Cosegic Briefing – FCA Consultation Paper CP26/28 – The UK AIFM Regime.

FIRM SIZE THRESHOLDS (CHAPTER 2)

AREA

KEY PROPOSALS

Move to a simpler 3-tier regime (small / medium / large) based on aggregate NAV rather than leveraged AUM.

Medium threshold set at £750m NAV (raised from the £100m originally proposed); large threshold remains £5bn NAV.

Firms self-assess quarterly and notify the FCA via a SUP15 form when they cross a threshold, with 6 months to comply with any new general compliance obligations and 12 months in the case of the depositary requirement. Crucially, in a change from the status quo, no variation of permission will be required.

RESIDUAL CIS OPERATORS (CHAPTER 3)

AREA

KEY PROPOSALS

Treasury to clarify the legal definition of an AIF; some CISs currently outside the AIF definition will be re-categorised as AIFs.

Residual CIS operators to be brought within scope of new regulatory reporting and (for non-exempt vehicles) the professional and retail investor disclosure regimes. The FCA is seeking views on other changes to the rules that may be required.

VALUATION (CHAPTER 4)

AREA

KEY PROPOSALS

LEVERAGE CALCULATIONS (CHAPTER 5)

AREA

KEY PROPOSALS

Removal of the gross and commitment method calculations and the “substantially leveraged” reporting threshold.

Firms instead disclose leverage to investors using a method suited to their fund and strategy, clearly explained.

RISK MANAGEMENT (CHAPTER 6)

AREA

KEY PROPOSALS

A framework is proposed that differentiates between managers of different types of AIFs, ensuring activity-specific rules work for funds with different strategies. Baseline investment due-diligence standard applies to all AIFMs; this is the only requirement for managers of closed-ended, unleveraged AIFs.

AIFMs of other AIF types must maintain a hierarchically and functionally independent risk management function.

More detailed governance, risk-limit and reporting requirements apply progressively to medium and (especially) large AIFMs.

LIQUIDITY RISK MANAGEMENT (CHAPTER 7)

AREA

KEY PROPOSALS

No liquidity risk management rules for unleveraged closed-ended AIFs, including those benefiting from the hedging exemption.

Views are sought on whether the rules should explicitly address the risks unique to the wind-down of closed-ended AIFs.

New baseline systems/controls requirement and at least annual stress testing for small AIFMs of open-ended or leveraged closed-ended AIFs. Proposals include to apply the guidance on good liquidity risk management practices and stress testing guidelines consulted on in December 2025 (CP25/38).

Medium and large AIFMs would be subject to rules that align with those that currently apply to a full-scope AIFM.

“Look-through” requirement for medium and large AIFMs investing in other open-ended funds (assessing underlying liquidity, not just redemption terms).

DELEGATION (CHAPTER 8)

AREA

KEY PROPOSALS

Core delegation requirements retained (no transfer of responsibility, letter-box entity test, effective FCA supervision).

New, narrower category of “additional core AIFM functions” (valuation, compliance monitoring, marketing) subject to greater controls than other AIFM management functions.

Pre-notification of delegations to the FCA replaced with post-event notification, reported via the next regulatory reporting cycle.

ANNUAL REPORTING TO INVESTORS (CHAPTER 9)

AREA

KEY PROPOSALS

Formal annual report (including audited financial statements) required only for medium and large AIFMs, for each unauthorised AIF.

Small AIFMs and in-scope residual CIS operators instead provide a simpler, unaudited “annual summary”.

More principles-based content requirements; remuneration disclosure limited to the total amount made available to material risk-takers.

Annual report to be provided to the FCA only on request, rather than as standard.

Information about the activities of the fund outside of the annual report must be provided where an investor makes a reasonable request to receive it; such information must also be made available to other investors.

INVESTOR DISCLOSURES (CHAPTER 10)

AREA

KEY PROPOSALS

New, more principles-based professional investor disclosure regime, supported by limited mandatory disclosures (e.g. valuation basis, liquidity risk management).

Retail investor regime remains more prescriptive but is streamlined and consolidated into the new ALTS sourcebook.

Requirement to disclose historical performance to professional investors is removed.

Disclosures will sit alongside (not replace) the CII product summary requirement for retail-facing products.

Disclosure rules for residual CIS operators revised with exemptions for carried interest vehicles, excluded entities, joint venture vehicles and single investor vehicles.

A new rule is proposed requiring AIFMs and residual CIS operators to meet investors’ reasonable demands for information.

CLOSED-ENDED INVESTMENT FUNDS ON UK MARKETS (CHAPTER 11)

AREA

KEY PROPOSALS

Tailored AIFM requirements proposed for closed-ended investment companies (investment trusts, REITs, VCTs) admitted to trading on UK regulated markets.

