or real estate-related assets) must be closed-ended Funds. In addition to being a closed-ended Fund, a Property Fund which is a Public Fund must:
Invest only in Real Property or Property Related Assets, but may retain cash, government and public Securities, up to a maximum of 40%;
Be an Investment Company or Investment Trust;
Be listed, within six months of its establishment, either on an Authorised Market Institution or an Exchange in a Recognised Jurisdiction;
Value the Fund property annually on the basis of an independent valuation, and before acquiring or disposing of any asset; and
Limit its aggregate borrowings to 50% of the gross asset value of the Fund.
REITs are a sub-set of Property Funds, which are designed for income generation. A REIT must, in addition to being closed-ended:
In addition to the above specialist classes of funds, the DFSA Fund regime also has specific provisions dealing with Umbrella Funds, Feeder Funds and Fund of Funds.
A Domestic Fund is a Credit Fund if its investment objective is to use at least 90% of its Fund Property to Provide Credit, including by acquiring loans. A Foreign Fund is a Credit Fund if its investment objective is, or includes, Providing Credit, including by acquiring loans.
A Credit Fund must be:
• a Closed-ended Fund;
• an Investment Company or an Investment Partnership;
• established for a finite period not exceeding 10 years; and
• either be an Exempt Fund or a QIF,
and restrictions also apply to certain types of credit, categories of borrower and Fund borrowing limits.
The Fund Manager of a Credit Fund must have a clear strategy which aims, within a specified period not exceeding three years from the date the Fund is established, to achieve a diversified portfolio of loans that limits exposure to any one person or Group to a maximum of 25% of net assets (the “risk diversification limit”), or seek Unitholder approval to amend or extend the period.
Domestic Fund Vehicles
Three types of Fund vehicles can be used to establish a Domestic Fund in the DIFC. These are Investment Companies, Investment Trusts and Investment Partnerships.
Each has its unique features, with the most popular to date being the Investment Company model, with Trust structures predominantly utilised for Property Funds and Limited Partnerships being utilised for Hedge Funds and Private Equity Funds. For Credit Funds, only Investment Companies and Investment Partnerships can be used.
An Investment Company will need to be incorporated in the DIFC, and has the option to be internally managed by having its sole corporate director act as its Fund Manager. Alternatively, an Investment Company has the option to have an ‘external’ Fund Manager. An Investment Company established as an Umbrella Fund can also use the PCC structure.
An Incorporated Cell Company is a type of Investment Company with the ability to create one or more Incorporated Cells. Each Incorporated Cell will be a separate legal entity.
An Investment Trust will need to be established by trust deed between a Fund Manager and a Trustee. A Trustee can be a DFSA licensed Trustee or a custody provider, or a person regulated and supervised in a reputable jurisdiction for custody or depository services. The Trustee is responsible for the safe-keeping of Fund Property and the maintenance of the Unitholder register, and must monitor whether the Fund is managed in accordance with the Trust Deed and the applicable laws.
An Investment Partnership is a Limited Partnership registered in the DIFC, comprised of a General Partner and Limited Partners. The General Partner must be authorised by the DFSA to act as the Fund Manager of the Fund.
External Fund
Domestic Fund Managers are permitted to manage a Fund in a jurisdiction outside the DIFC (i.e. an External Fund), if you are proposing to establish an External Fund, the DFSA will assess the desirability of the relevant jurisdiction in terms of its Financial Action Task Force compliance and whether you have adequate systems and controls to address any risks arising from having the Fund established in that particular jurisdiction.
