ADGM/FSRA - Consultation Paper No. 2 of 2025

The Riffle

The Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) has released a consultation paper proposing changes to the prudential framework governing lower-risk firms (Categories 3B, 3C, and 4). These revisions aim to align capital and reporting requirements with the firms’ actual risk profiles, drawing from international regulatory developments and supervisory experiences since ADGM’s establishment in 2015.

Key Points

1. Why This Review?

• The current framework was based on earlier EU banking regulations, which may not suit lower-risk firms.

• ADGM has evolved, making it necessary to reassess whether the rules remain proportionate.

2. Major Proposed Changes:

• Category 4 Firms (not holding client assets or insurance money):

  • Remove Expenditure-Based Capital Minimum (EBCM).

  • Increase Base Capital Requirement (BCR) to $50,000.

  • Retain higher BCRs for firms with third-party services or private financing platforms.

  • Liquid asset requirement to exceed BCR (not EBCM).

• Custody Services:

  • Reduce BCR to $250,000 for custody of non-public funds.

  • Retain $4 million BCR for custody of public funds.

• Category 3B & 3C Firms:

  • Remove IRAP (Internal Risk Assessment Process) reporting requirement.

  • FSRA may still request internal risk reports when necessary.

• Professional Indemnity Insurance (PII):

  • Branches no longer required to maintain PII.

  • New minimum standards introduced for firms: insurer credit rating, continuous cover, legal defence costs, etc.

  • Annual submission of confirmation (not full policy document).

3. Other Notable Amendments:

• Clarifications for fund managers’ capital requirements.

• Chapter 10 of PRU applies only to domestic firms, not branches.

Next Steps

• Deadline for feedback: 21 May 2025

• Stakeholders are invited to submit comments in writing (mail or email), referencing Consultation Paper No. 2 of 2025.

• FSRA will review submissions and publish final rules on its website.

• Do not act on these proposals until the final rules are officially released.

Summary

This consultation represents the FSRA’s ongoing effort to implement a proportionate, risk-based regulatory approachtailored to lower-risk financial firms within ADGM. By removing overly burdensome capital and reporting requirements and aligning with international best practices, the proposed framework aims to maintain regulatory efficiency while supporting market growth. Stakeholder feedback will be essential in finalizing these changes.

Read our detailed briefing document here: