On 14 July 2026, the Financial Conduct Authority (FCA) published three consultation papers setting out a proposed a package of reforms that is intended to tailor requirements proportionately for asset managers, cut costs for firms and give better data to supervise the sector more effectively.

Background

These consultation papers accompany HM Treasury’s (HMT) parallel consultation on changes to UK legislation, noting that much of the current UK asset management framework is derived from EU law, in particular the Alternative Investment Fund Managers Directive (AIFMD).

The FCA explains that there are two main consequences of the Treasury’s changes relevant to this consultation process: (i) certain rule-making powers will be transferred to the FCA, so it will be able to determine the size thresholds and categories of Alternative Investment Fund Manager (AIFM); and, (ii) the changes requiring the FCA to consider and incorporate appropriate provisions of the AIFMD Level 2 Regulation in its rules.

These consultation papers follow on from: Discussion Paper the FCA published in 2023: Updating and improving the UK regime for asset management (DP23/2), as well as its Call for Input in 2025: Future regulation of alternative fund managers.

Summary

The FCA proposes to create a new sourcebook, the Alternative Investment Funds sourcebook (ALTS) for managers of unauthorised funds. In future, most of the AIFM regime will be in FCA rules. The FCA explains that it aims to get the regime right through industry engagement and to have a period of stability in the rules. However, it further explains that should the FCA need to change or adapt the AIFM regime, the process for doing so will be quicker and nimbler than the current process that might require legislative changes.

The FCA have also set out that, as part of the wider package, it wants to introduce simpler, clearer and more proportionate renumeration and reporting frameworks for the broader asset management sector including UCITS management companies and MIFIDPRU investment firms, as well as AIFMs.

The FCA have published three consultation papers setting out proposed changes to the asset management regime. A brief summary of each is set out below.

The UK AIFM Regime

In CP26/28, the FCA sets out overarching proposals in relation to the new AIFM regime. In particular, the FCA proposes to create a new sourcebook, the Alternative Investment Funds sourcebook (ALTS) for managers of unauthorised funds.

Key proposals under the new regime include:

