A new regime for UK AIFMs: a consultation on the FCA’s latest proposals in CP26/28

On 14 July 2026, HM Treasury (HMT) and the Financial Conduct Authority (FCA) issued a co-ordinated package of proposals amounting to the most significant overhaul of the UK's regime for alternative investment fund managers (AIFMs) since the Alternative Investment Fund Managers Directive (AIFMD) was transposed into UK law in 2013. 

The UK Alternative Investment Fund Managers Regulations 2013 (AIFM Regulations) have been in force for almost a decade without a fundamental review. The FCA has now proposed a package of reforms which it hails as more proportionate and streamlined. The FCA’s proposals follow, and are broadly consistent with, last year’s HMT consultation paper and FCA call for input as discussed here.

Key proposals

The key proposals set out in the FCA’s consultation paper and HMT’s draft regulations include: 

• abolishing the distinction between “full-scope” and “sub-threshold” AIFMs and replacing these with AIFM size categories based on net asset value (NAV) instead of assets under management (AUM);
• narrowing the scope of the AIFM registration regime;
• amending the definition of an “AIF” so that more collective investment scheme (CIS) operators are brought into the AIFM regime;
• a new FCA sourcebook for AIFMs;
• less prescriptive disclosure requirements to professional investors;
• more proportionate valuation, risk management and liquidity requirements;
• introducing discretion when calculating leverage;
• streamlined delegation requirements;
• scaled back cash monitoring requirements for depositaries; and
• exemptions for certain closed-ended investment companies.

As part of its reform package, the FCA has also issued additional consultations: 

• CP26/27: Remuneration: Solo-regulated firms’ rules reform which proposes a consolidated remuneration code for AIFMs, MiFID firms and UCITS managers. The new code would move to principles-based deferral, and would drop mandatory remuneration committees and annual reviews; and
• CP26/26: Fund Reporting for Asset Management Entities (FRAME) consultation paper which proposes a new regulatory reporting framework for asset management firms reporting fund data. This will replace the current extensive reporting and disclosure requirements derived from AIFMD known as Annex IV reporting. Under FRAME, a £500m NAV threshold would split funds into "essential" versus "enhanced" reporting. The FCA is targeting a 75% overall burden reduction in reporting.

Three tiers of AIFM

The FCA has retained the proposal in its Call for Input to categorise all AIFMs into three tiers, determined by reference to the NAV of their funds. The FCA has however adjusted the thresholds as follows:

• “small” AIFMs would be those with NAV below £750m (previous threshold proposed by the FCA was £100m);
• “medium” AIFMs would be those with NAV of £750m or above up to £5bn; and
• “large” AIFMs would be those with NAV above £5bn.

Under the latest proposals, crossing a threshold would no longer require an application for variation of permission, which is currently required when transitioning from a sub-threshold to full-scope AIFM. Rather, a transition between thresholds would generally require a material change notification to the FCA.   

The proposals would also remove the current AIFM registration regime (except for RVECA¹ and SEF² managers) such that most small registered AIFMs would be brought into scope of full authorisation.

Residual CIS operators

Currently, the AIFM Regulations define an AIF as a collective investment undertaking that raises capital from multiple investors with a view to investing it in accordance with a defined investment policy. 

HMT proposes to clarify certain grey areas in respect of that definition which, in the FCA’s view, have resulted in some funds which should be treated as AIFs instead being classified by firms as CISs. 

For example, it is proposed that legislation will clarify that: ‘raising capital’ can take place in the past, present or future; and a ‘defined investment policy’ can be explicit in writing or implicit. It is expected that such legislation would incorporate some of the existing PERG 16 guidance issued by the FCA on the definition of an AIF.

The FCA expects that its amendments will result in a number of CISs being reclassified as AIFs in future. This will mean that certain residual CIS operators will need to vary their permissions to manage an AIF and firms with existing AIFM permissions may also need to notify the FCA of any new AIFs under management.

The FCA is also considering whether to modify the current application of rules to residual CIS operators. In particular the FCA has called for input on their proposals to require CIS operators to provide investors with the same level of information as will be required for “small” AIFMs (as defined under the revised thresholds in the new regime) in an ‘annual summary’ and provide investors with pre-contractual disclosures (see “Investor reporting disclosures” below for further details). 

