Welcome to the June 2026 edition of our Investment Firms Newsletter.
Regulatory momentum across the UK and international markets remains strong, with regulators continuing to focus on governance, operational resilience, financial crime controls, market integrity and emerging technology risks. In the UK, recent developments include FCA activity on authorised fund asset registration, private markets, short selling, sanctions controls and UK EMIR clearing thresholds, alongside continued attention on artificial intelligence, cyber resilience and tokenisation in wholesale financial markets.
A common theme across these developments is the move towards more proportionate but better controlled regulatory frameworks. Regulators are increasingly focused not only on the design of firms’ policies and procedures, but also on their ability to evidence effective implementation, oversight and control in practice.
Internationally, US regulators are also progressing important updates, including changes to “qualified client” thresholds under the Investment Advisers Act and proposed reforms to AML/CFT programme requirements. Together, these developments point to a continued shift towards more adaptive, technology aware and controls focused regulation across key jurisdictions.
In this edition, we summarise the key regulatory developments and supervisory themes affecting investment firms, and consider what they may mean for firms’ governance, systems, controls and wider regulatory strategy.
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UNITED KINGDOM.
CP26/16 - Registration of Authorised Fund Assets
This Consultation Paper (CP26/16) addresses a practical and legal misalignment: under current COLL and AIFMD derived rules depositaries of authorised AIFs managed by full scope AIFMs are often required to hold legal title or partner status for certain private markets assets (notably immovables and some partnership interests). That obligation imposes ancillary criminal, civil and reputational risks (e.g. Building Safety Act, Terrorism (Protection of Premises) Act 2025 (Martyn’s Law)) and is prompting depositaries to curtail services. The FCA proposes permitting delegation of the COLL registration function to AFM affiliates for assets that are not safe-custody investments or AIF custodial assets and permitting CASS style delegation to regulated custodians for safe-custody investments that are not AIF custodial assets.
The CP also aligns the small AIFM regime with the full scope position, clarifies COLL/CASS interactions, prohibits a UCITS AFM from acting as the depositary’s delegate, and requires safeguards where AFM affiliates hold title (trust arrangements, records, limits on transfer/control and external legal advice; UK companies for UK immovables). It proposes to convert a long used Modification by Consent into permanent rules. Respondents are invited by 9 July 2026.
FCA's AI Input Zone
The FCA are seeking views about examples of good and poor practice in relation to artificial intelligence in financial services via their “Input Zone”. This will help inform the regulator’s good and poor practice publication on AI later this year. The deadline for input is 19 June2026; firms may wish to contribute views to help shape the regulatory agenda.
FCA, Bank of England and HM Treasury issue joint statement on frontier AI models and cyber resilience
The FCA, Bank of England, and HM Treasury have issued a joint statement on advances in frontier AI models and their significant implications for cybersecurity and operational resilience. The statement outlines the current capabilities of frontier AI models, noting that they can already exceed what skilled practitioners could achieve, at a higher speed, greater scale and lower cost.
The statement then warns that, if used maliciously, these models will increasingly amplify cyber threats to firms, customers, and markets. It notes that firms who under invest in core cyber security fundamentals are likely to become more exposed.The statement does not intend to introduce new expectations, rather to “bring together and reinforce existing messages”.
In doing so, the statement calls on firms to act in the following areas:
• Governance: Boards and senior management should have sufficient understanding of frontier AI risks; investment and resourcing decisions should reflect the emerging threat; and firms should consider the appropriateness of their insurance cover.
• Vulnerabilities: Firms should enhance their ability to identify, manage, and remediate vulnerabilities across their technology estates.
• Third Parties: Firms should be able to effectively manage frontier AI cyber risks from third parties and supply chains, including use of open-source software.
• Protection: Firms should ensure effective access management, network security, and data protection to reduce the attack surface a frontier AI model might access.
• Response and Recovery: Firms should be able to respond to and recover from disruption quickly.
Future of tokenisation in UK wholesale financial markets
The FCA and Bank of England’s Joint Call for Input sets out a coordinated UK vision for tokenisation in wholesale financial markets, focused initially on tokenised securities such as bonds, equities and fund units. The authorities see tokenisation as having the potential to improve issuance, trading, settlement, collateral mobility, reconciliation and transparency, but they are not proposing a wholesale replacement of existing infrastructure. Instead, tokenised and traditional market infrastructure are expected to coexist, with a strong emphasis on interoperability, settlement in central bank money, operational resilience, market integrity and clear regulatory accountability.