  • Firm size thresholds: The FCA has revised its proposed approach to categorising AIFMs, introducing a more proportionate three-tier regime based on net asset value (NAV). Under the proposals, firms managing less than £750 million NAV will be classified as small AIFMs, a significant increase from the originally proposed £100 million threshold. Firms with NAV between £750 million and £5 billion will be medium AIFMs, while those above £5 billion will be classified as large AIFMs. To determine their classification, firms must aggregate the NAV of all AIFs and certain collective investment schemes they manage. Classification should be reassessed whenever there is a material change to the business or a significant change in assets under management. Firms must calculate average NAV over the most recent calendar quarter and notify the FCA through a SUP 15 notification if their category changes. To reduce “cliff-edge” regulatory effects, firms moving into a higher category will generally have six months to comply with new requirements and up to 12 months to appoint a depositary where required. The FCA proposes a graduated rulebook, with core requirements applying to all firms and additional governance, oversight and depositary obligations applying to medium and large AIFMs, broadly reflecting the current full-scope regime for the largest firms.
  • Residual CIS operators: The FCA is proposing changes to address uncertainty around the distinction between Alternative Investment Funds (AIFs) and Collective Investment Schemes (CISs). HMT is consulting on amendments to the legal definition of an AIF, which could result in some CISs being reclassified as AIFs. Firms managing reclassified funds would need to notify both the FCA and investors. Operators without permission to manage AIFs would be required to obtain the necessary Part 4A authorisation. The FCA expects many CISs that remain outside the AIF regime (“residual CISs”) to be lower-risk structures, such as carried interest vehicles, single-investor arrangements, joint ventures, or vehicles holding specific assets. As these arrangements may involve limited or no ongoing investment management activity, the FCA is considering whether a lighter-touch regulatory approach is appropriate. However, the FCA is concerned about the lack of visibility over this sector and proposes introducing limited regulatory reporting requirements. Residual CIS operators would provide basic information, including the number, size and purpose of schemes they operate, enabling the FCA to monitor market developments and potential systemic risks. The FCA also proposes retaining streamlined disclosure requirements where residual CISs are marketed to, or accept investments from, retail investors. Certain lower-risk structures, including employee participation schemes, carried interest vehicles, joint ventures and single-investor vehicles, would be exempt from these enhanced disclosure obligations.
  • Valuation: The FCA is proposing what is intended to be a proportionate valuation framework that applies to all AIFMs, reflecting the importance of accurate and objective valuations in protecting investors. While firms may use different valuation methodologies, the FCA’s focus is on ensuring valuations are conducted in good faith, impartially, and with appropriate governance, oversight and conflict management. Firms will be required to maintain records of valuation decisions and consider ad hoc valuations where market or asset-specific events suggest existing valuations no longer reflect fair value. The FCA also proposes changes to the use of independent valuers following HMT’s proposal to remove statutory requirements and strict liability provisions. AIFMs would be able to appoint independent valuers where they have appropriate expertise, resources and independence. The regime is designed to be proportionate to firm size. Large AIFMs would remain subject to detailed requirements broadly consistent with the current regime, while medium-sized firms would face a reduced set of detailed rules. Small AIFMs would be required only to maintain and regularly review valuation policies and procedures.
  • Leverage calculations: The FCA proposes to retain the current definition of leverage but simplify how leverage is regulated and reported. The FCA considers that all firms using leverage should understand and manage the associated risks but believes the current leverage measurement framework is overly complex. It therefore proposes removing both the commitment and gross leverage calculation methods, which firms have criticised as burdensome, difficult to interpret and of limited value in assessing actual risk. Instead of requiring standardised leverage calculations for investor disclosures, firms would be required to disclose the quantum of their leverage to investors using measures most relevant to their investment strategy. The FCA also proposes replacing the current “substantially leveraged” threshold with streamlined reporting from all leveraged firms, enabling more effective monitoring of market-wide and systemic leverage risks.
  • Risk management: The FCA proposes what is intended to be a proportionate risk management regime under which all AIFMs must identify, monitor and manage the material risks arising from their investments. All firms would be required to undertake appropriate due diligence before investing, ensuring they have sufficient knowledge and understanding of assets. For managers of closed-ended, unleveraged AIFs, these baseline due diligence requirements would generally be the only risk management obligations. More detailed requirements would apply to firms managing open-ended funds or other AIFs with greater risk characteristics, such as leverage, liquidity mismatch or broader market impact. These firms would be required to maintain a risk management function that can independently identify, measure, monitor and manage material risks. For medium-sized firms, additional obligations would include a documented risk management policy, formal independence between risk and portfolio management, risk limits, conflict management measures and periodic reviews of risk frameworks. Large AIFMs would remain subject to a more comprehensive governance regime broadly aligned with current AIFMD standards, including detailed requirements for independent oversight, reporting to senior management, risk committees and annual reviews. The FCA also highlights key risks to market integrity and financial stability that firms should consider, including excessive leverage, concentrated market positions and the use of models or automated trading strategies, particularly where artificial intelligence could amplify risks if not appropriately controlled.
  • Liquidity risk management: The FCA also proposes what is intended to be a proportionate liquidity risk management regime based on the nature and risk profile of the AIF. Unleveraged closed-ended AIFs would remain outside the liquidity risk management rules because they are not exposed to redemption pressures or significant liquidity demands from leverage. However, they would still be subject to general risk management requirements and FCA principles, including the Consumer Duty where relevant. AIFMs would be expected to consider factors such as fund lifespan and commitments to investors when designing and managing such funds. For small AIFMs managing open-ended AIFs, the FCA proposes core requirements to ensure that a fund’s redemption policy is aligned with its investment strategy and liquidity profile, both at launch and on an ongoing basis. These firms would also need appropriate liquidity risk management systems, controls and processes, maintain suitable liquidity management tools, and conduct liquidity stress testing at least annually. Medium and large AIFMs would be subject to these baseline requirements plus more detailed rules reflecting their greater potential impact on market integrity and financial stability. These include enhanced stress-testing requirements, periodic reviews of liquidity risk frameworks, and, where investing in other open-ended funds, a “look-through” assessment of the liquidity of underlying assets rather than relying solely on the redemption terms of those funds.
