On 14 July 2026, the FCA and HM Treasury published detailed papers on the reform of the UK Alternative Investment Fund Managers Directive (AIFMD). The FCA Consultation Paper (CP26/28) covers aspects to be revised or restated under FCA rules, while HM Treasury’s draft Statutory Instrument (SI), which is accompanied by a Policy Note, sets out a new UK legislative framework for regulating alternative investment fund managers (AIFMs). These materials build on the FCA Call for Input and HM Treasury Open Consultation on the reform of the UK AIFMD regime published last spring (see this Latham Client Alert).
Alongside these publications, the FCA is also consulting on reforms to the remuneration rules for solo-regulated firms (CP26/27) (see this Latham blog post), and on a new reporting regime for asset managers (CP26/26).
While not all reviews of UK-derived financial services regulatory frameworks since Brexit have resulted in significant policy change, the FCA has given deep and serious consideration to how it can rework the rules for asset managers, in order to produce a more coherent and proportionate package. That said, we should highlight at the outset that the changes we describe as meaningful in this article are in the context of maintaining a bespoke regulatory framework for asset managers. The government did, of course, have access to the more radical option of scrapping the regime entirely and relying instead on measures applicable to collective investment schemes which pre-date the AIFMD regime, but this is not the path it has chosen to take.
In terms of the reforms, moving to a three-tier structure and setting out most of the requirements within one consolidated sourcebook within the FCA Handbook will help to provide a clearer structure to the regime. The FCA is also using proportionality to reduce the regulatory burden in various areas when it considers this to be justified, particularly for smaller AIFMs. In addition, the FCA’s plans to overhaul the reporting regime should facilitate lighter-touch reporting requirements for many alternative investment funds (AIFs).
However, some asset managers will become subject to more stringent requirements. In particular, adjustments to the regulatory perimeter will require small registered AIFMs to become authorised, as well as some non-AIF and non-UCITS collective investment schemes falling within the updated definition of an AIF.
It is also worth highlighting that these UK reforms do not track amendments made to the EU AIFMD since Brexit (many of which have introduced stricter requirements in targeted areas), and so the implementation of the revised UK regime will result in material divergence from the EU when it takes effect (expected to be in 2028).
Under the new UK regulatory framework for asset managers, the SI will replace current legislation implementing the AIFMD in the UK, including The Alternative Investment Fund Managers Regulations 2013. While some provisions will be restated, others will be redrafted to create a bespoke UK regime for asset managers. Further, in line with the government’s wider approach to regimes inherited from the EU, the SI will transfer responsibility for various parts of the framework to the FCA so that the majority of the regime will be set out in FCA rules and guidance. Most notably, the FCA will be responsible for setting the size thresholds and categories of AIFM. The FCA plans to set out most of its requirements in a new sourcebook, the Alternative Investment Funds sourcebook (ALTS).
The SI restates the definition of an AIF, clarifying certain aspects. In particular, the SI will explain that a “defined investment policy” can be implicit, and that the “raising capital” criterion can apply to activities in the past, present, or future, reflecting some of the FCA’s current Perimeter Guidance. The FCA highlights that this change could result in some “residual CISs” (non-AIF and non-UCITS collective investment schemes) falling within the definition of an AIF. The FCA consultation also addresses the regime for firms that will remain residual CIS operators. While the FCA’s proposals take the view that residual CISs are or may be operated as vehicles that pose similar risks to AIFs, it is open to views on what would be a proportionate approach.
The SI will introduce an exemption for internally managed listed closed-ended investment companies that are below the current small AIFM thresholds. To qualify for the exemption, funds must be admitted to trading on a UK multilateral trading facility or a UK recognised investment exchange. The SI also permits HM Treasury to update the lists of excluded entities from the AIF and AIFM definitions via secondary legislation in future, to make this process more straightforward.
Further, the SI will remove the registration regime (which currently allows some small AIFMs to be registered rather than fully authorised), except for AIFMs managing Registered Venture Capital Funds (RVECA) and Social Enterprise Funds (SEF) ahead of a wider HM Treasury review of Venture Capital Regulation expected in 2028. As a result, unauthorised property collective investment schemes, as well as internally managed closed-ended investment funds that are above the current small AIFM thresholds, will need to become authorised. The SI does not provide for any form of grandfathering for AIFMs that need to become authorised under the new regime, but anticipates that there will be time for such entities to seek authorisation before the changes take effect.