For capital markets firms, the paper is relevant because it signals the direction of travel for future UK regulation and infrastructure. Firms involved in issuance, trading, custody, settlement, clearing, collateral management, tokenised funds or market infrastructure should assess where tokenisation could affect their operating models, client offerings, systems, controls and regulatory permissions. Key areas to monitor include the Digital Securities Sandbox, future CSDR-related changes, custody and safeguarding expectations for tokenised securities, central bank money settlement developments, and the extent to which tokenised assets may receive equivalent prudential or regulatory treatment to traditional instruments
Laying the foundation for confidence: FCA speech on private markets
Sarah Pritchard’s FCA speech emphasises that private markets are now central to the UK’s growth agenda, with UK private markets approaching £1.2 trillion in AUM, but that growth brings greater scrutiny. The FCA’s core message is that confidence in private markets depends on strong firm-level controls, proportionate regulation and joined-up oversight across UK and international regulators. Particular areas of focus include valuation governance, conflicts of interest, underwriting standards, operational resilience, liquidity transparency and how private markets behave under stress, including through the Bank of England’s private markets system-wide exploratory scenario.
For capital markets firms, the speech is relevant because it signals continued FCA supervisory attention on private markets, especially private credit, valuation practices and investor protection. Firms should expect the FCA to look for evidence that governance frameworks are embedded in practice, not just documented, and should prepare for reforms to the alternative investment fund manager regime aimed at more proportionate regulation. The practical takeaway is that firms active in private markets should review valuation controls, conflicts frameworks, liquidity disclosures, product design, stress-testing and senior management accountability before these issues crystallise into supervisory findings or formal rule changes.
Changes to the UK short selling regime
The FCA has confirmed through its policy statement PS26-5 that the existing UK Short Selling Regulation will be replaced by a new FCA Short Selling Sourcebook, alongside the Short Selling Regulations 2025. The new regime comes is intended to simplify the current framework rather than fundamentally redesign it. Key changes include moving the net short position reporting deadline to 23:59 on T+1, replacing public disclosure of individual short positions with anonymised aggregate issuer-level disclosure, introducing a new reportable shares list, simplifying the market maker exemption into an activity based notification and removing UK sovereign debt and related CDS from scope.
For capital markets firms, the changes are operationally important. Asset managers, hedge funds, proprietary trading firms, brokers, market makers and other persons short selling instruments admitted to trading on UK venues should review their reporting workflows, group aggregation arrangements, instrument scope controls, market maker exemption processes and recordkeeping. Firms should also ensure systems are updated for the new reportable shares list, revised reporting fields, the later reporting deadline and the five-year evidence retention requirement for covering arrangements. The regime will be implemented in two phases: Phase 1 on 13 July 2026, when the Short Selling Sourcebook, reportable shares list, aggregate net short position disclosures and Statement of Policy come into effect; and Phase 2 on 30 November 2026, when the FCA's position reporting system will be updated to support bulk submissions. Firms should use the period before commencement to update policies, procedures, monitoring logic, third-party reporting arrangements and internal controls.
FCA webpage published relating to sanctions controls
The FCA has published a webpage warning that, while firms have made progress in preventing sanctions breaches, there is still more to be done. The webpage includes a link to the regulator’s review where it publishes examples of good and poor practice. Firms should consider the review, ensuring sanctions related systems and controls meet the required standard.
UK EMIR clearing thresholds
On 29 May 2026, the FCA published its final rules increasing the clearing threshold for commodity derivatives under the UK version of European Markets Infrastructure Regulation (“UK EMIR”) from €3bn to €6bn. Firms should note the threshold increase and update any related documentation.
UNITED STATES.
Updated "Qualified Client" thresholds take effect
By way of background, Section 205(a)(1) of the Investment Advisers Act of 1940 (“the Advisers Act”) generally prohibits investment advisers from charging performance fees. However, an exemption under Rule 205-3 of the Advisers Act permits advisers to charge performance fees when the client being charged the performance fee qualifies as a “qualified client”. A client satisfies the criteria either by having at least a specified dollar amount in assets under management with the adviser, or the adviser having a reasonable belief that immediately prior to entering a contract the client has net worth exceeding a specified dollar amount. The SEC is required to adjust the dollar amount thresholds for inflation every five years. The Commission has issued its periodic inflation adjustment to these dollar amount tests. The new thresholds will impact many investment advisers in relation to investment advisory agreements or fund subscriptions made on or after 29 June 2026. Advisers impacted should review their documentation, including policies and procedures relating to the onboarding of clients, to reflect the updated qualified client thresholds.
FinCEN AML/CFT program proposals
The US Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) has issued a proposal to reform the anti-money laundering and countering the financing of terrorism (“AML/CFT”) program requirements. The obligations under the Bank Secrecy Act (“BSA”) would be updated so that the framework is more risk-based and outcome focussed. The proposal impacts various financial institutions, including banks and broker dealers, subject to the BSA; these firms will need to carefully review the proposals. The comment period closes on 9 June 2026