  • Delegation: The FCA proposes broadly retaining the existing AIFM delegation regime, particularly for portfolio and risk management, while simplifying requirements for the delegation of ancillary services. The FCA emphasises that AIFMs remain responsible for their investment management functions and cannot transfer regulatory responsibility to delegates. The rules continue to guard against firms becoming “letter-box” entities and require delegation arrangements to support effective FCA supervision and investor protection. All authorised UK AIFMs, regardless of size, will be required to ensure delegates have adequate expertise, resources and governance, and to conduct ongoing reviews of delegation arrangements. The FCA proposes enhanced controls for the delegation of investment management functions and certain newly defined “additional core AIFM functions”, namely valuations, regulatory compliance monitoring and fund marketing. Where these core functions are delegated, firms must be able to justify the delegation with objective reasons, such as accessing specialist expertise or achieving operational efficiencies. Written agreements must clearly allocate responsibilities, allow the AIFM to monitor delegates, issue instructions and terminate arrangements where necessary. The FCA also proposes removing pre-notification requirements for delegations, replacing them with notification after arrangements take effect and subsequent regulatory reporting. Existing safeguards on conflicts of interest, sub-delegation, portfolio oversight and cross-border delegation would largely be retained.
  • Annual reporting to investors: The FCA proposes a proportionate annual reporting regime for unauthorised AIFs, reflecting the growth and diversification of the alternative investment sector. The new rules would not apply to authorised funds, recognised overseas schemes or listed closed-ended investment funds, as these are already subject to other disclosure and reporting frameworks. Medium and large UK AIFMs would be required to produce an annual report for each unauthorised AIF they manage. Reports must be accurate, clear, fair and not misleading, and include audited financial statements, details of material changes affecting investors, and information on any special arrangements relating to illiquid assets. Rather than retaining detailed prescriptive requirements, the FCA proposes a principles-based approach aligned with international accounting standards. Annual reports would also disclose total remuneration paid to material risk-takers, enabling investors to assess alignment between remuneration and investor interests. The FCA proposes that annual reports only be provided to the FCA on request, while remaining available to investors. Investors would also be entitled to request additional information about a fund’s activities. For small AIFMs and certain residual CIS operators, a simplified annual summary would replace a formal annual report, providing core financial information and details of material changes, without requiring an audit.
  • Investor disclosures: The FCA proposes a simplified and more proportionate investor disclosure framework, bringing together existing disclosure requirements in a new ALTS sourcebook. The regime would distinguish more clearly between professional and retail investors, reflecting differences in sophistication and ability to obtain information. For professional investors, the FCA proposes a more principles-based approach. Firms would be required to provide the information investors need to assess a fund’s risks, merits and costs, supported by a limited set of mandatory disclosures on matters such as valuation and liquidity risk management. Firms would also be required to respond to reasonable investor requests for additional information. Obligations to provide updates on leverage, liquidity arrangements and other disclosures would generally arise only where there is a material change. For retail investors, the FCA proposes retaining a more prescriptive disclosure regime for unauthorised AIFs and certain residual CISs, recognising the greater risks faced by retail investors. Required disclosures would cover areas including liquidity, leverage, valuation, conflicts of interest, investor rights and complaints procedures, alongside regular periodic statements. The proposals would apply regardless of firm size, while certain residual CIS, such as carried interest vehicles, joint ventures and single-investor vehicle, would remain exempt for proportionality reasons.
  • Closed-ended investment funds trading on UK markets and internally managed investment companies: HM Treasury has proposed a statutory exemption from the AIFM regime for certain small internally managed listed investment companies. To qualify, a company must be internally managed, listed on a recognised UK exchange or MTF, not be a CIS, and remain below the existing sub-threshold limits (£100 million for leveraged firms and £500 million for unleveraged firms with no redemptions within five years). Eligible firms would no longer require authorisation as AIFMs, although other regulatory requirements, including the UK Listing Rules, would continue to apply. Larger internally managed investment companies and externally managed closed-ended investment companies (CEICs) would remain within the AIFM regime. The FCA proposes applying risk management requirements proportionately based on size and use of leverage. The FCA also proposes exempting regulated-market CEICs, including investment trusts, Real Estate Investment Trusts (REITs) and Venture Capital Trusts (VCTs), from AIFM investor disclosure and annual reporting requirements where equivalent information is already provided under listing rules. In addition, new guidance would clarify that where a CEIC has an external AIFM, responsibility for compliance with AIFM rules remains with that external manager.
  • NPPR and cross-border marketing: The FCA’s proposals reflect HM Treasury’s decision to retain and restate the UK’s National Private Placement Regime (NPPR), which has generally been viewed by industry as working effectively. Following Brexit, the NPPR applies to UK and Gibraltar AIFMs marketing non-UK or non-Gibraltar AIFs in the UK, and to non-UK/non-Gibraltar (“third-country”) AIFMs marketing any AIFs in the UK, primarily to professional investors. As the key NPPR requirements will remain in legislation, the FCA is proposing guidance in the new ALTS sourcebook rather than extensive new rules. Third-country AIFMs will face similar requirements, including FCA notification, regulatory reporting, annual fees, and compliance with supervisory cooperation and anti-financial crime standards. HMT is also considering enhanced powers for the FCA to suspend or revoke marketing permissions where firms fail to comply with NPPR requirements. The proposals also recognise continued market access arrangements for Gibraltar-based AIFMs under the developing Gibraltar Access Regime (GAR).
  • Consequential changes – operating conditions: The FCA proposes a range of consequential amendments to ensure its new AIFM framework operates consistently across the Handbook. As AIFM requirements are moved from legislation and the AIFMD Level 2 Regulation into the new ALTS sourcebook, the FCA intends to simplify and standardise rules wherever possible while maintaining existing regulatory outcomes. A key theme is extending certain baseline governance and systems-and-controls requirements to all authorised AIFMs, regardless of size. This includes requirements for adequate resources and procedures, regular reviews of systems and controls, experienced senior management, and a minimum two-person management structure. The FCA considers these standards proportionate and broadly consistent with requirements already applied to other asset managers. The FCA also proposes applying shareholder engagement rules to all authorised AIFMs where relevant and incorporating certain AIFM-specific conduct requirements into ALTS 3, including obligations relating to investors’ best interests and order handling.