The SI will remove AIFM size thresholds from the legislation to allow the FCA to set the triggers within its rules. While the FCA has retained its proposed approach of moving to a three-tier system, following feedback to its Call for Input it has significantly raised the size threshold for medium firms. The proposed system would apply as follows:
|
Category |
Net asset value |
|
Small |
Below £750 million |
|
Medium |
£750 million to £5 billion |
|
Large |
More than £5 billion |
The regime will then apply proportionately to each category of AIFM. The FCA stresses that the rules for larger AIFMs build on those for smaller entities so that the regime does not entail fundamentally different rules for those in the top categories.
The FCA is introducing a new size calculation, based on net asset value (NAV) of the AIFs managed by the AIFM (including all AIFs, as well as any residual CISs that it manages), rather than maintaining the current approach which uses leveraged assets under management. AIFMs will need to calculate the mean NAV for each AIF averaged over the most recent quarter of a calendar year and aggregate the values.
AIFMs will need to recalculate their size whenever there is a material change to the value of their business that may impact classification, or a significant change in the value of assets they manage. Changes to classifications will only need to be notified to the FCA via a SUP 15 material change form, and will not require the AIFM to apply for any change in authorisation status, permissions, or requirements. Further, to help smooth any transitions, if an AIFM moves beyond a size threshold, it will have six months to comply with any uplifts under its new categorisation rather than needing to make immediate adjustments. Firms requiring a depositary as a result of the change will have 12 months to comply with the depositary requirement.
The FCA proposes to include flexibility for firms to apply parts of the rules for larger firms on a voluntary basis. Firms wishing to formally move into a higher category will also be able to do so, but only once per calendar year (including requests to move back down). Size classifications will not be shown on the Financial Services Register. These new size thresholds apply to UK AIFMs, so overseas AIFMs marketing into the UK under the National Private Placement Regime (NPPR) are not directly affected.
The SI maintains the NPPR for overseas AIFMs and AIFs, with some limited changes, while providing the FCA with additional powers to reform reporting requirements for domestic and overseas funds operating in the UK. The FCA’s proposals in this respect are set out in its separate consultation on reporting. As the NPPR was created for a pan-European market under the AIFMD, it is somewhat disappointing that the government has chosen to retain this regime given that other provisions around marketing exist in UK financial services regulation. While there would be reason to keep the NPPR for parity with the EU if the UK were seeking to maintain an aligned regime, it is clear from the overall reform package that this is not the intention. This may be a point that stakeholders choose to raise during the consultation process.
The SI also implements a simplified process for the FCA to suspend and revoke permission to market under certain grounds. Further, the SI allows UK AIFMs to notify the FCA when wishing to market a UK AIF, rather than having to seek permission. It also removes the requirement for UK AIFMs to notify the FCA 20 working days before marketing a UK fund under the NPPR; UK AIFMs will be able to market a UK fund as soon as they have provided the relevant written notification.
There is provision in the SI to enable the FCA to maintain a public register, or registers, of AIFs notified under the NPPR, as well as those whose entitlement to market has been suspended or revoked. In addition, the FCA is consulting on new guidance on the NPPR in ALTS.
The provisions on notification of major holdings in non-listed companies are being retained in legislation, as are the asset stripping provisions. However, the government is removing the requirement for AIFMs to notify the FCA of their control of voting rights in a portfolio company at regular intervals, as it considers this to be unnecessary and burdensome.
As mentioned above, the FCA has issued a separate consultation on a new regulatory reporting framework — referred to as “FRAME” (Fund Reporting for Asset Management Entities). This new framework is designed to simplify the requirements and make them more proportionate, and will apply across the spectrum of asset managers, not just to authorised AIFMs. The FCA is proposing that managers will need to comply with a set of “essential” reporting requirements for each fund under £500 million NAV, while for funds of £500 million NAV or more, managers will be required to comply with more extensive “enhanced” requirements. The FCA considers that around 90% of AIFs will only be subject to the essential requirements. The FCA is also proposing some bespoke reporting requirements for specific fund types, including private market funds, loan origination funds, and private equity funds.
The regulator is further proposing to calibrate the frequency of reporting depending on fund type; for example, requiring quarterly reporting for authorised funds and hedge funds, while requiring annual reporting for most unauthorised funds.
In terms of annual reports, the FCA is proposing to make the requirement to produce a report more proportionate by applying it to medium and large AIFMs in relation to each of their unauthorised AIFs. However, it is planning to remove much of the detail on the contents of the annual report, switching to a more principles-based approach that is underpinned by the requirement that all information contained in the annual report must be accurate, clear, fair, and not misleading. Medium and large AIFMs will also need to produce audited financial statements for each AIF they manage.
