Welcome to the October 2026 edition of our Investment Firms Newsletter.
September saw significant regulatory activity affecting investment firms across the UK, EU and US. Digital assets and tokenisation remained prominent themes, alongside reforms to transaction and fund reporting, remuneration, alternative investment fund regulation, sustainability disclosures, operational resilience, private markets and investment adviser regulation.
Firms should review the developments relevant to their business models and ensure regulatory change programmes, governance arrangements and implementation plans remain aligned with forthcoming deadlines and supervisory expectations.
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UNITED KINGDOM.
Cryptoasset Perimeter Guidance – PS26/18
The FCA has published PS26/18: Cryptoasset Perimeter Guidance, setting out its final guidance on how the UK's new cryptoasset regulatory perimeter will apply. The new regime will come into force on 25 October 2027 and will bring activities including operating cryptoasset trading platforms, dealing and arranging deals in cryptoassets, safeguarding cryptoassets, arranging staking and certain activities involving qualifying stablecoins within FCA regulation.
The guidance is intended to help firms determine whether their business models fall within the new perimeter and what permissions will be required. It is relevant not only to existing cryptoasset businesses, but also to FCA-authorised investment firms and asset managers exploring digital assets, firms registered under the Money Laundering Regulations and overseas businesses providing relevant services into the UK. Existing FCA permissions and MLR registrations will not automatically convert into permissions under the new regime.
The application window opened on 30 September 2026 and closes on 28 February 2027 for firms seeking to use the transitional arrangements. Firms planning to operate within the regime should therefore be progressing their regulatory readiness, including assessments of permissions, governance, financial crime controls, prudential requirements, operational resilience and, where applicable, safeguarding and custody arrangements.
Direction set for Wholesale Market Tokenisation
The FCA has published a feedback statement FS26/1: Tokenisation in Wholesale Markets, setting out feedback to the joint FCA and Bank of England Call for Input on tokenisation in UK wholesale financial markets. The authorities received 123 responses from firms, industry bodies and legal academics, with broad support for the development of tokenised market infrastructure.
Post-trade activity was identified as one of the areas with the greatest potential, particularly collateral management, where tokenised assets could enable faster and more efficient movement of collateral between market participants. Respondents also highlighted issues concerning settlement, custody, interoperability, legal certainty and the interaction between tokenised assets and established financial market infrastructure.
The FCA and Bank of England intend to publish a joint tokenisation roadmap setting out the next stages and target dates for their work. For investment firms and asset managers developing tokenised securities, funds or collateral arrangements, the publication reinforces the need to consider legal ownership, custody, settlement, governance and operational resilience alongside the technology itself.
Next Phase of UK Capital Markets Reform
The FCA has drawn together a number of its current policy initiatives in its speech on reforming UK capital markets. The programme spans tokenisation, asset management reform, MiFID organisational requirements, AIFM reform, fund liquidity management, changes to the Senior Managers and Certification Regime and reforms intended to improve access to investment support.
The broader direction is towards a less prescriptive and more outcomes-focused regulatory framework, coupled with greater use of technology and regulatory data. The FCA's recent reforms increasingly seek to distinguish between requirements that provide meaningful investor or market protection and those that generate cost or complexity without a proportionate regulatory benefit.
For investment firms and asset managers, simplification should not be interpreted as lower supervisory expectations. Governance, accountability, market integrity and the ability to demonstrate that systems and controls operate effectively in practice remain central themes, even as some detailed rules and reporting requirements are streamlined.
The New Transaction Reporting Regime – CP26/34
The FCA has published CP26/34: Preparing for the new transaction reporting regime, consulting on guidance, transitional provisions and consequential amendments intended to help firms implement the revised UK transaction reporting framework. The consultation closes on 6 November 2026 and the new regime will take effect on 3 April 2028.
The changes already finalised include a reduction in the number of transaction reporting fields, amendments to the scope of instruments that need to be reported and simplification of elements of the remediation framework. CP26/34 addresses the practical implementation of those reforms, including transitional provisions, consequential Handbook and Technical Standards changes and the proposed migration of relevant Level 3 material into a new Transaction Reporting User Pack.
The FCA has also released draft reporting schemas and validation rules so firms and technology providers can begin systems work ahead of implementation. Investment firms should now assess the impact on reporting logic, data sourcing and mapping, controls, exception management and arrangements with Approved Reporting Mechanisms and technology providers rather than treating the 2028 implementation date as a reason to defer planning.
Major Remuneration Reform for Solo-Regulated Firms
The consultation period for CP26/27: Remuneration – Solo-regulated firms' rules reform closed on 16 September 2026. The proposals are directly relevant to MIFIDPRU investment firms, AIFMs and UCITS management companies and would replace the three existing remuneration codes with a single consolidated regime.