The FCA has also set out two discussion paper chapters for firms to consider:

  • Depositaries: The FCA is considering reforms to the depositary regime for unauthorised AIFs but is not yet consulting on specific rules. A key proposal under consideration is greater flexibility through a “split depositary” model, allowing different firms to perform distinct depositary functions rather than requiring a single depositary. This would be intended reduce duplication, increase competition and better align regulatory responsibilities with commercial activities. The FCA is also considering simplifying cash monitoring requirements by focusing depositaries on oversight of reconciliations rather than daily re-performance of cash checks.
  • Prime Brokers: The FCA discusses the role of prime brokers but does not propose detailed rules at this stage, intending to consult further once the future depositary regime is settled. Prime brokers are subject to a range of regulations to mitigate their risks.  The current AIFMD framework primarily regulates the relationship between AIFMs, prime brokers and depositaries rather than regulating prime brokers directly. The FCA proposes broadly retaining this approach. AIFMs would continue to be expected to undertake appropriate due diligence when appointing prime brokers, ensure robust contractual arrangements are in place, and disclose relevant risks and relationships to investors. The FCA’s emerging view is that the existing framework remains broadly appropriate but could be simplified. Future proposals will take account of wider reforms to the depositary regime and ongoing international work on risks arising from non-bank financial intermediation and hedge fund leverage.

Remuneration: Solo-regulated firms’ rules reform

The FCA sets out in CP26/27 that it wants to introduce a simpler, clearer and more proportionate framework for AIFMs, Undertakings for Collective Investment in Transferable Securities (UCITS) management companies, and Markets in Financial Instruments Directive Prudential Regime (MIFIDPRU) investment firms.

As a result, the FCA is proposing the following changes:

