Strengthening Corporate Governance: Best Practices and Regulatory Expectations for DFSA and FSRA Licensed Firms

In today’s interconnected and highly scrutinised financial environment, corporate governance is no longer a checkbox exercise; it's a strategic differentiator. For firms licensed by the Dubai Financial Services Authority (DFSA) in the Dubai International Financial Centre (DIFC) and the Financial Services Regulatory Authority (FSRA) in the Abu Dhabi Global Market (ADGM), strong governance frameworks are essential for resilience, investor trust, and long-term performance.

As we move through 2025, regulatory expectations are intensifying, with a clear emphasis on ethical leadership, transparent decision-making, and proactive risk management. Firms that treat governance as a living, evolving discipline rather than a static requirement will be best placed to succeed.

What Is Corporate Governance, and Why Does It Matter?

At its core, corporate governance refers to the structures, policies, and processes that guide how firms are managed and held accountable. It encompasses the responsibilities of the Board of Directors, risk and control mechanisms, and the overall corporate culture.

For regulated financial institutions, effective governance is mission-critical. It:

• Builds market and investor confidence

• Supports sustainable performance and value creation

• Minimises reputational, operational, and legal risk

• Aligns internal behaviours with external expectations and regulatory mandates

Within the UAE’s vision to be a world-leading financial hub, governance is not only a regulatory standard, but it is a reputational and strategic asset.

Regulatory Landscape: What the DFSA and FSRA Expect

Both the DFSA and FSRA take a risk-based, principles-led approach, aligned with international best practices from bodies such as the Basel Committee, IOSCO, and the Financial Stability Board. While their frameworks differ slightly in language, their governance priorities are closely aligned.

DFSA (DIFC) – Key Governance Principles:

• Independent and Capable Boards: Firms must ensure Board independence, with clearly defined roles and a separation of powers between the Board and executive management.

• Robust Internal Controls and Risk Oversight: Governance must go hand-in-hand with comprehensive risk management frameworks and internal audit functions.

• ‘Fit and Proper’ Leadership: Senior executives and Board members must meet high standards of competence, integrity, and financial soundness.

• Transparent Disclosure: Firms are expected to communicate material information accurately and promptly to stakeholders and regulators.

FSRA (ADGM) – Governance Focus Areas:

• Accountability at All Levels: Clear lines of responsibility and reporting across the organisation are essential.

• Embedded Compliance Culture: Senior management must lead a strong risk and compliance culture across business units.

• Board Composition and Skill Sets: FSRA encourages Boards with diverse and relevant expertise, including sector-specific and independent perspectives.

• Whistleblower Protection: Confidential reporting mechanisms are strongly encouraged to support ethical conduct and detect potential misconduct.

Five Key Trends Reshaping Governance in 2025

1. ESG Leadership Becomes Mainstream

Environmental, Social, and Governance (ESG) oversight is now firmly a Board responsibility. Both DFSA and FSRA are integrating ESG into supervisory dialogues, particularly with listed and systemically important firms. ESG data quality, transparency in reporting, and alignment with global standards (e.g., ISSB, TCFD) are under increased scrutiny.

2. Digital Risk and AI Oversight

Cybersecurity and digital operational resilience remain top regulatory concerns, especially with the rise of AI-powered tools in financial services. Regulators expect Boards to have visibility into digital risk management, including data governance, third-party risk, and emerging AI ethics frameworks.

3. Board Diversity and Strategic Competence

2025 sees a heightened focus on Board composition not just independence or tenure, but whether Boards have the right mix of digital, financial, legal, and ESG competencies. Gender and cultural diversity continue to be indicators of modern, resilient governance.

4. Cross-Border and Group Governance Complexity

Firms with regional or global operations must align centralised governance with local regulatory accountability. Both DFSA and FSRA stress that local Boards retain responsibility for compliance and oversight, regardless of group-level directives.

5. Stronger Supervisory Action and Thematic Reviews

The DFSA and FSRA have adopted a more assertive regulatory posture in recent years. Expect more targeted thematic reviews, stress-testing of governance practices, and public enforcement actions in cases of governance failure or board-level misconduct.

A Strategic Governance Mindset for 2025 and Beyond

Strengthening corporate governance is more than a regulatory duty it’s an opportunity to embed resilience, agility, and ethical leadership at the heart of your business. For DFSA and FSRA-regulated firms, this means shifting from a compliance-driven mindset to a culture of proactive governance.

In an era defined by complexity, whether geopolitical, digital, or environmental, the most successful firms will be those whose governance frameworks are future-ready, Board-driven, and deeply aligned with stakeholder expectations.

As the regulatory bar continues to rise in 2025, Boards and executive teams must ask themselves: Are we simply meeting requirements, or are we leading by example?

To discuss this further, contact Eugenie Levy

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This material is provided for general information only. It should not be relied upon for the provision of or as a substitute for legal or other professional advice.