Welcome to the August 2026 edition of our Investment Firms Newsletter.
July 2026 saw a significant concentration of regulatory developments affecting asset managers and investment firms. The FCA published a major package of reforms covering the UK AIFM regime, fund reporting and remuneration, together with separate proposals on consumer investment disclosures and further publications concerning artificial intelligence (“AI”), financial promotions and market abuse. ESMA also announced supervisory initiatives concerning the effectiveness of risk-management functions, cross-border investment services and preparations for the EU transition to T+1 settlement. The SEC published its 2026 regulatory agenda, its proposals for the electronic delivery of information to investors and guidance concerning Schedule 13D reporting; recommendations for advancing UK-US collaboration, focussed on digital assets and capital markets, were also published.
Taken together, these developments indicate a continuing regulatory shift towards more proportionate rulemaking, but with greater emphasis on data quality, governance, operational resilience and firms’ ability to demonstrate that their controls operate effectively in practice.
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.
FCA Consultation on the UK AIFM Regime
On 14 July 2026, the FCA published CP26/28, setting out proposals for a substantial restructuring of the UK regulatory framework for alternative investment fund managers (“AIFMs”).
The FCA proposes replacing the current distinction between full-scope and sub-threshold AIFMs with a three-tier structure comprising small, medium and large AIFMs. Requirements would apply on a graduated basis, taking account of the size, activities and risk profile of the relevant firm. The FCA also proposes introducing a new Alternative Investment Funds (“AIFs”) sourcebook, referred to as ALTS, which would consolidate most AIFM requirements in a single part of the FCA Handbook.
The proposals are relevant to authorised and registered UK AIFMs, residual collective investment scheme operators, firms marketing AIFs in the UK and firms providing services to AIFMs (i.e. depositaries, prime brokers and delegates). Certain prudential aspects may also affect UCITS management companies.
The proposed tiering model could materially alter the regulatory obligations applying to individual AIFMs. Firms should therefore assess not only their present classification, but how they would fit into the newly proposed categories in conjunction with its projected growth over the next 12-18 months.
The proposed move towards proportionality should not be understood as a relaxation of regulatory standards. A more differentiated framework is likely to place greater emphasis on firms’ ability to explain why their governance, risk-management, valuation, delegation and disclosure arrangements are appropriate to their business models. Firms will also need to map their current policies and procedures against the proposed ALTS sourcebook and identify areas requiring amendment.
Investment firms that are not AIFMs may still be affected where they provide services to AIFMs through a delegation arrangement. These firms should expect AIFMs they work with to revisit delegation agreements, oversight arrangements, reporting obligations and access to data.
FCA Consultation on Fund Reporting for Asset Management Entities
On 14 July 2026, the FCA published CP26/26, proposing a new regulatory reporting framework known as Fund Reporting for Asset Management Entities (“FRAME”).
FRAME would replace a number of existing reporting requirements with consolidated forms and would apply proportionately according to the type, size and activities of the relevant fund or firm. The FCA’s stated objective is to improve the consistency and quality of supervisory data while reducing duplication and unnecessary notifications.
The proposed scope is broad. It includes UK-authorised AIFMs, UK UCITS management companies, registered venture-capital and social-entrepreneurship fund managers, third-country AIFMs marketing under the National Private Placement Regime, operators of recognised overseas schemes, operators of collective investment schemes and certain MiFID investment managers and advisers.
Although FRAME is presented as a simplification measure, the implementation exercise is likely to be extensive. The principal challenge for firms may not be the completion of the new forms, but the identification, extraction, reconciliation and governance of the underlying data.
Asset managers should assess which data points are held internally and which are held by administrators, depositaries, custodians or delegates. They should also determine whether data definitions are applied consistently across portfolio-management, accounting, valuation, risk and investor-record systems.
Investment firms within scope, including certain discretionary managers and advisers, should review the FCA’s proposed reporting templates and assess whether their existing systems can produce the required information accurately and within the proposed timetable. Groups containing both an AIFM and a MiFID investment firm should consider whether common systems can support each entity’s obligations while preserving appropriate legal-entity accountability.
Service-provider agreements may also require review to ensure that firms have timely access to the information required for regulatory reporting and sufficient rights to challenge, validate and correct that information.
