The DubaiFinancial Services Authority (DFSA) proposed a broad rewrite of its investmentfund rules today (Tuesday), opening a consultation that would change howprivate funds are classified and ease licensing for managers. Theregulator, which supervises firms in the Dubai International Financial Centre(DIFC), called it the most significant review of its funds framework since2010.Theconsultation, labeled CP 173, arrives as the DIFC's wealth and asset management sector has expanded quickly, with the centerreporting a 321-firm industry overseeing roughly $176 billion at the end of2025. The DFSAframed the package as an effort to match its rules to the risk of a given fundand cut what it called unnecessary regulatory complexity.Fund Classifications Get aRisk-Based RewriteUnder CP173, the DFSA wants to drop rigid classifications for specialist private fundsin favor of a risk-based approach it said would better fit hybrid andmulti-strategy investing. The paperalso proposes to simplify authorization for investment managers, confirmingthat dealing as agent and arranging deals fall under a single managing-assetslicense.Othermeasures would update master-feeder public fund structures by removingeligibility criteria the DFSA described as outdated. The regulator also wantsto scrap the external fund manager regime, a change it tied to what it said wasa growing pipeline of firms seeking full DFSAauthorisation.A separateproposal would widen the room for employees to invest in funds run by theiremployers, both directly and through dedicated vehicles. The DFSA said thechange is meant to support recruitment and retention, and to align staffinterests with those of outside investors."Thisreflects our commitment to investor protection, market confidence, andproportionate regulation," said Charlotte Robins, the DFSA's managingdirector of policy and legal.[#highlighted-links#] Theregulator said the broader aim is to deepen the DIFC's asset management baseand keep it competitive for global managers, a claim it did not tie toindependent data.Tokenized Funds and RetailAccess Put on the TableAlongsidethe formal proposals, the DFSA is seeking early feedback on two areas it mayturn into policy later. One is the tokenization of fund units and fund assets,including tokenized money market funds. The otheris a possible long-term investment fund regime that would let retail investorsreach illiquid, real-economy assets currently open only to professionalinvestors.Thetokenization question builds on earlier digital-asset work. The regulatorintroduced investment token rules in 2021 and has since recognized ashort list of crypto tokens for use in the DIFC. It stressedthat both new topics sit at the feedback stage, with no commitment to draftrules.Gulf Rivals Race toRewrite Fund RulebooksThe DFSA isnot moving in isolation. In November 2025, the Financial Services RegulatoryAuthority of the Abu Dhabi Global Market, the DIFC's main regional rival,published Consultation Paper No. 12 of 2025, proposing streamlined regimes forsmaller managers running $200 million or less and for managers serving onlyinstitutional clients. Thatconsultation, which closed on January 30, 2026, also moved to exempt employeeinvestment vehicles from fund licensing, echoing the DFSA's employee-investmentproposal. Abu Dhabi said funds-sector assets under management rose 48% yearover year in the third quarter of 2025.Theretail-access idea has precedents further afield. The European Union's revampedlong-term investment fund rules, known as ELTIF 2.0, took effect in January2024 and opened illiquid assets to retail buyers, while Britain's Long TermAsset Fund regime moved the same way around the same time. Both havedrawn scrutiny over how easily ordinary investors can exit funds holdingprivate assets, a concern the DFSA would have to weigh if it goes beyondfeedback.Ontokenization, asset managers have already pushed ahead. BlackRock launched itsBUIDL tokenized fund in March 2024, and rivals have since rolled out tokenizedmoney market products. Dubai, for its part, has expanded the digital assets it recognizes in the DIFC, adding Ripple'sXRP and its RLUSD stablecoin. Rules Face a Long Path toSign-OffTheconsultation runs until September 7, 2026, with responses submitted through theDFSA's online form. After that,the regulator said it will review submissions and finalize changes to theCollective Investment Law and Rules, the Investment Trust Law, the RegulatoryLaw and the relevant rulebook modules.Anylegislative changes then go to the President of the DIFC and on to the Ruler ofDubai for assent, which leaves the timeline open. The DFSAcautioned that firms should not act on the proposals until the final changesare confirmed and published, and said timing will depend on how much the newrules ask authorized firms to change.This article was written by Damian Chmiel at www.financemagnates.com.