ADGM’s Enhanced Funds Framework

New Opportunities for Private Banking and External Asset Managers in 2025

The FSRA's Consultation Paper No. 12 signals major changes for fund managers and wealth management firms

Abu Dhabi Global Market's Financial Services Regulatory Authority has published sweeping proposals to enhance its funds framework, with particular implications for External Asset Managers, private banking institutions, and family offices operating within this rapidly growing financial center. These developments represent the FSRA's commitment to maintaining proportionate regulation while supporting ADGM's evolution as a premier global fund management hub.

Understanding the Regulatory Evolution

The consultation paper released in November 2025 focuses on private funds, specifically Exempt Funds and Qualified Investor Funds. This represents the first phase of a comprehensive review, with additional proposals addressing Public Funds expected in 2026. For wealth management professionals and compliance teams, these changes will materially impact how funds are structured, managed, and supervised within ADGM.

The FSRA's approach reflects extensive consultation with market participants and draws on supervisory experience accumulated since ADGM's establishment in 2015. The proposals aim to enhance proportionality, reduce unnecessary regulatory burden on smaller fund operations, and align the regime more closely with international best practices while maintaining robust investor protection.

Key Proposals Affecting Wealth Managers and EAMs

Streamlined Framework for Smaller Fund Managers

One of the most significant proposals introduces a simplified regulatory pathway for managers of smaller funds. This initiative recognizes that applying uniform regulatory requirements across all fund sizes can be disproportionate, particularly for boutique wealth management firms and emerging External Asset Managers.

The streamlined framework proposes reduced capital requirements, simplified reporting obligations, and more flexible governance arrangements for fund managers meeting specific criteria. This development opens opportunities for smaller wealth management firms to establish fund management operations in ADGM without bearing the full compliance burden designed for large institutional asset managers.

For family offices considering transitioning from informal asset management to regulated fund structures, this streamlined pathway provides a more accessible entry point. The reduced regulatory friction while maintaining essential investor protections makes ADGM increasingly attractive for private wealth structures seeking institutional credibility without excessive compliance overhead.

Enhanced Framework for Institutional-Only Funds

The consultation paper proposes a distinct regulatory approach for fund managers whose funds exclusively target institutional investors. This recognition that sophisticated institutional investors require different protections than retail participants represent a material shift toward more risk-based supervision.

Institutional-only fund managers may benefit from relaxed restrictions in several areas including investment strategy limitations, leverage ratios, and liquidity requirements. The FSRA proposes defining institutional investors with reference to financial sophistication thresholds, ensuring the framework applies only where investors genuinely possess appropriate expertise and resources.

For wealth management firms serving sovereign wealth funds, pension funds, and other institutional allocators, this development enhances ADGM's attractiveness as a domicile for specialized investment strategies. Private banking institutions managing proprietary capital can structure funds with greater flexibility when the investor base consists entirely of institutional participants.

Implications for External Asset Managers

External Asset Managers operating in the region face important considerations under the proposed framework. The FSRA's consultation addresses the treatment of Foreign Fund Managers managing ADGM-domiciled funds, proposing enhanced nexus requirements to ensure adequate ADGM-based substance and accountability.

Key requirements under consideration include appointing ADGM-based fund administrators, engaging ADGM-licensed corporate service providers, and subjecting operations to ADGM courts' jurisdiction. These proposals would materially increase the regulatory oversight of funds managed from outside ADGM, addressing concerns about "letterbox" operations lacking genuine substance in the jurisdiction.

For EAMs currently managing ADGM funds from offshore locations, these changes necessitate strategic review of operational structures. Firms must evaluate whether to establish stronger ADGM presence or restructure their fund offerings to comply with enhanced nexus requirements. The consultation closes in January 2026, providing a critical window for EAMs to engage with the FSRA and shape the final regulatory framework.

Compliance and Risk Management Perspectives

Enhanced Role of MLROs

Money Laundering Reporting Officers at fund management firms face expanded responsibilities under the evolving framework. The proposals emphasize robust know-your-customer procedures, ongoing monitoring of investor identities, and enhanced due diligence for complex ownership structures common in family office and private wealth contexts.

MLROs must ensure compliance programs adequately address the specific anti-money laundering risks presented by private funds, including proper verification of beneficial ownership, source of wealth documentation, and ongoing monitoring of subscription and redemption patterns. The FSRA expects regulated entities to maintain sophisticated transaction monitoring capabilities capable of detecting unusual activities across diverse investor populations.

Internal Audit Considerations

Internal audit functions must adapt to the enhanced funds framework by developing specialized expertise in fund governance, valuation procedures, and NAV calculation methodologies. Audit teams should verify that fund operations comply with constitutional documents, regulatory permissions align with actual activities, and appropriate segregation exists between fund management and custody functions.

The proposals' emphasis on proportionality means audit approaches must calibrate testing intensity to fund size, investor sophistication, and strategy complexity. Developing risk-based audit programs that satisfy regulatory expectations while avoiding excessive overhead represents a key challenge for compliance teams.