FCA Consultation on Remuneration Reform
The FCA issued CP26/27, which proposes to replace the existing remuneration codes applicable to AIFMs, UCITS management companies and MIFIDPRU investment firms with a single consolidated code for in-scope solo-regulated firms.
The FCA proposals move away from detailed and overlapping requirements towards a more outcomes-focused framework based on governance, accountability and effective risk management. The consultation applies to relevant AIFMs, UCITS management companies, non-SNI MIFIDPRU investment firms and groups containing at least one in-scope entity.
The proposed framework may give firms greater flexibility in designing remuneration arrangements, but that flexibility is likely to be accompanied by a greater need to evidence the rationale for individual decisions.
Asset managers should review their approach to identified staff, variable remuneration, deferral, retention, malus, clawback, carried interest and co-investment. They should also consider whether the committee overseeing firm remuneration has appropriate supporting records demonstrating that remuneration supports sound risk management, appropriate conduct and the longer-term interests of funds and investors.
Investment firms should assess whether the consolidated code would change the treatment of material risk takers, bonus structures, performance-adjustment mechanisms or the responsibilities of the committee overseeing remuneration practices.
Cross-border groups will need to consider the interaction between the proposed UK regime and the continuing application of EU AIFMD, UCITS and investment-firm remuneration requirements. A simplified UK regime may not result in a simpler group-wide framework where staff perform services for entities in more than one jurisdiction.
FCA Consultation on Consumer Investment Disclosures
On 2 July 2026, the FCA published CP26/24, proposing changes to cost and charges disclosures applicable to MiFID business, insurance distribution and other designated investment business.
The proposals are intended to align existing disclosure requirements more closely with the Consumer Composite Investments regime and to provide consumers with clearer and more useful information concerning the costs of investment products and services.
Asset managers manufacturing or distributing retail investment products should review the interaction between the proposals and their existing Consumer Duty, product-governance and value-assessment frameworks. Firms should also consider whether product costs, distribution costs and service charges are calculated consistently across regulatory disclosures, marketing materials and internal assessments of value.
Investment firms providing advice, discretionary management, execution or platform services may need to revise both pre-contractual and ongoing disclosures. The operational challenge will be to aggregate product, service, transaction and distribution costs accurately while presenting the information in a form that is clear and capable of being understood by the intended customer base.
Firms that rely on manufacturers or other third parties for cost data should review whether their contractual arrangements provide sufficiently timely and reliable information. They should also consider how discrepancies between source data and client-facing disclosures will be identified and corrected.
The Mills Review on Artificial Intelligence and Retail financial Services
On 6 July 2026, the FCA published the Mills Review, which considers how AI may reshape retail financial services by 2030 and beyond.
The review examined the potential effect of increasingly sophisticated and autonomous AI systems on firms’ operating models, competition, consumer journeys, fraud, cyber risk and the delivery of regulated financial services.
For asset managers, the review is relevant to product design, portfolio construction, investor communications, digital distribution, client segmentation, complaints handling and the monitoring of Consumer Duty outcomes.
Investment firms using AI in advice, discretionary management, execution, onboarding, surveillance or client communications should identify which decisions are made or materially influenced by AI and which senior manager is accountable for each use case.
Firms should maintain an inventory of AI systems and document the data used, the controls over model performance, the circumstances requiring human intervention and the procedures for suspending systems that produce inaccurate or harmful outcomes. Particular attention should also be given to third-party models, cloud concentration, explainability and data protection.
The absence of a standalone FCA AI rulebook does not reduce the need for effective governance. Existing obligations under the Consumer Duty, SYSC, product governance, operational resilience and the Senior Managers and Certification Regime will continue to apply.
FCA Enforcement update on financial promotions, market abuse and transaction reporting
On 9 July 2026, the FCA published an update on its enforcement activity during the first year of its current strategy.
The FCA highlighted action against unlawful financial promotions, including promotions distributed through social media, and enforcement concerning insider dealing and market abuse. It also referred to fines imposed in relation to transaction-reporting failures and deficiencies in reporting controls.
Asset managers should review the governance of financial promotions, particularly where materials are prepared or distributed by affiliates, appointed representatives, overseas distributors, introducers or social-media partners. Approval processes should consider the overall impression created by a communication, rather than focusing only on whether individual statements are technically accurate.