Small AIFMs will not need to produce a full annual report, but the FCA is proposing that they produce an “annual summary” instead, containing core information and including a financial statement plus an overview of any material changes. This will also be subject to the requirement to be clear, fair, and not misleading.
A new rule will provide that all AIFMs must respond to investors’ reasonable requests for further information.
The FCA considers that the current framework is too complex and prescriptive, so proposes creating a clear distinction between disclosures for professional and retail investors. It intends to move to a more principles-based regime for disclosures to professional investors (albeit with certain mandatory disclosures), while retaining more detailed requirements for disclosures to retail investors (with some flexibility around format) as well as the requirement to provide periodic statements to retail investors. Retail disclosures could leverage Consumer Composite Investment product summaries where applicable, although they will also need to include additional information. Further, the FCA proposes a new requirement that AIFMs will need to respond to investors’ reasonable requests for further information.
These requirements will be limited to unauthorised AIFs. Residual CISs will also be subject to the same frameworks, but with exemptions for carried interest vehicles, excluded entities, joint venture vehicles, and single investor vehicles. All disclosures to investors will need to be accurate, clear, fair, and not misleading.
The majority of the requirements will be removed from legislation and restated in FCA rules, with some simplifications. Most notably, the government is removing the requirement that FCA pre-approval must be sought before delegating investment management activities (risk or portfolio management). The FCA does not intend to replicate this in its rules, but rather to require that AIFMs provide information on delegation of investment management activities as soon as practicable after the delegation becomes effective. More fulsome information would then be provided through the AIFM’s usual periodic regulatory reporting.
However, the FCA is proposing to prohibit an AIFM from delegating investment management to an unauthorised entity in relation to a specified investment (as defined in The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001). Nevertheless, there is a proposed carve-out for non-UK delegates if the delegate does not need to be authorised or supervised to carry on the management of that investment type in its own jurisdiction (reflecting the fact that other jurisdictions may have a different regulatory scope).
The FCA is retaining the general conditions around delegation, such as that the AIFM must not delegate so as to become a letter-box entity. It is also retaining delegation requirements such as the AIFM needing to ensure delegates have sufficient expertise, and needing to carry out ongoing reviews of delegation arrangements.
However, the FCA is seeking to streamline the rules for delegation of ancillary services to make compliance easier for firms. While stricter requirements will apply to the delegation of investment management functions and “additional core AIFM functions” (narrowly defined to include valuations, regulatory compliance monitoring, and marketing), fewer obligations will attach to the delegation of other services.
The FCA is proposing to adjust the requirements to make them more proportionate and better tailored to firms’ activities. The new requirements will differentiate between managers of different types of AIF, so that core standards apply to all AIFMs, while additional requirements apply to AIFMs managing open-ended AIFs or closed-ended, leveraged AIFs. The core standards will require all AIFMs to carry out a level of research and due diligence that matches the type of investment. Additional requirements will mandate that relevant AIFMs establish and maintain a risk management function.
Further, the FCA intends to distinguish between medium and large AIFMs subject to the additional requirements. Medium and large AIFMs will both need to implement measures such as full separation of risk management from portfolio management and having a documented risk management policy. Large AIFMs will then be subject to an even more detailed governance framework, replicating the substantive requirements under the current regime.
In terms of liquidity risk management, the FCA is proposing some targeted changes, largely to simplify the rules for small AIFMs. In particular, it proposes that no specific liquidity risk management rules will apply to AIFMs managing an unleveraged, closed-ended AIF, although the baseline risk management rules would apply. A small AIFM of an open-ended AIF or a leveraged, closed-ended AIF will need to have an appropriate framework of liquidity risk management systems, processes, and controls, and conduct liquidity stress tests at least annually. Medium and large AIFMs will be subject to additional requirements that largely replicate the current regime. However, AIFMs of open-ended AIFs that invest in other open-ended funds will be required to apply a “look through” approach to assess the liquidity of the assets held in those funds.
Although it is proposing to keep the current Handbook definition of leverage, the FCA intends to remove the requirements for AIFMs to carry out leverage calculations using the commitment method and the gross method, recognising that these are burdensome for AIFMs to calculate and can have limited value. Instead, it proposes to require firms to disclose the quantum of their leverage to investors using a method or methods that are best suited to their fund and investment strategy. Any such disclosures will need to be clear, fair, and not misleading for investors.
In terms of reporting to the FCA, the regulator is proposing to remove the commitment method calculation and the substantially leveraged threshold, and instead require firms to report simpler and more streamlined data. Provision for reporting in relation to leveraged funds is included in the separate consultation on reporting requirements.