Regulatory Reporting and Returns

The FSRA proposes refined reporting requirements aligned with the enhanced funds framework. Firms must ensure systems can capture required data elements, including fund performance metrics, investor classifications, and capital adequacy calculations under the revised standards.

Regulatory returns for fund managers will likely require more granular information about investment strategies, risk exposures, and leverage utilization. Compliance teams should begin evaluating whether existing reporting infrastructure can accommodate anticipated requirements or whether system enhancements are necessary.

Strategic Implications for Private Banking

Private banking institutions considering fund management as an adjacency to traditional wealth management services should carefully evaluate these proposals. The streamlined framework for smaller fund managers potentially opens a viable pathway for private banks to offer regulated collective investment vehicles to their client bases.

Key considerations include determining appropriate fund structures given client demographics, assessing capital requirements under the proportionate framework, evaluating whether in-house fund management capabilities or outsourcing to specialist fund administrators makes more sense, and considering whether institutional-only designations align with the bank's target investor profile.

The ability to offer ADGM-domiciled funds provides private banks with product differentiation opportunities, particularly for clients seeking the credibility and governance associated with internationally regulated fund structures. However, banks must carefully weigh the compliance burden against strategic benefits.

The Competitive Landscape: ADGM vs. DIFC

While ADGM's enhanced funds framework represents significant progress, wealth managers must also consider parallel developments in DIFC. Both financial centers compete for fund management business, each offering distinct advantages.

ADGM generally provides lower setup costs, competitive capital requirements, and a more agile regulatory approach, particularly for emerging managers. The RegLab innovation testing environment offers startups and fintech-enabled fund managers a pathway to market with reduced initial burden.

DIFC maintains advantages in ecosystem maturity, international recognition, and breadth of service providers. For large institutional fund managers requiring extensive infrastructure, DIFC may remain preferable despite potentially higher costs.

Many sophisticated wealth managers now maintain presence in both jurisdictions, leveraging each center's distinct strengths. This dual-center strategy provides maximum flexibility in structuring offerings for diverse client needs while navigating each regulator's specific requirements.

Engaging with the Consultation Process

The consultation period closing January 30, 2026 provides a critical opportunity for wealth managers, EAMs, and industry associations to shape the final framework. The FSRA specifically invites feedback on threshold calibrations, leverage limits, institutional investor definitions, and Foreign Fund Manager nexus requirements.

Firms should consider submitting detailed responses addressing how proposals affect their specific business models, suggesting refinements that achieve regulatory objectives while minimizing unnecessary compliance burden, and identifying unintended consequences requiring clarification or adjustment.

Active participation in consultation processes demonstrates commitment to constructive regulatory engagement and helps ensure the final framework reflects practical operating realities. The FSRA has historically shown responsiveness to well-reasoned industry feedback, making meaningful participation worthwhile.

Preparing for Implementation

While final rules await publication following consultation closure, prudent firms are already preparing for likely changes. Recommended preparatory steps include conducting gap analyses comparing current operations against proposed requirements, evaluating capital adequacy under anticipated frameworks, reviewing fund constitutional documents for alignment with enhanced standards, and assessing technology infrastructure's capacity to support revised reporting obligations.

Firms should engage compliance consultants and legal advisors familiar with ADGM regulations to interpret proposals' practical implications. Early preparation positions organizations to implement changes efficiently once final rules are published, maintaining operational continuity and avoiding rushed, suboptimal adjustments.

Conclusion

ADGM's enhanced funds framework represents a maturation milestone for this ambitious financial center. The proposals demonstrate the FSRA's sophisticated understanding of balancing proportionate regulation with robust investor protection, positioning ADGM as an increasingly credible alternative to established fund domiciles.

For wealth managers, External Asset Managers, and private banking institutions, these developments create both opportunities and obligations. The streamlined pathways for smaller managers and institutional-only funds expand business model options, while enhanced nexus requirements for Foreign Fund Managers demand strategic evaluation of operational structures.

Success in this evolving environment requires proactive engagement with regulatory developments, investment in appropriate compliance infrastructure, and strategic clarity about which regulatory framework best serves specific business objectives. Organizations that approach these changes as opportunities rather than burdens will be best positioned to capitalize on ADGM's growth trajectory as a premier global wealth management center.

Firms considering ADGM fund management operations or requiring assistance with the consultation response should engage advisors with deep expertise in ADGM regulatory requirements and funds structuring.

Disclaimer: This article is provided for general informational purposes only and should not be construed as legal, regulatory, or professional advice. While we have made every effort to ensure the accuracy and completeness of the information presented, regulatory requirements are subject to change, and interpretations may vary based on specific circumstances. Readers should not rely solely on this content for compliance decisions. For definitive guidance, please refer directly to the official regulations, rulebooks, and guidance published by the Dubai Financial Services Authority (DFSA), the Financial Services Regulatory Authority (FSRA) of ADGM, and other relevant regulatory bodies. For advice tailored to your specific situation and regulatory obligations, please reach out to us at VelthRad  and our qualified team of professionals are here to assist you.