Managers should also ensure that market-abuse controls are calibrated to their trading activities. This includes procedures concerning inside information, restricted lists, personal-account dealing, conflicts of interest and suspicious transaction and order reporting.
For MiFID investment firms, the FCA’s focus on transaction reporting is particularly significant. Firms should review the completeness and accuracy of transaction reports, the use of client and instrument identifiers, correction and cancellation procedures, reconciliation against front-office records and the oversight of delegated reporting providers.
Reliance on a broker, venue or third-party reporting provider does not transfer regulatory responsibility away from the firm.
FCA CP26/23: Consumer Duty scope and proportionality
The FCA’s CP26/23 proposes targeted changes to make the Consumer Duty clearer and more proportionate, particularly for investment firms operating in wholesale markets, complex distribution chains or across borders. The proposals would generally apply only to business involving UK resident retail customers, although certain UK connected activities would remain in scope. Firms would be responsible only for their own role and activities and could rely on information from other regulated firms unless there are clear indications of consumer harm. Monitoring, information sharing and annual board reporting remain with the firm but could be streamlined and integrated into existing governance arrangements.
For investment product manufacturers, the FCA proposes replacing “co-manufacturer” with principal and secondary manufacturer categories, with more limited obligations for firms that lack substantive control over a product. Existing PROD 3 and Consumer Composite Investments processes could generally be used to satisfy overlapping Consumer Duty requirements, avoiding unnecessary duplication. The £50,000 minimum investment exclusion would remain, but must be met by each investment and each end investor rather than through aggregation. These are consultation proposals, not final rules with any responses due by 18 September 2026. The final rules are expected to be published in Q1 2027.
EUROPEAN UNION.
ESMA common supervisory action on risk-management functions
On 3 July 2026, ESMA announced a Common Supervisory Action concerning the risk-management functions of EU AIFMs and UCITS management companies.
The exercise will be conducted by national competent authorities during 2026 and 2027. It will examine the governance and organisation of the risk-management function, the identification, measurement and monitoring of risk, and the quality of reporting to senior management and governing bodies.
EU AIFMs and UCITS management companies should expect regulators to assess whether risk-management functions are effective in practice, rather than merely compliant in form.
Firms should review the functional and hierarchical independence of risk management from portfolio management, the authority and seniority of risk personnel, the adequacy of staffing and systems, risk-limit design, escalation arrangements, liquidity and leverage monitoring, stress testing and the quality of board reporting.
Delegation will also be relevant. Management companies should ensure that delegated activities are subject to sufficient oversight and that the risk function retains access to the information required to challenge portfolio managers and service providers.
The initiative may also affect investment firms that provide delegated portfolio-management, advisory or risk-management services to EU fund managers. Those firms should expect enhanced due diligence, more detailed reporting obligations and closer scrutiny of their systems and controls.
ESMA report on cross-border investment services
On 20 July 2026, ESMA published a follow-up report concerning the supervision of cross-border activities of investment firms.
ESMA identified improvements in authorisation, supervisory data and cooperation between national regulators. It nevertheless called for supervisory resources and enforcement activity to remain proportionate to the scale and complexity of firms’ cross-border activities. EU investment firms providing services to clients in Member States cross-border should expect continued scrutiny of their business models.
Firms should ensure that management information identifies cross-border activity by jurisdiction, service, client type and distribution channel. They should also review their local market knowledge, language capabilities, complaints handling, product governance, suitability and appropriateness processes and the use of tied agents or introducers.
Cross-border business should not be treated as part of an undifferentiated client population. Firms should be capable of identifying whether particular jurisdictions, products or distribution channels generate higher complaint levels or poorer customer outcomes.
The report will also be relevant to asset-management groups that use an EU MiFID firm to provide discretionary management, advice or distribution services across the European Union.
ESMA Q&As concerning ESG ratings, MICA and MIFIR
On 10 July 2026, ESMA published further questions and answers concerning the EU ESG Ratings Regulation, the Markets in Crypto-Assets (“MICA”) Regulation and MiFIR.
The publications addressed, among other matters, the treatment of ESG ratings used internally or in connection with in-house financial services, the boundary between advice under MiCA and MiFID II and matters relating to consolidated tape arrangements.
Asset managers using internally developed ESG scores or external ratings should assess whether the relevant activity falls within the scope of the ESG Ratings Regulation or within an available exemption. Firms should also review how ratings are described in client, investor and regulatory materials and whether the methodology is sufficiently transparent.