The FCA intends to move away from some of the more detailed and prescriptive elements of the current framework towards an outcomes-focused approach placing greater reliance on governance, management-body judgement, proportionality and accountability. The reforms respond to concerns that the existing regime can be complex and disproportionately burdensome, particularly for firms that do not create significant systemic risk.
Investment firms and asset managers may still need to undertake a substantial review of remuneration policies even if the overall compliance burden falls. Firms should consider how remuneration governance, risk adjustment, variable remuneration and decision-making would operate under the proposed framework, with a policy statement expected in Q1 2027.
Reform of the UK AIFM Regime
The FCA's CP26/28 consultation on reform of the UK AIFM regime proposes a more proportionate framework for UK alternative investment fund managers. The reforms are relevant to authorised and registered AIFMs, firms marketing AIFs in the UK, depositaries, prime brokers and delegates, as well as UCITS management companies in relation to certain prudential elements.
The FCA's objective is to move away from a relatively uniform framework and apply requirements more proportionately according to a firm's size, activities and risk profile. The main consultation and the discussion chapter on prudential reforms closes on 22 October 2026, while the deadline for the other discussion chapters is 18 September 2026.
For AIFMs, the reforms could affect regulatory classification, governance, reporting and prudential requirements. Firms should therefore consider the AIFM proposals together with the remuneration reforms and wider changes to fund reporting, as these workstreams are likely to interact when the new framework is implemented.
Frontier AI and Cyber Resilience
The FCA has published its multi-firm review on frontier AI and cyber resilience, examining how advanced AI models may affect firms' cyber risk and operational resilience. The FCA considers that frontier models can materially improve the speed at which vulnerabilities are identified, validated and prioritised.
However, firms' ability to remediate vulnerabilities may not increase at the same pace as their ability to discover them. This could expose weaknesses in existing vulnerability-management processes, access controls, governance, risk ownership and dependency management, particularly where firms increasingly rely on advanced technology providers.
The review does not create new regulatory requirements, but it provides a clear indication of the FCA's supervisory thinking. Investment firms and asset managers should consider whether cyber and operational resilience frameworks remain appropriate as AI is deployed internally or by critical third parties, and whether senior management has sufficient visibility of the resulting risk profile.
Non-Financial Misconduct Rules Now in Force
The FCA's revised rules and guidance on non-financial misconduct came into force on 1 September 2026. COCON 1.1.7FR extends the Conduct Rules for non-bank firms to cover bullying, harassment and violence towards colleagues where there is a sufficient connection with an individual's regulated role.
The FCA has also clarified how relevant non-financial misconduct may be considered when firms assess fitness and propriety. The changes are particularly relevant to firms operating under the Senior Managers and Certification Regime and reinforce the regulatory significance of serious workplace conduct issues.
Investment firms and asset managers should ensure that HR, compliance and senior management processes are appropriately coordinated. Conduct investigations should identify potential regulatory consequences at an early stage, including possible Conduct Rule breaches, fitness and propriety implications and any effect on regulatory references.
Climate Reporting for Asset Managers
The FCA has revised its sustainability reporting requirements for asset managers and asset owners following its review of product-level TCFD reporting. The revised requirements for communications with retail clients came into force on 25 September 2026, while provisions concerning eligible institutional clients apply from 30 June 2027.
Under the streamlined framework, firms must periodically consider whether climate-related risks are materially relevant to a product's financial performance or return and, where they are, provide appropriate information through existing client communications. Firms must also provide at least Scope 1, Scope 2 and Scope 3 greenhouse-gas emissions data to eligible institutional clients on request, once per calendar year for each relevant product.
Separately, the FCA has finalised PS26/19 on listed issuers' sustainability disclosures. Listed issuers will move towards disclosures based on the UK Sustainability Reporting Standards for accounting periods beginning on or after 1 January 2027, which is also significant for asset managers as users of investee-company sustainability data.
Quarterly Consultation Paper 53 – Fractional Shares and Crypto Transition
The FCA's CP26/32: Quarterly Consultation Paper No. 53 contains a number of targeted amendments relevant to investment firms and asset managers. Of particular interest, the FCA proposes amending the definition of a readily realisable security to include fractional shares.
The paper also proposes deferral arrangements for parts of the forthcoming cryptoasset regime, including certain execution venue and execution policy requirements applying to authorised cryptoasset dealers and arrangers. Minor amendments are also made to the Consumer Composite Investments rules in the DISC and COBS sourcebooks.
The consultation closes on 12 October 2026. Firms involved in fractional investment propositions, planned cryptoasset activities and retail distribution arrangements requiring a CCI product summary should consider whether the proposals affect product governance, disclosures, regulatory reporting or their wider implementation plans.
