ADGM Proposes Introduction of Regulatory Framework for Private Credit Funds

The Financial Services Regulatory Authority (FSRA) of the Abu Dhabi Global Market (ADGM) issued a consultation paper on December 12, 2022, in connection with its proposed introduction of a specific regulatory framework, the “Private Credit Fund Framework,” that would enable ADGM funds and their fund managers to originate and invest in private credit.

This comes after the implementation by the Dubai Financial Services Authority (DFSA) of a new regime for credit funds in the Dubai International Financial Centre (DIFC), which came into force on June 1, 2022.

While the “wait and see” approach adopted by the FSRA is similar in some ways to the approach adopted by the DFSA, there are a number of differences, which are detailed in the table linked below. Generally, the proposed FSRA regime would impose fewer regulatory obligations, lower regulatory capital requirements, and provide greater investment strategy flexibility to credit fund managers than the DFSA regime.

Whether the FSRA’s approach will encourage or discourage the formation of credit funds in the ADGM remains to be seen, but the new rules will provide welcome clarity on the FSRA’s approach with regards to an increasingly popular asset class.

ADGM CREDIT FUNDS

To capitalise on the growth of the global private credit market in the past decade, the FSRA is proposing to expand the current range of funds available in the ADGM to include “Private Credit Funds” within its existing collective investment funds regulatory framework.

The proposals are intended to increase and enhance the range of funds available in the ADGM and thereby attract participation by start-ups and small and medium-sized enterprises (SMEs), while recognising the risks associated with investing in such funds and including appropriate safeguards as a result.

The proposed framework would result in Private Credit Funds being exempt from the requirement to hold the Financial Service Permission, or to satisfy the Base Capital Requirement, associated with carrying on the regulated activities of “Providing Credit” or “Arranging Credit.” However, given the inherent risks and limited liquidity of credit funds, much like the DFSA framework for DIFC credit funds, the FSRA framework will provide certain operating restrictions and requirements.

We have created a table detailing how the FSRA restrictions and requirements for ADGM credit funds compare to the DFSA regime for DIFC credit funds.

View the table >>