Investment firms providing both crypto-asset and MiFID services should consider carefully how advisory services are classified. The distinction may affect permissions, conduct obligations, disclosure requirements and the treatment of client communications.
European Supervisory Authorities statement on Frontier AI & Systemic Cyber Risk
On 7 July 2026, the European Supervisory Authorities supported an ESRB warning concerning systemic cyber risks arising from highly capable frontier AI models.
The authorities indicated that they would continue to monitor the use of advanced AI and work with national regulators to clarify supervisory expectations.
Asset managers and investment firms should consider whether their use of advanced AI creates concentration risk through reliance on a limited number of model, cloud or infrastructure providers.
Existing operational-resilience and outsourcing frameworks should address model availability, data integrity, cyber incidents, provider failure and the firm’s ability to continue or recover critical services.
Firms should also consider whether they possess sufficient internal expertise to oversee sophisticated third-party systems. Contractual rights and service-level arrangements will not be sufficient where the firm cannot independently understand or challenge the operation of the relevant technology.
UNITED STATES.
Transatlantic Taskforce for Markets of the Future ("TTMF")
In September 2025, the TTMF was jointly announced by the U.S. Secretary of the Treasury, Scott Bessent, and the Chancellor of the Exchequer, Rachel Reeves, as part of President Trump’s State Visit to the UK. The TTMF released a set of recommendations to align their financial rules on digital assets and capital markets and issued a joint statement on stablecoins.
TTMF recommends closer UK–US cooperation on digital assets and capital markets. Its key proposals include testing cross-border tokenisation, aligning regulation for tokenised assets and stablecoins, supporting a multi-money ecosystem, reviewing crypto prudential standards, facilitating cross-border capital raising, improving market transparency and regulatory cooperation, and reaffirming support for international accounting and auditing standards. The main US/UK aim is to reduce regulatory barriers, promote innovation, and strengthen the competitiveness of both financial markets.
SEC Electornic Delivery ("E-Delivery") Proposals
On 21 July 2026, the SEC proposed Regulation E-Delivery, a new rule that would make e-delivery the default for how investors receive regulatory information. Currently, required information generally arrives on paper unless the recipient affirmatively consents to electronic delivery. Regulation E-Delivery would supersede decades of interpretive guidance relating to notice, access, and evidence of delivery that is relevant to nearly all registrants with a delivery obligation, including investment advisers.
The proposed rule is technology-neutral, allowing any electronic delivery method that alerts recipients to new communications, while requiring additional safeguards for personal financial information. Under the proposals, firms would also need policies and procedures to identify and address failed electronic deliveries, including reverting to paper delivery where necessary until a valid electronic address is provided.
Note, the rule is optional meaning it functions as a safe harbour. Firms that satisfy the rules conditions would be deemed to have fulfilled their delivery obligations; however, the methods prescribed by the rule would not be the exclusive means of offering E-Delivery. The comment period is open until 21 September 2026.
SEC issues Schedule 13D Guidance
On 9 July 2026, the SEC issued an interpretation of disclosure requirements under Schedule 13D.
Broadly, the interpretation clarifies that investors in an acquisition vehicle must be identified in the disclosures where the vehicle is formed to acquire shares in a specific company and pursue an activist campaign. The SEC also confirmed that a cash-settled total return equity swap, which provides no voting, investment, or acquisition rights, does not constitute beneficial ownership under Section 13(d) and Rule 13d-3.
SEC publishes 2026 Regulatory Agenda
The SEC has published its 2026 regulatory agenda, which is a public list of rules the agency expects to adopt or propose during the year. The agenda includes themes of burden reduction and rule modernisation.
Among a number of rulemaking priorities some of the core topics relevant to investment advisers are highlighted below:
- Retail access to private markets: Consideration of reforms to expand retail investors' access to private market investments through registered funds and broaden an advisers' ability to charge performance-based fees.
- Short sale reporting: Reviewing short sale reporting requirements and Regulation SHO to reduce compliance costs and modernise the rules.
- Pay-to-play rules: Exploring amendments to the investment adviser pay-to-play rule to ease compliance burdens while maintaining safeguards against conflicts of interest arising from political contributions.
The agenda identifies October 2026 as target timing for many of the proposals.