It is also unclear whether AIFMs that currently also maintain the “establishing, operating and winding up a collective investment scheme” permission to operate a non-AIF CIS (e.g. certain co-investment schemes) will be able to operate simply with an AIF management permission. 

A new AIFM sourcebook

In line with the government’s commitment to allow for more flexible regulation, the latest proposals would move the detailed requirements out of legislation and into the FCA rules. The FCA proposes to introduce a new “Alternative Investment Funds sourcebook” (ALTS) for managers of unauthorised funds. This would replace the existing FUND sourcebook and also house many of the rules currently in legislation. 

Investor reporting and disclosures

The FCA proposes to apply high level reporting and disclosure obligations replacing the existing prescriptive model derived from Articles 22 and 23 AIFMD. Although baseline requirements will apply, the new regime will allow greater flexibility, particularly for AIFMs marketing to professional investors, in how information relevant to investors needs is presented. 

For example, the FCA proposes that medium and large AIFMs would be required to make available to investors an annual report (in a similar way as currently required for full-scope AIFMs under AIFMD-derived rules); however, the contents of these reports would be much less prescriptive and the onus would be on the AIFM to determine what it would consider sufficient to cover the FCA’s baseline requirements.

The majority of the extensive mandatory disclosures currently required to be made to retail investors will be retained; the FCA has indicated that these would preserve the current combination of pre-contractual disclosures and periodic statements. However, the FCA has recognised that sophisticated institutional investors are generally well placed to negotiate the specific information they require directly with managers and has therefore limited the scope of mandatory pre-contractual disclosures for professional investors. 

Alignment with the CCI regime

The FCA has also addressed how the pre-contractual disclosures required to be made to retail investors in unauthorised AIFs and residual CISs will interact with the product summary requirement under the Consumer Composite Investments (CCI) regime. The FCA intends for the pre-contractual disclosures to serve a separate purpose to the CCI product summary; namely to give investors an understanding of how the fund operates rather than a summary of the information which would be helpful for investors to make a decision whether or not to invest. The pre-contractual disclosures are designed to sit alongside, but go beyond, the information required by the CCI product summary.

Where AIFMs or CIS operators only have a very limited number of retail investors, there is however potentially more scope to avoid the retail disclosure requirements entirely. This could be significant in particular for co-investment structures. This is because under the CCI regime, an investor who would previously have been treated as a retail client (for the purposes of the PRIIPs regime) may be capable of being treated as a professional client due to being opted up on the basis of a qualitative assessment alone. This differs from the position under the current regime which requires AIFMs to use the MiFID opt up test applying both qualitative and quantitative criteria. Although not the subject of this consultation, there is likely to be further latitude added in this area as the FCA is separately consulting on changes to its client categorisation regime, which are expected to result in more flexibility as discussed in our article here.

Valuation reform

HMT proposes to remove the unlimited liability provisions applicable to "external valuers” as they consider that these measures have prevented the market for external valuers from developing.

Instead, the FCA proposes to introduce a competence and independence test for "independent valuers” which would ensure that valuers have knowledge, skills and experience to value the relevant assets, sufficient personnel and technical resources, and can act independently of the AIFM.  

For firms that perform their own valuations, the FCA has also proposed more proportionate requirements to ensure firms have independent valuation functions.  Currently, AIFMs are required to ensure that the valuation task is functionally independent from portfolio management. The FCA acknowledges that this can be difficult for all but the largest of AIFMs. The FCA has therefore proposed proportionate requirements so that small and medium AIFMs need only take "appropriate steps" to manage conflicts.  The FCA has similarly provided for proportionate application of valuation rules for firms depending on their size. 

Leverage calculations and derivatives 

Under existing requirements, firms have to conduct two separate leverage calculations: using the “gross” calculation for investor disclosures; and the “commitment” calculation for the purposes of determining additional reporting requirements. The FCA has recognised that leverage calculations are complex and do not always accurately reflect a firm’s leverage and the risks it might pose to markets and consumers. 

The definition of leverage remains the same, but firms would no longer have to use the "gross” calculation method when calculating the level of leverage employed by their AIFs for the purposes of disclosures to investors. Under the FCA’s proposals, the onus is placed on firms to determine an appropriate method or methods for disclosing the quantum of their leverage to investors which best reflects their strategy. AIFMs will need to ensure that any disclosure is fair, clear and not misleading. AIFMs would only be required to disclose such information at the pre-contractual stage and subsequently update investors if there is a material change to it (rather than on an ongoing basis as currently required).