Treasury proposes exempting certain small, internally managed investment companies below current thresholds from the AIFM regime entirely.

NPPR AND CROSS-BORDER MARKETING (CHAPTER 12)

AREA

KEY PROPOSALS

DISCUSSION CHAPTERS (CHAPTERS 13–17)

AREA

KEY DISCUSSION POINTS

The FCA proposes that small AIFMs would not be required to appoint a depositary at all under the new regime – the existing CASS 6 custody rules would apply though. Small AIFMs would be able to voluntarily appoint a depositary, aligning themselves with the requirements that would apply to a medium UK AIFM, without opting into the entirety of the medium UK AIFM regime.

More generally, the proposal is to keep the current overall approach in place meaning medium UK AIFMs and large UK AIFMs would need to appoint a depositary for each UK AIF they manage. The FCA notes that Regulation 40 of the Treasury’s draft Statutory Instrument retains the existing provisions that require a UK AIFM of a non-UK AIF to appoint one or more entities to carry out the depositary functions if the AIF is marketed in the UK; this instrument was issued on 14 July 2026 with the comment period closing 14 October 2026.

The FCA is seeking views on whether the depositary requirement is disproportionate for certain fund types, such as private equity funds and certain investment trusts. This is on the basis private equity funds have few investor transactions and limited trading and investment trusts may have a governing body independent of the AIFM.

The FCA is also exploring a “split depositary” model, under which more than one entity could carry out different aspects of the depositary function.

Retain the requirements aimed at addressing counterparty risk management, focussing on the relationship between the prime broker and AIFM, but simplify these rules.

This area will be considered alongside the changes proposed to the depositary regime given the overlap. Views are sought on the approach.

Given the FCA’s intention to bring many areas of the AIFM rules, spanning several sources, into FCA rules there is discussion about how this will be done; in particular, amendments are proposed to the SYSC and COBS Sourcebooks. Other rules from the Level 2 Regulation specific to AIFMs will be added to the ALTS Sourcebook.

Amendments to SYSC, for example, will mean some rules that currently apply to a full-scope UK AIFM, but not a small authorised UK AIFM, will be extended to apply to both types of AIFM. These requirements are often basic or generic enough that they can apply without setting materially different standards for small authorised UK AIFMs than what applies today. A potential exception highlighted is the proposal that the management of all authorised UK AIFMs must consist of at least two people who are reputable and experienced. While it doesn’t currently apply to them, this rule would be extended to small authorised AIFMs.

The FCA discusses the business restriction that limits the activities a full-scope UK AIFM may carry on outside of managing AIFs, including potential options for change.

The regulator considers that the business restriction in its current form was aimed at managing potential structural conflicts of interest within firms and supporting effective supervision. One focus of the discussion is the fact that the business restriction currently only applies to full-scope AIFMs rather than small AIFMs.

Options for change proposed include:

• Applying the restriction to all UK authorised AIFMs;
• Retaining the restriction for large/medium UK authorised AIFMs;
• Modifying the restriction and aligning it with other regulatory requirements. For example, permitting additional regulated activities, subject to appropriate safeguards; or
• Removing the restriction entirely, relying on the wider regulatory framework to manage associated risks.

The FCA considers the potential framework for AIFMs, but also UCITS management companies and residual CIS operators, taking a holistic view of how prudential requirements should work. The discussion notes the review will take place alongside a broader workstream which includes a Call for Input for firms subject to the Investment Firms’ Prudential Regime (“IFPR”); a Call for Input will be published in the second half of 2026.

The FCA considers the current prudential regime for AIFMs too complex and inconsistent. Parts of the current framework are also referenced as omitting certain obligations concerning forward-looking requirements on risk assessment, liquidity and wind-down planning.

The regulator proposes the most likely direction of travel is to bring fund managers within the scope of its Core Prudential Sourcebook (COREPRU), supplemented by additional rules. The intention would be to establish greater consistency, proportionality and simplicity by doing so. The COREPRU framework was consulted on through the FCA’s work on the prudential regime for cryptoasset firms.

The discussion focuses on the effectiveness of baseline requirements including:

• activity-based measures, such as, for full-scope UK AIFMs, the 0.02% of the amount by which funds under management exceed €250m, capped at €10m; and
• the fixed overhead requirement of one quarter of fixed overheads from the preceding year, as well as other expenditure-based measures that apply to small authorised UK AIFMs and residual CIS operators.

The minimum level of liquidity is also discussed with reference to the policy objective of ensuring firms can meet liabilities as they fall due or to exit the market without causing material harm. Other elements considered include: the extent to which obligations related to capital composition and liquid asset requirements should be linked, the risk management and wind-down planning components of the prudential framework, the use of professional indemnity insurance, reporting and whether changes to the Collective Portfolio Management Investment firms (“CPMI”) framework could deliver a more coherent and proportionate regime.