The ADGM’s Prudential Rule Changes for Lower-Risk Firms

The FSRA has issued updated prudential requirements for Category 3B, 3C, and 4 firms. These changes follow Consultation Paper No. 2 of 2025 and its Dear Senior Executive Officer (SEO) letter dated 02 September 2025, and took effect on 19 August 2025, with additional provisions commencing from 01 January 2026. These changes reflect the FSRA’s response to industry feedback and mark a decisive shift toward proportional regulation for lower-risk firms.

Category 3B firms typically provide custody services; Category 3C firms manage assets and funds; and Category 4 firms offer advisory and arranging services, which are all considered lower risk under the ADGM’s framework.

This update marks a significant recalibration of capital and reporting obligations for lower-risk firms operating in the ADGM. By streamlining requirements like internal risk assessment process (IRAP) and professional indemnity insurance (PII), while tightening capital thresholds and reporting expectations, the FSRA is signaling a more proportionate yet still vigilant approach to prudential oversight.

For firms looking to enter or expand in the UAE, this creates both opportunity and responsibility, especially when viewed alongside similar regulatory developments in the ADGM.

What’s Changed 

Capital Requirements

Category 4 firms now face an increased Base Capital Requirement (BCR) of $50,000, with the exception of those operating Private Financing Platforms which continue to be subject to a $150,000 threshold.

Firms that do not hold client assets nor insurance money are exempt from the Expenditure-Based Capital Minimum (EBCM), while those that do must meet both BCR and EBCM requirements. Importantly, firms must notify the FSRA if their capital resources fall below 120% of the required amount.

Custody for a Fund

For firms providing custody services to non-public funds, the BCR has been lowered to $250,000. This change reflects the FSRA’s intent to align capital requirements more closely with the actual risk profile of these activities.

Internal Risk Assessment Process 

The FSRA has removed the requirement for Category 3B and 3C firms to maintain an Internal Risk Assessment Process (IRAP). However, firms are still expected to uphold robust internal risk management frameworks. The FSRA retains the authority to request IRAP documentation on a case-by-case basis, ensuring flexibility without compromising oversight.

Professional Indemnity Insurance

Branches of Category 3B, 3C, and 4 firms are no longer required to maintain Professional Indemnity Insurance (PII). That said, minimum standards will come into effect from 1 January 2026, and firms will be required to submit annual confirmation statements demonstrating compliance.

Regulatory Reporting

Firms should continue using existing templates for Q3 2025 reporting. Where applicable, they should input zero for EBCM. The FSRA is expected to release updated templates and make changes to FSRA Connect in the coming months, so firms should stay alert for further guidance.

How to Comply

To remain compliant and avoid regulatory scrutiny, firms should take the following steps:

• Reassess capital adequacy and ensure buffer levels exceed 120% of required thresholds.
• Confirm whether your firm qualifies for EBCM exemption.
• Update your risk management framework to reflect the removal of IRAP, while maintaining internal controls.
• Prepare for PII standard compliance and ensure your governing body is ready to approve annual confirmations.
• Stay alert for new reporting templates and FSRA Connect updates.

Finally, consider engaging with a trusted compliance advisory firm to help interpret these changes, assess your firm’s readiness, and implement necessary updates efficiently. Specialist support may distinguish reactive compliance from strategic advantage.

Why Specialist Support Matters

Regulatory simplification doesn’t mean reduced scrutiny. Firms must interpret these changes correctly, adapt internal processes, and stay ahead of evolving expectations. Working with a knowledgeable compliance partner ensures you remain confident, compliant, and well-positioned in a competitive jurisdiction.

If you have any questions or concerns about how these changes affect your firm, book a consultation with our UAE team today.