  • Remuneration framework: Introduce a single remuneration code for solo-regulated firms (SYSC 19AA), replacing the existing remuneration codes in Senior Management Arrangements, Systems and Controls (SYSC) 19B, SYSC 19E and SYSC 19G. The new code would provide a consistent framework across firms while allowing requirements to be applied proportionately based on a firm’s size, structure and activities.
  • Outcomes-focused approach: Move away from detailed, prescriptive rules towards an outcomes-focused framework that places greater reliance on governance arrangements and the judgement of a firm’s management body. The FCA expects firms to maintain strong governance and effective oversight of remuneration arrangements but does not intend to prescribe specific structures unless necessary.
  • Application and structure: Apply general remuneration requirements to all staff, with additional targeted requirements for Material Risk Takers (MRTs) whose activities could have a significant impact on firm outcomes. This reflects the FCA’s aim of creating a more proportionate and risk-focused regime.
  • Deferral: Replace fixed deferral requirements with a principles-based approach, while consulting on an alternative threshold-based model. The FCA’s preferred option is the principles-based approach but it is seeking views on both alternatives.
  • Performance adjustment mechanisms: Retain malus and clawback arrangements as available tools but remove mandatory requirements for their use. Firms would have discretion to apply these mechanisms where appropriate.
  • Governance: Remove mandatory requirements for remuneration committees and annual independent reviews. Firms would remain responsible for ensuring appropriate governance and oversight of remuneration arrangements through their wider systems and controls framework.
  • Reporting: Remove the MIF008 remuneration reporting template and the associated reporting requirements for MIFIDPRU firms. Firms would still be expected to maintain sufficient records to demonstrate how remuneration policies operate in practice.
  • Scope changes (AIFMs and UCITS): Following implementation of the proposed AIFM reforms, the remuneration regime would apply only to medium and large AIFMs while continuing to apply to UK UCITS management companies. The FCA is consulting on how the new framework should operate under both the current and proposed AIFM categorisations.
  • Scope changes (MIFIDPRU): Remove Small and Non-Interconnected (SNI) MIFIDPRU firms from the remuneration regime so that the new code applies only to non-SNI MIFIDPRU investment firms. The existing tiered remuneration framework would also be replaced by a single set of requirements.
  • Definition of MRTs: Narrow the definition of MRT to focus on individuals whose activities or remuneration incentives have a material impact on: the firm’s conduct towards clients and investors; the interests of investors, the AIFs and UCITS schemes it manages; or the firm’s compliance with regulatory requirements. The FCA also notes that the Senior Managers and Certification Regime (SM&CR) and the associated Certification Regime are currently under review, with a wider consultation on potential reforms expected later this year

Fund Reporting for Asset Management Entities (FRAME)

The FCA explains that CP26/26 sets out proposals intended to make fund reporting more proportionate while increasing the quality and consistency of data reported. As a result, the FCA sets out the following:

  • The FCA are proposing a new regulatory reporting framework called FRAME. The FCA sets out that FRAME has been designed based on three principles: simplicity: collecting the data in its simplest form; proportionality: matching reporting requirements to risks; and international alignment: reducing the variability of reporting across different regulators.  
  • Subject to consultation, FRAME would replace the current fund reporting requirements for asset management firms with a single framework calibrated to the type, size and activity of the fund and it would consolidate forms and reduce the need for some notification requirements.
  • The FCA intend do this with a flexible set of new reporting forms. These new forms will include requirements that are largely consistent across funds, and some requirements which are specific to different types of funds, such as hedge funds, or loan origination funds.

The FCA also set out the range of firms that would be subject to FRAME under its proposals:

  • FCA-authorised UK AIFMs: all AIFs managed by the AIFM.
  • Managers of Registered Venture Capital funds (RVECA) or Social Entrepreneurship funds (SEF): RVECAs and SEFs.
  • UK UCITS management companies: UK UCITS.
  • Third country AIFMs marketing in the UK under the NPPR: unauthorised AIF(s) marketed in the UK.
  • Operators of recognised schemes: Overseas Funds Regime (OFR) funds and individually recognised section 272 overseas schemes

In Chapter 3 of CP26/26 the FCA breaks down its proposed reporting framework, including the thresholds, frequency, time to report, and scope of FRAME as set out in the table below and its approach to leverage, master and feeder funds, and calculation methodologies when reporting. The FCA then sets out its proposals in relation to each of these component parts of the reporting framework.

In addition, the FCA have published a prototype version of its essential reporting requirements alongside this CP for firms to test on a voluntary basis, and has explained further prototypes will follow, which will also ask firms to estimate the cost of completing reporting based on its proposals.

Next steps

The FCA has asked for feedback on CP26/28 (the UK AIFM Regime) by 14 October 2026, for CP26/27 (Remuneration: Solo-regulated firms’ rules reform) by 16 September 2026 and on CP26/26 (Fund Reporting for Asset Management Entities (FRAME)) by 22 September 2026.

The FCA explains that once it has taken account of feedback to the discussion topics above, it will consult on further proposals and draft rules in relation to those topics. Following this, it will aim to publish a final policy statement and final Handbook rules in relation to all proposals in line with the Treasury’s finalised Statutory Instrument (SI) in 2027.