With 182 new firms authorised by the Dubai Financial Services Authority (DFSA) in 2025 and more than 600 active Financial Officers operating in the Dubai International Finance Centre (DIFC), the rapid expansion of the financial ecosystem has made prudential reform both necessary and inevitable.

The DFSA’s publication of CP161 in October 2024, followed by the final rules in May 2025, marks a decisive shift towards a more proportionate, risk-sensitive, and internationally aligned prudential regime. These changes, implemented across two phases in July 2025 and July 2026, represent one of the most significant updates to the prudential landscape in the region in over a decade.

At the heart of CP161 is the intention to design prudential requirements that better reflect the scale, business model and risk profile of each firm. The DFSA aims to reduce unnecessary burden for low‑risk activities while ensuring that firms handling significant client assets or operational exposure maintain proportionate capital and liquidity. The reforms introduce international best practices, strengthen supervisory visibility and replace backward‑looking expenditure‑based models with activity-driven metrics more closely aligned to actual economic risk.

Phased implementation timeline overview

• 1 July 2025 | Phase 1: foundation and liquidity

Focuses on the removal of Expenditure-Based Capital Minimums (EBCM) for specific low-risk firms and introduces a new baseline liquidity requirement.

• 1 July 2026 | Phase 2: activity-based capital

Introduces the Activity-Based Capital Requirement (ABCR) driven by K-factors, expands auditor responsibilities, and recalibrates Professional Indemnity Insurance (PII) mandates.

Phased implementation

Phase 1 (effective 1 July 2025)

Expenditure‑Based Capital Minimum (EBCM)

The most notable adjustment is the removal of the EBCM for Category 3 firms that do not hold client assets or insurance monies. While EBCM remains for certain firms such as custody and safekeeping businesses, its calculation has been revised to 13/52 of audited annual expenditure and excludes non‑cash items, reducing its overall capital impact. Firms across the board are still required to maintain the Base Capital Requirement (BCR), ensuring a consistent minimum buffer remains in place.

New liquidity requirement

Another significant Phase 1 change is the introduction of a new liquidity requirement for firms no longer subject to EBCM. These firms must now hold liquid assets at least equal to their BCR.

Eligible liquid assets: the definition has been broadened to include high‑quality sovereign and market instruments denominated in USD, AED, GBP and EUR, provided they meet certain risk and quality criteria.

Phase 2 (effective 1 July 2026)

Activity Based Capital Requirement (ABCR)

The ABCR is the most substantial change to firms under the new regime. Under this new framework, capital is calculated using specific K‑factors designed to capture the scale and intensity of a firm’s activities:

• K‑AUM: assets under management

• K‑ASA: assets safeguarded and administered

• K‑COH: client orders handled

Each K‑factor has an associated coefficient, which is applied to determine the overall capital requirement. Firms must then hold the highest of the BCR, the recalculated EBCM (where it applies), or the new ABCR.

This represents a fundamental shift in prudential thinking, replacing cost‑based capital with a more forward‑looking, operationally‑anchored model that directly links prudential requirements to the firm’s economic footprint.

Professional Indemnity Insurance (PII)

PII is no longer mandatory for many firms under the ABCR framework except for those serving retail clients, acting as insurance intermediaries or conducting certain higher‑risk activities. Where PII remains applicable, minimum cover requirements have been recalibrated and retroactive periods reduced to better align with risk.

Additional auditor responsibilities

Auditor responsibilities have also expanded. From 2026, auditors must review ABCR, EBCM (if relevant), and certain liquidity and capital calculations as part of their statutory duties. This means internal systems will need to produce auditable data trails and consistent evidence to support prudential computations.

Regulatory reporting and supervision

The DFSA has updated the prudential investment business (PIB) rulebook to reflect these changes, introducing:

• New EPRS reporting templates that capture K‑factor data.

• enhanced capital and liquidity metrics.

• auditor‑validated prudential information.

Firms will need to ensure their systems can produce accurate, complete and timely data. For many, this represents a significant operational shift, particularly in areas such as AUM measurement, order‑handling data and asset safeguarding records. From a supervisory perspective, firms should expect a more data‑driven oversight model. Enhanced EPRS reporting will give the DFSA greater visibility into firms’ prudential positions, and the regulator has indicated that it will continue applying a risk‑based approach when assessing capital adequacy. Firms with large AUM or significant client order volumes may experience thematic reviews or see bespoke prudential add‑ons applied. The DFSA is also likely to place increased emphasis on liquidity quality, governance, data integrity and activity‑linked exposures.

How can firms prepare?

For firms, the practical implications are wide‑ranging.

How can Buzzacott support your transition?

Buzzacott is perfectly placed to support firms through this regulatory transition. Our team provides:

• Comprehensive capital impact assessments: evaluating ABCR, BCR and EBCM combined effects and modelling how future business activity will influence capital needs.

• System implementation: assisting firms in implementing the new PIB and EPRS templates, building robust reporting processes, and ensuring data accuracy across operational, finance and compliance teams.

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