EUROPEAN UNION.
Prospectus Regulation Package
ESMA has published a significant package of measures under the Prospectus Regulation, including a consultation on revised prospectus disclosure guidelines, updated Q&As, final guidelines concerning supplements introducing new securities under a base prospectus and revised technical standards concerning key financial information in prospectus summaries.
The package reflects changes introduced through the EU Listing Act and forms part of ESMA's broader programme of regulatory simplification and burden reduction. The consultation on updated disclosure guidelines closes on 9 November 2026.
For investment firms involved in underwriting, placing, capital markets advisory or securities distribution, the changes may require updates to documentation, review processes and internal transaction procedures. Asset managers involved in securities issuance or capital-raising structures should also monitor the revised framework.
Private Credit, Cyber Threats and External Dependencies
The European Supervisory Authorities have published their Autumn 2026 risk update, identifying external dependencies, cyber threats, emerging technologies and private credit as significant vulnerabilities for the EU financial system.
For asset managers, particularly firms operating private credit and other private-market strategies, the publication indicates continued supervisory attention on valuation, leverage, liquidity, counterparty exposure and data quality. The ESAs also highlight reliance on non-EU ICT providers and cyber risks associated with increasingly capable AI models.
ESMA Sets Priorities for 2027
ESMA's 2027 Annual Work Programme sets out priorities for a stronger, simpler and more integrated EU capital market. Regulatory simplification, supervisory convergence, digitalisation and more effective use of data feature prominently.
Transaction reporting, funds reporting and the retail investor journey are among the areas in which ESMA intends to pursue simplification and burden reduction. At the same time, tokenisation, cryptoassets, AI and technology-enabled supervision remain central to the programme.
For investment firms and asset managers operating across the EU, the combination is important. Some requirements may become less duplicative or prescriptive, but firms should simultaneously expect increased supervisory attention on technology, data quality and consistency of implementation across jurisdictions.
Benchmark Regulation Transition
ESMA has issued a public statement on transitional provisions under the revised Benchmark Regulation. The revised framework changes the population of benchmarks remaining subject to the BMR and introduces transitional arrangements for certain existing benchmark administrators.
Relevant statuses for administrators that were authorised, registered or recognised at the end of 2025 were preserved during the transitional period through 30 September 2026. The changes are particularly relevant where firms continue to use benchmarks that may no longer fall within the same regulatory category following the reforms.
Investment firms and asset managers should consider whether benchmarks used in products, mandates, performance measurement or contractual documentation remain appropriately authorised or otherwise permitted. This is particularly important for third-country and less widely used indices.
UNITED STATES.
Repeal of Investment Adviser Pay-to-Play Rule
The SEC has proposed rescinding its political contribution, or “pay-to-play”, rule for investment advisers. Rule 206(4)-5 currently restricts investment advisers from receiving compensation for advisory services to certain government entities following specified political contributions.
The SEC also proposes removing associated recordkeeping requirements. The proposal is particularly relevant to registered investment advisers managing assets for public pension schemes and other governmental entities, where the current rule can create significant monitoring and pre-clearance requirements around political contributions.
The SEC considers that the existing regime has created operational complexity and potentially disproportionate consequences for relatively minor breaches. Other Advisers Act requirements, including fiduciary duties, anti-fraud obligations, compliance requirements and code-of-ethics provisions, would remain unaffected.
Investment Adviser Annual Compliance Reviews
The SEC's Division of Examinations has published a Risk Alert on Investment Adviser Annual Compliance Reviews under Rule 206(4)-7. Registered investment advisers must review their compliance policies and procedures at least annually to assess both their adequacy and the effectiveness of their implementation.
The SEC encourages advisers to consider compliance issues arising during the year, changes in the firm's business and affiliates and regulatory developments that may require policies or procedures to be revised. The Risk Alert also highlights the potential need for interim reviews following significant compliance events or material changes to business arrangements.
For advisers, the message is that the annual review should operate as a substantive, risk-based assessment rather than a recurring documentation exercise. Firms should be able to demonstrate how identified weaknesses, incidents or business changes resulted in updates to controls, testing, monitoring or compliance policies.
New Examination Handbook
On 1 October, the Division of Examinations published The SEC Exam Handbook: A Practical Guide on Process and Engagement. The Handbook replaces and expands the SEC's previous examination brochure and provides registrants with greater detail on what to expect during an examination.
It explains the examination process from initial risk assessment and information requests through to fieldwork, communications with SEC staff and the conclusion of the examination. The intention is to improve transparency and consistency in the Division's engagement with regulated firms.
