This article offers a comprehensive overview of the DIFC Collective Investment Law No. 2 of 2010.
This law regulates the legal framework, management, and supervision of collective investment funds within the Dubai International Financial Centre (DIFC).
This law supports a globally competitive financial hub and ensures fund transparency, investor protection, and robust supervision.
This guide is useful for fund managers, legal advisors, trustees, and institutions establishing or managing investment funds in the DIFC in 2025.
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Table of Contents
DIFC Collective Investment Law Overview
The Collective Investment Law (DIFC Law No. 2 of 2010), which came into effect on 1 July 2010, replaced the previous 2006 law.
The law has evolved via the following key amendments:
- 2012 & 2014 Amendments: Clarified governance and transitional rules from the 2006 law.
- 2018 Amendment (Law No. 9 of 2018): Strengthened oversight and compliance mechanisms.
- 2019 Amendment (Law No. 3 of 2019): Added clarity on specialist fund classes, Islamic funds, and definitions of open- vs. closed-ended funds.
These changes aim to enhance investor protection, streamline regulatory compliance, and improve fund market stability within the DIFC.
It is administered by the Dubai Financial Services Authority (DFSA), which has broad regulatory and enforcement powers.
The DFSA can issue rules, grant or revoke fund registrations, and take corrective actions such as stop orders if a fund breaches its obligations or poses risks to investors.
For example, if a fund is found to be making misleading marketing claims, such as guaranteeing unrealistic returns, the DFSA may take action.
Under Article 69 of the DIFC collective investment law, they can immediately issue a stop order to suspend any sales or redemptions of fund units.
What Constitutes a Collective Investment Fund?
A Collective Investment Fund is an arrangement in which multiple investors pool resources to gain profits or income from managed assets.
Investors do not have day-to-day control over the assets, even if they have the right to be consulted.
A typical example might be a fund established to invest in a basket of real estate properties or regional equities, where the investors rely on a professional fund manager to make asset decisions.
The DFSA may also declare that certain arrangements, even if they technically fit the definition, are not to be treated as funds, particularly when investor control is too high or pooling is insufficiently structured.
Domestic vs. Foreign Fund Classification
Funds are classified as Domestic if established or domiciled in the DIFC. They are Foreign Funds if formed outside the DIFC but managed by a DFSA-authorized firm.
A DIFC-based asset management company launching a fund registered in Ireland but promoted in the UAE would be managing a foreign fund under Article 14.
In contrast, if the fund is incorporated and operated within DIFC, it is treated as a Domestic Fund and is subject to full regulation under this law.
Domestic Funds fall into three categories:
Public Funds
These can be marketed to the general public and must undergo comprehensive DFSA registration.
For instance, a Public Fund offering units to retail investors in the DIFC must issue a full prospectus and meet ongoing disclosure obligations.
Exempt Funds
These are limited to Professional Clients (typically high-net-worth individuals or institutions) and require a minimum investment of USD 50,000.
They are offered privately and are not subject to full registration, but must notify the DFSA before launch.
Qualified Investor Funds (QIFs)
Similar to Exempt Funds but with a higher threshold, these require a minimum subscription of USD 500,000.
They are suited for sophisticated investors and enjoy lighter regulatory burdens, provided DFSA is notified at least 14 days in advance.
Legal Structures for Domestic Funds
A Domestic Fund must be legally constituted as an Investment Company, Partnership, or Trust.
For example, a Private Equity Fund may choose the Investment Partnership form to offer operational flexibility, while a retail-focused mutual fund might be best structured as an Investment Company.
Meanwhile, funds with fiduciary obligations over physical assets, such as Shari’a-compliant property funds, may prefer the Investment Trust model with an independent trustee.
The law prohibits using these legal forms for non-fund business, and additional rules may apply depending on the fund’s classification and investor base.
Governance and Fund Management Roles
Governance plays a central role in maintaining the integrity and legal compliance of funds operating within the DIFC.
Effective governance ensures that fund managers are held accountable, minimize conflicts of interest, and protect investor rights.
The DIFC Collective Investment Law requires each fund to establish a clearly defined management and control structure that aligns with its legal form—an investment company, partnership, or trust.
The division of responsibilities between Fund Managers, Trustees (where applicable), and any appointed oversight bodies is at the core of this governance structure.
These entities must operate independently and fulfill their duties honestly, transparently, and in the best interest of the fund’s Unitholders.
The law imposes specific legal obligations on these roles, tailored to the fund’s structure and classification.
For example, Public Funds must have an independent oversight function to monitor compliance, while Investment Trusts must appoint a qualified Trustee to safeguard fund property.
Each participant in the governance framework must demonstrate legal compliance, operational soundness, and financial integrity.
Fund Managers
Every Domestic Fund must appoint a Fund Manager, a corporate body authorized by the DFSA.
The manager must hold the appropriate license for the specific type or class of fund it intends to operate.
For example, a fund manager licensed only for Exempt Funds cannot manage a Public Fund without upgrading its DFSA permissions.
The Fund Manager is legally accountable for managing the fund in compliance with its constitution, prospectus, and DFSA regulations. Duties include:
- Acting in the best interests of investors.
- Ensuring asset segregation between different funds and the manager’s own property.
- Reporting any material breaches to the DFSA.