Fees for Fund Managers and Funds
Firms will find the costs competitive and comparable with other jurisdictions, as follows:
| Fund Manager | License Application Fees | Annual Fees |
| Fund Manager managing Qualified Investor Funds Only | $5,000 | $5,000 |
| Fund Manager managing Exempt and Public Funds | $10,000 | $10,000 |
| Fund Manager managing Venture Capital Funds only | $2,000 | $2,000 |
| Fund Manager managing Credit Funds | $10,000 | $10,000 |
| Managing a Collective Investment Fund if it is an Investment Company managed by its Corporate Director - internally managed Fund | $5,000 |
$5,000 |
Fees for a Fund
| Fees for a Fund | Qualified Investor Fund | Exempt Fund | Venture Capital Fund | Public Fund |
| Application Fee | Nil | Nil | Nil | $1,000 |
| Annual fee per Fund | $4,000 | $4,000 | $1,000 | $4,000 |
There are no fees directly applicable to the External Fund Manager's business. However it will of course be responsible for the payment of all Fund related fees payable to the DFSA.
Fund Disclosure Documentation Checklists
Marketing Funds
The marketing of both Domestic and Foreign Funds are based on generally accepted principles of disclosure through Prospectus requirements. However, the level of Prospectus disclosure required for Public Funds, which are open to more than 100 investors and/or Retail Clients, is higher than the disclosure requirements for Exempt Funds, which are open only to professional investors.
Foreign Funds can only be marketed in or from the DIFC by DFSA licensed Firms holding advisory or arranging authorisations. Such Firms can now market units of Foreign Funds if one of the following criteria is met:
Property Funds cannot be marketed unless they meet specific criteria including 60% or more of assets invested in Property, the Fund is closed ended, the units are either listed or traded in a Recognised Jurisdiction or offered only by means of private placement.
Other Foreign Funds such as Exchange Traded Funds, Venture Capital Funds, and Credit Funds may be marketed if they meet specific criteria specified in CIR.
Foreign Funds which cannot be marketed to retail investors in the home jurisdiction of that Fund are prohibited from being marketed to retail investors in or from the DIFC.
Representative Offices can also market Foreign Funds in or from the DIFC. However it should be noted that the approaches which can be used by Representative Offices are far more restricted to that noted above for advisory / arranging firms. All Representative Offices should refer to the Representative Office Module of the DFSA Rulebook to understand the limited approaches which can be adopted.
CIR 15.1.10 requires certain information on the marketing of Funds to be reported to the DFSA by Authorised Firms. This information is required to be reported by completing the Form CiR – Notification of the marketing and selling of Funds.
The purpose of this form is to assist an Authorised Firm with its reporting requirements in the Collective Investment Rules of the DFSA Rulebook in relation to the marketing and selling of all Foreign Funds and Domestic Funds it carries on in or from the DIFC.
The report covers the same period for all firms – the preceding calendar year – and is required to be submitted to the DFSA by the 31st of January each year. The form should be submitted to [email protected]
Given the global nature of activities conducted through the DIFC, the European Union's Alternative Investment Fund Managers Directive ('AIFMD') will affect a number of Firms in the DIFC who manage and/or market investment funds that have a connection to the EU. The DFSA has received a number of questions about how AIFMD is implemented in the UAE and the DIFC.
As EU legislation, AIFMD cannot be interpreted or enforced by the DFSA. We are aware that a number of professional advisers (law Firms, etc.) have been briefing clients on the potential impact of the AIFMD and we would expect this to continue. In the meantime, however, the DFSA has worked to make sure that it can share regulatory information from the DIFC. The DFSA has entered into a separate information sharing Memorandum of Understanding on AIFMD with 28 of the European Economic Area Regulators noted below.
Although the DFSA is not in a position to interpret the AIFMD, firms may wish to consider the following points:
Form CIR – Notification of the marketing and selling of Funds
The Form CIR – Notification of the marketing and selling of Funds, please click here to view.
Recognised Jurisdiction List
The DFSA's Recognised Jurisdiction List, please click here to view.
Leaflet: A Guide to the DFSA Funds Regime
A Guide to the DFSA Fund Regime, please click here to view.
Q&A – The DFSA’s Collective Investment Fund Regime
The DFSA's Collective Investment Fund Regime Q&A, please click here to view.
Structure Chart of the DFSA's Investment Fund Regime
Structure Chart of the DFSA's Investment Fund Regime, please click here to view.
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