For registered investment advisers and investment companies, the Handbook provides a useful benchmark against which to assess examination readiness. Firms should consider whether responsibilities are clearly allocated, relevant documentation can be produced efficiently and compliance and management personnel understand how issues identified during an examination should be escalated and addressed.
Modernisation of Performance-Based Compensation Rules
The SEC has proposed substantial amendments to the investment adviser performance-based compensation framework. The proposal would expand the circumstances in which registered investment advisers may receive performance-based compensation from registered management investment companies and business development companies.
The proposal would also broaden the definition of a “qualified client” to include accredited investors under Regulation D and introduce related disclosure requirements. Funds would be required to disclose performance-based compensation separately in relevant registration and reporting forms.
For advisers and managers operating incentive or performance-fee structures, the proposal could materially expand the population of investors from whom performance-based compensation may be received. Firms should nevertheless consider the implications for offering documents, subscription procedures, investor-status verification, conflicts management and disclosure.
Expansion of Private-Market Access
The SEC has proposed a package intended to support what it describes as the responsible retailisation of private markets. A significant element is the proposed modernisation of the interval fund framework, including greater flexibility around the timing of repurchase offers.
The proposals would also allow registered closed-end funds and business development companies to operate multiple share classes under a rules-based framework rather than relying on individual exemptive orders. Separately, the SEC is considering additional ways in which individuals could qualify as accredited investors, including through specified professional qualifications or a potential accredited-investor examination.
For investment firms, the proposals could materially affect how private-market strategies are distributed through regulated structures and broaden the population of investors able to access private assets. Managers should monitor the implications for liquidity design, fees, product governance, disclosures and investor eligibility.
New Custody Framework for Advisers and Funds
On 1 October, the SEC proposed new custody rules for advisers and regulated funds, including specific provisions relating to cryptoassets. The proposal addresses how registered investment companies may custody crypto securities and similar investments and how investment advisers may custody client crypto funds and securities.
The SEC also proposes to modernise elements of the broader custody framework and amend related reporting and recordkeeping requirements. Cryptoasset custody has been one of the principal regulatory obstacles to wider institutional participation, particularly where traditional qualified-custodian concepts do not map neatly onto blockchain-based assets.
Investment advisers and regulated funds considering digital-asset strategies should assess the potential implications for custodian selection, due diligence, private-key and wallet arrangements, asset verification, books and records and client disclosures. The proposal is also important beyond crypto because it revisits elements of the existing adviser and investment-company custody frameworks more generally; all investment advisers should consider the detail of the proposals.
Innovation Exemption for Tokenised US Equities
The SEC has granted a temporary conditional Innovation Exemption for trading tokenised NMS stocks. The relief allows qualifying Tokenized Securities Venues to facilitate secondary trading in tokenised National Market System stocks using permissioned automated market makers and liquidity pools subject to specified conditions.
The initiative is intended to provide a controlled environment in which on-chain trading structures can operate while the SEC considers whether further rulemaking is appropriate. It therefore represents a significant step towards integrating tokenised securities into established US securities-market regulation rather than treating them solely as experimental products.
For investment firms and asset managers, the development raises practical issues around custody, venue due diligence, liquidity, settlement, market data and best execution. Firms considering exposure to tokenised equities will also need to understand the legal rights represented by the token and how they compare with ownership of the underlying conventional security.
Major Changes to Shareholder Proposals and Proxy Solicitation
The SEC has proposed rescinding Exchange Act Rule 14a-8 and reforming the proxy solicitation process. Rule 14a-8 currently provides the federal framework through which qualifying shareholders can require certain proposals to be included in company proxy materials.
Under the proposal, the treatment of shareholder proposals would instead depend more heavily on state corporate law and company governing documents. Separately, the SEC has proposed modernising other aspects of proxy solicitation, including annual report delivery requirements, Notices of Exempt Solicitation and the minimum broker search period.
For asset managers, the proposals are particularly significant from a stewardship and proxy-voting perspective. If adopted, they could alter the mechanisms through which institutional investors submit and engage with shareholder proposals and may require managers to revisit stewardship policies, voting procedures and related operational arrangements.
Form PF Compliance Date Extended to July 2027
The SEC has further extended the compliance date for the 2024 amendments to Form PF. The new compliance date is 1 July 2027, superseding the previous 1 October 2026 deadline.
The additional time allows the SEC and CFTC to continue considering whether further amendments should be made to private-fund reporting requirements while maintaining the information regulators consider necessary for systemic-risk and market monitoring purposes.
Private fund advisers should update implementation programmes and internal project timelines to reflect the new date. However, where compliance will require material changes to data sourcing, systems, governance or reporting processes, firms should avoid treating the extension as a reason to suspend preparatory work altogether.