A Fund Manager of a Shari’a-compliant fund must also appoint a Shari’a Supervisory Board to certify that investments and operations align with Islamic principles under Article 17.
Trustees Management Role
A Trustee is mandatory for investment trusts. This must be either a DFSA-authorized custodian or a suitably regulated financial entity from a Recognized Jurisdiction.
The Trustee’s role includes holding legal title to fund property and ensuring that the manager’s actions comply with the fund’s constitution and regulatory rules.
Trustees serve as fiduciary protectors of investor assets, especially in structures where legal and beneficial ownership are separated.
Requirements and Controls of Fund Operation
All domestic funds must meet operational standards, which include maintaining a written constitution and appointing a registered auditor.
Open-ended funds must also offer single pricing for units based on net asset value (NAV).
For instance, an open-ended investment fund that allows daily subscriptions and redemptions must calculate NAV daily and use it as the basis for pricing units to ensure fairness across investors.
The law also mandates robust systems and controls.
A fund manager running a cryptocurrency fund must implement enhanced risk protocols to comply with Article 38 in the DIFC collective investment law.
This includes valuation models, volatility thresholds, and liquidity safeguards.
Oversight and Investor Protection
Public Funds are required to maintain an oversight arrangement, such as a fund board or an independent review committee.
Oversight personnel must meet independence criteria, which means they cannot have been former employees or business affiliates of the Fund Manager within the past two years.
Oversight bodies are responsible for:
- Monitoring fund compliance with the constitution and prospectus.
- Reviewing operational controls, including risk management.
- Reporting unaddressed or serious breaches to the DFSA.
For instance, if an oversight committee finds that the Fund Manager has exceeded a leverage cap stated in the prospectus, corrective action must be taken within 30 days.
If no action is taken, the committee is required to report the issue to the regulator.
Marketing and Disclosure Regulations
Marketing of fund units in or from the DIFC is strictly regulated. Only DFSA-authorized firms may market or promote funds.
Public Funds must issue a Prospectus that is clear, complete, and not misleading.
Examples of marketing violations include:
- Claiming a guaranteed return when none exists.
- Failing to disclose investment risks in the prospectus.
- Omitting material updates from ongoing communications.
These actions may breach Article 56 and expose the Fund Manager to penalties, compensation claims, or deregistration.
Suspension, Winding Up, and Reinstatement
Fund Managers may suspend dealings in open-ended funds during extraordinary market conditions—such as political crises or severe market volatility—if it is in the best interest of unitholders.
The DFSA and investors must be notified without delay.
Winding up may be triggered by:
- An investor vote.
- Regulatory enforcement.
- Fulfillment or failure of the fund’s purpose.
For example, a fund established to invest in Expo 2020-related infrastructure may be wound up once the event concludes and investments are liquidated.
Any unclaimed fund property must be transferred to the DIFC Courts upon completion of the winding-up process.
If necessary, stakeholders may apply to the court for reinstatement of a fund if it is equitable, such as when a fund was wound up in error or based on inaccurate information.
DFSA Supervisory Powers
The DFSA has extensive authority under the law to:
- Request fund documents and financial records.
- Issue stop orders against misleading marketing or compliance failures.
- Deregister non-compliant funds.
- Order the court-appointed replacement of mismanaging Fund Managers or Trustees.
For instance, if a fund repeatedly fails to submit its annual audits or is found to be operating without proper risk controls, the DFSA may suspend operations or withdraw its registration altogether.
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Legal Services Related to Collective Investment Law in DIFC
Our law firm in the UAE offers comprehensive legal support to clients navigating the DIFC Collective Investment Law.
We focus exclusively on fund establishment, governance, compliance, and dispute resolution within the DIFC framework.
Legal Structuring and DFSA Compliance
We assist clients in choosing the optimal legal form for their fund, whether an Investment Company, Trust, or Partnership.
We prepare fund constitutions and offering documents in full compliance with Article 27 and ensure that prospectuses meet DFSA disclosure standards, reducing exposure to legal risks.
Registration, Notifications, and Governance
We manage all aspects of DFSA registration for Public Funds and notifications for Exempt or QIFs.
This includes responding to regulator queries, coordinating oversight appointments, and drafting governance documentation.
We advise on Shari’a governance structures for Islamic Funds and help appoint qualified Shari’a Supervisory Boards under Article 17.
Ongoing Legal Support and Dispute Management
We advise on internal controls, risk reporting, and fund restructuring. In the event of regulatory action or investor disputes, we represent clients before the DFSA and DIFC Courts.
Our lawyers also assist with winding-up procedures and reinstatement applications under Article 67, ensuring our clients are protected throughout a fund’s life cycle.
Find more services from top Lawyers in Dubai, UAE.
FAQs about Collective Investment Regulations in DIFC
Conclusion
The DIFC Collective Investment Law provides a strong, transparent legal framework for fund management in one of the world’s leading financial centers.
The law supports market integrity while allowing flexibility for innovation by requiring clear fund categorization, governance obligations, and rigorous investor protection standards.
Our firm offers deep legal expertise to help clients thrive under this framework, ensuring their funds remain compliant and competitive.
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A law graduate and legal writer focusing on UAE law, he became known for his ability to clarify complex legal concepts through his writings. His work simplifies the intricacies of the legal landscape in the Emirates, helping both locals and expatriates navigate their legal concerns.
