The Dubai Financial Services Authority’s (DFSA’s) Consultation Paper No. 161 (CP161), sets out significant reforms to the prudential regime for firms operating in the Dubai International Financial Centre (DIFC).
Aimed at enhancing proportionality, CP161 introduces changes to ensure that capital and liquidity requirements are better aligned with a firm’s size, business model, and risk profile.
The most direct impact is on Category 3 firms, which are firms that deal in investments as agents and on a matched principal basis. However, the proposals also introduce targeted updates for larger Category 2 firms and smaller Category 4 firms. With phase one effective as of 1 July 2025, affected firms should begin operationalizing the requirement and reviewing their prudential frameworks for compliance.
Here’s what you need to know and how to prepare.
Summary of Key Changes
Implementation is split into two phases.
1 July 2025 – Initial Relief Phase
- Removal of Expenditure-Based Capital Minimum (EBCM): Category 3 firms not holding client assets, insurance monies, or fund property (e.g., 3A asset managers, 3C agents without custody) will no longer be required to maintain this capital requirement. However, firms must maintain a Base Capital Requirement (BCR) based on their classification by the regulator.
- Action: Finance teams should remove EBCM from capital planning models and may temporarily see a reduction in overall capital requirements. Remember that the new ABCR will come into effect on 1 July 2025, and appropriate capital should be set aside at that point.
- Liquidity Requirement Adjustments: Categories 3 and 4 firms not subject to EBCM must have liquid assets equal to or greater than the BCR stated for the firm type. Up to two-thirds of liquidity will be allowed in qualifying instruments (e.g. high-quality bonds) and a broader range of currencies (USD, AED, GBP, EUR) while up to one-third should remain in instruments currently permitted (e.g. bank deposits).
- Action: Finance teams should revise liquidity policies and rebalance accordingly.
- Removal of Internal Capital and Risk Assessment Processes (ICAAP/IRAP): ICAAP and IRAP are no longer mandatory for Category 3A firms. However, the DFSA retains the right to impose firm-specific capital liquidity add-ons.
- Action: Risk teams should discontinue ICAAP/IRAP but remain prepared for DFSA enquiries.
1 July 2026 – New Obligations Phase
- Introduction of ABCR: Instead of maintaining EBCM, Category 3 firms will be required to maintain capital requirements based on the firm’s K-AUM (assets under management), K-ASA (assets safeguarded and administered), and K-COH (client orders handled).
- Action: Finance teams must calculate K-factors and new overall capital requirements to be prepared for the deadline.
- Revised Professional Indemnity Insurance (PII) Rules: Firms subject to the new ABCR, including money services providers, branches, and fund managers of venture capital funds, will not need to comply with PII rules. However, Employee Money Purchase Schemes (EMPS) firms in Category 3B, firms in Category 4, insurance intermediaries, and firms with a retail client endorsement will still need to maintain compliance with these rules.
- Action: Firms must update PII policies in line with the new rules where necessary.
- Category Realignment: Firms dealing in investments as principal (matched basis) will be reclassified from Category 3A to Category 2, but there will be no changes to the way firms calculate their capital requirements. Firms dealing as an agent will remain as Category 3A firms, but their BRC will be reduced from USD 500,000 to USD 200,000. Alternative Trading System operators will be reclassified from Category 4 to Category 3A and will be subject to a BRC of USD 200,000.
- Action: Firms must update internal records, review capital requirements, and compliance frameworks.
- Reporting Changes – EPRS Forms: New templates for EPRS forms will be required for ABCR metrics. The first report will be due in Q3 2026.
- Action: Firms must familiarize themselves with the revised reporting forms in the EPRS system.
Our Guidance
With the first phase of implementation already in progress, firms should proactively assess their exposure to CP161. This is more than a compliance update. It’s an opportunity to refine capital strategy, modernise liquidity management, and prepare systems for a more proportionate regulatory regime.
In addition to the actions suggested above, key areas to focus on include:
- Capital Frameworks: Review whether your models are aligned with the new ABCR requirement, including K-factor scenario testing and post-EBCM capital planning.
- Liquidity Management: The updated rules offer flexibility but require careful asset allocation to stay compliant without sacrificing efficiency.
- EPRS Readiness: Ensure systems can accurately capture and report new metrics using the DFSA’s updated templates.
- Governance: Senior leadership should understand how category shifts or capital changes may influence business strategy and risk appetite.
How We Help
As firms adapt, external expertise can offer valuable perspective. A specialist partner like ACA can help translate regulatory complexity into clear, actionable steps to support a confident and well-structured transition.
Responding to regulatory change requires more than just technical compliance. It demands strategic foresight and operational agility. To support firms through the CP161 transition, we offer:
- Capital Planning Reviews: Advice to align your capital models with the new ABCR and liquidity requirements.
- Compliance Workshops: Equip your teams with practical, role-specific knowledge of CP161’s implications.
- Licensing Strategy: Understand how category realignment may affect your permissions, obligations, and growth plans.
- Training: Provide a deep dive on the impact of CP 161 to set out changes and requirements for the relevant team members of your firm
Get in touch to explore how we can support your transition.