The FCA is also seeking to reduce the calculations required for reporting to the FCA. The FCA proposes to remove the “commitment” calculation method and substantially leveraged threshold for the purposes of leverage reporting to the FCA; this approach is reflected by FRAME. Under FRAME, the FCA proposes to move toward collecting granular underlying data rather than a single summary leverage figure. All funds would be required to report a basic indicator of scale as part of essential reporting, the gross notional amount of derivatives and the gross market value of long and short cash security positions. The FCA considers that this would give them a simpler, consistent signal of derivative use and borrowing across the whole fund population. 

Proportionate risk management and liquidity requirements

All AIFMs will be subject to baseline risk management standards. However, the more prescriptive requirements will apply according to a firm’s size and depending on whether a fund is open/closed-ended or leveraged.  

AIFMs managing closed-ended, unleveraged funds would be subject to the baseline requirements only. In particular, medium and large AIFMs managing only this type of AIF would fall outside the requirement to establish a hierarchically and functionally independent risk management function that would apply more broadly under the current regime. For some medium and large AIFMs whose fund range consists entirely of closed-ended, unleveraged vehicles, this could allow for a leaner risk management structure than is currently required, since a dedicated, independent second-line function separate from portfolio management would no longer be mandated for those firms. This relief falls away, however, as soon as a medium or large AIFM manages any AIF that is open-ended or leveraged, in which case full functional and hierarchical separation of risk management from portfolio management applies without the proportionality flexibility given to small AIFMs.

A new "look-through" liquidity requirement applies to medium/large AIFMs of open-ended funds investing in other open-ended funds (except exchange-traded ones), which would require such AIFMs to "look through" to the portfolio of those other funds to better assess the liquidity risks.

Delegation requirements

The FCA has proposed a few light touch reforms in respect of delegation of key AIFM functions.  As expected, AIFM liability continues to be unaffected by delegation, written agreements are still required, and delegation of portfolio management and risk management to a depositary (or its delegate) remains prohibited. 

However, the FCA has sought to ease some of the associated FCA supervisory requirements. In particular, a new, narrower category of "additional core AIFM functions" (which comprises of third-party valuation, compliance monitoring and AIF marketing) will be easier to delegate. HMT also proposes to remove the requirement for FCA approval for delegation of risk or portfolio management to an entity unauthorised for asset management. 

Depositary responsibilities

The FCA has proposed scaling back the cash monitoring function for depositaries. The FCA considers the current requirement for depositaries to independently re-perform the AIFM's cash reconciliations, typically daily, is an unnecessary duplication that adds little investor protection value and is disproportionate for funds with infrequent cash movements, including closed-ended structures. 

The FCA therefore proposes discontinuing daily re-performance and outlier checks in favour of a genuine oversight model, under which the AIF or AIFM itself would be explicitly responsible for cash monitoring, while the depositary oversees that process, investigates discrepancies and focuses on significant errors or signs of fraud.      

Closed-ended investment companies 

To avoid duplication, the FCA proposes that listed closed-ended investment companies (such as investment trusts, REITs and VCTs) be exempted from the AIFM disclosure/reporting rules provided they make equivalent UK Listing Rules-compliant disclosures. 

The FCA also proposes that small internally managed investment companies can be exempted from the AIFM regime entirely if they are listed and meet certain specified conditions.

Transitional period / grandfathering 

The FCA has not indicated at this stage the extent of any general transitional period for implementation of these new rules. 

However, the FCA has stated that reasonable time will likely be allowed for firms that are affected by the amendments to the definition of an “AIF” to take necessary steps under transitional arrangements. 

The FCA has also specifically indicated that there is not expected to be any grandfathering regime for small registered AIFMs that will need to become authorised.

Timeline

• 18 September 2026: responses due on discussion chapters (depositaries, prime brokers, business restriction) and CP26/27 (remuneration)
• 22 September 2026: responses due on CP26/26 (FRAME)
• 14 October 2026: responses due on HMT’s draft regulations and CP26/28
• 2027: expected final policy statement and Handbook rules
• 2028:  expected implementation