The Financial Services Regulatory Authority (FSRA) of the Abu Dhabi Global Market (ADGM) issued its Private Credit Fund Rules on 4 May 2023 (the Private Credit Fund Framework), enabling ADGM funds and their fund managers to originate and invest in private credit.
The Dubai Financial Services Authority (DFSA) implemented its regime for credit funds in the Dubai International Financial Centre (DIFC) on 1 June 2022. Generally, the proposed FSRA regime imposes fewer regulatory obligations and lower regulatory capital requirements and provides 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 provide welcome clarity on the FSRA’s approach to an increasingly popular asset class.
To capitalise on the growth of the global and regional private credit market over the last decade, the FSRA has now expanded the current range of “specialist funds” available in the ADGM to include “Private Credit Funds” within its existing collective investment fund regulatory framework.
This increase in the range of funds available in the ADGM is intended to make participation in the ADGM investment fund ecosystem attractive to a wider group of asset managers (including those pursuing debt strategies, and start-ups), whilst recognising the inherent risks associated with investing in credit funds and including appropriate safeguards as a result.
The Private Credit Fund Framework results in Private Credit Funds and their fund managers being exempt from the requirement to hold the Financial Service Permission, or satisfy the Base Capital Requirement, associated with carrying on the regulated activities of “Providing Credit” or “Arranging Credit.”
However, given the risks and limited liquidity of credit funds, the Private Credit Fund Framework imposes certain operating restrictions and requirements on Private Credit Funds and their fund managers. Such framework would extend to conventional and Islamic lenders, whilst noting that Islamic lenders will also need to be cognisant of the requirements of the Islamic Finance Rules of the ADGM.
We set out below a table comparison as to how the restrictions and requirements of the Private Credit Fund Framework compare to (1) the proposed rules for the Private Credit Fund Framework as per the FSRA consultation paper dated 12 December 2022, and (2) the DFSA regime for DIFC-domiciled credit funds.
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