The SI will remove the provisions placing unlimited liability onto an external valuer for any losses caused by the valuer being negligent or intentionally failing to perform its tasks, as the government considers this has prevented a market for external valuers from developing. Given this change, the FCA is proposing to require that AIFMs must only appoint external valuers that meet certain criteria, relating to matters such as knowledge and independence.
Although the FCA intends to apply valuation rules to all AIFMs for the first time, it is proposing to ensure that these are proportionate. For example, it proposes that small AIFMs will only need to comply with the principle that they must have valuation policies and procedures and must regularly review them, whereas large firms will need to comply with rules in line with those under the current regime. The FCA considers that its proposals align with the IOSCO standards on valuation.
The government will not restate the remuneration requirements in legislation. The FCA is consulting separately on reforming the remuneration requirements for AIFMs (and for solo-regulated firms more broadly), to make them less prescriptive and give firms greater flexibility to apply the overarching principles in a more bespoke manner. As part of this, it is proposing to only apply remuneration requirements to medium and large AIFMs. For more detail on these reforms, please see this Latham blog post.
The FCA paper also contains a number of topics for discussion. It plans to consult on the detailed requirements in these areas in a second consultation later this year.
The FCA is considering overhauling the prudential regime for asset managers to reduce complexity and increase proportionality. In order to do this, it is proposing to bring asset managers within scope of its common baseline requirements in the Core Prudential Sourcebook (COREPRU). The FCA is therefore exploring whether and how elements of COREPRU could be applied to asset managers to create a streamlined and consistent regime. It is also considering how it could create a more coherent regime for collective portfolio management investment firms, which currently must comply with two sets of prudential requirements (those for asset managers and investment firms).
Given that the business restriction currently only applies to full-scope UK AIFMs, the FCA indicates that it needs to consider how the restriction might operate under the revised regime. As it cannot easily map the restriction across to the new regime without significantly altering which AIFMs are subject to it, the FCA is reviewing whether the restriction remains proportionate. It sets out a range of options, noting that it favours the option to remove the restriction entirely. In this scenario, the FCA would plan to “turn off” transaction reporting requirements for all AIFMs.
The SI retains the requirement that a UK AIFM marketing a non-UK AIF in the UK must appoint one or more entities to carry out the depositary functions, so that all UK AIFMs will be required to appoint a depositary in this scenario. The FCA discussion chapter on depositaries outlines its thinking that medium and large AIFMs should be required to appoint a depositary for each UK AIF they manage. It is proposing that small AIFMs would not need to appoint a depositary in relation to UK AIFs, although they would be able to choose to do so without opting up to becoming a medium AIFM. The FCA also states that it is open to considering whether the depositary requirements might be disproportionate for certain types of AIFs, such as private equity funds.
Further, the FCA is examining the potential benefits of allowing a split depositary model, and sets out some of the issues to explore as part of this. In addition, the FCA is reviewing other aspects of the rules and indicates that it will set out proposals on points such as potentially removing prescriptive content requirements for depositary agreements in its second consultation.
The FCA also discusses the role of prime brokers. Although it is not making detailed proposals at this stage, it indicates a preference for moving away from prescriptive rules, given the sophistication of the parties involved. The FCA plans to consider the role of prime brokers when developing its depositary rules, and make proposals in its second consultation.
HM Treasury requests comments on the draft SI by 14 October 2026. It expects to lay the legislation in early 2027. Notably, the draft SI does not include any consequential amendments or transitional provisions. The government states that it plans to decide on appropriate transitional arrangements in the lead-up to the new regime taking effect.
The main FCA consultation also closes for comments on 14 October 2026, although the FCA requests comments on the discussion chapters relating to depositaries, prime brokers, and removing the AIFM business restriction by the earlier date of 18 September 2026. The regulator plans to publish a second Consultation Paper on remaining areas of the regime, including those covered in the discussion chapters and further consequential amendments, later in 2026. This paper will also cover reforms to the regimes for authorised AIFs. The FCA then intends to finalise its rules in 2027.
The FCA consultation on fund reporting closes on 22 September 2026. The FCA aims to produce further prototype forms that firms can test out before the end of 2026, and to publish a Policy Statement in the first half of 2027.
Meanwhile, the FCA consultation on remuneration closes on 16 September 2026, with plans to publish a Policy Statement in early 2027. The FCA intends for these changes to take effect the day after publication, with the new remuneration framework being updated to reflect the new categories of AIFMs once the broader regime takes effect.
The intention is for the new regime to take effect in 2028. However, the FCA is considering whether, if firms are ready, it could begin to delete certain requirements and implement some aspects of the reporting framework earlier. Consequently, it is asking for firm feedback on the timeline for implementation.