Welcome to the November 2026 edition of our Investment Firms Newsletter.
October has been a particularly active month for investment firms and fund managers. In the UK, the FCA has progressed implementation of its revised transaction reporting regime, proposed new redemption requirements for funds investing in illiquid assets, highlighted significant weaknesses in market-abuse surveillance and private-markets conflicts management, and launched substantial consultations on SM&CR reform and its Financial Crime Guide.
In the US, the SEC has proposed changes to custody and fund cross-trading requirements, reinforced expectations concerning fair trade allocation and set out its FY2027 examination priorities.
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UNITED KINGDOM.
Implementation proposals for the new UK transaction-reporting regime
On 2 October, the FCA published CP26/34 as the next stage of its overhaul of UK MiFIR transaction reporting. Following the final rules announced in PS26/15, the FCA is now consulting on implementation guidance, transitional provisions and consequential Handbook and Technical Standards amendments. It has also published a draft reporting schema and validation rules ahead of the new regime taking effect on 3 April 2028. The FCA plans a further consultation on a new Transaction Reporting User Pack in Q1 2027, with a final version expected by 3 April 2027.
MiFID investment firms should move from high-level impact assessment into detailed implementation planning. Firms should compare the draft schema and validation rules with their existing reporting architecture, identify affected fields and instrument populations, assess dependencies on Approved Reporting Mechanisms (“ARMs”) and third-party systems, and establish testing and change-control plans.
Proposals for a 90-day redemption notice for funds investing substantially in illiquid assets
On 8 October, the FCA published CP26/35 proposing that redemption terms for relevant authorised funds should better reflect the time needed to realise their underlying assets. CP26/35 principally targets Non-UCITS Retail Schemes (“NURS”) funds with at least 50% of scheme property invested in inherently illiquid assets, such as property and infrastructure. Under the proposal, affected funds would generally be subject to a minimum 90-day redemption notice period, although managers could apply a longer period where appropriate. Existing funds would be given two years to comply and investors would receive at least one year's notice of the change. The consultation closes on 11 December 2026, with final rules expected in the first half of 2027.
AIFMs managing relevant NURS, and MiFID firms acting as delegated portfolio managers, should identify potentially in-scope funds and assess the impact on dealing arrangements, liquidity management, cash buffers, portfolio construction, distribution and investor communications. Managers should also examine interactions with platforms, pension wrappers, depositaries and other intermediaries, and consider whether prospectuses, operational systems and Consumer Duty assessments would require amendment. Firms should distinguish these proposals from the separate liquidity-risk management requirements finalised in PS26/17.
Market Watch identifies material weaknesses in market-abuse surveillance
Market Watch 86, published on 14 October, sets out the FCA's findings following supervisory visits to seven UK retail brokers. Although all firms had automated surveillance and procedures for detecting potential market abuse, the FCA identified material weaknesses in alert investigation, decision-making, surveillance-system calibration and senior-management oversight. Some firms applied too high a threshold before submitting Suspicious Transaction and Order Reports (“STORs”), relied on inadequately calibrated or "out-of-the-box" third-party surveillance systems or lacked a sufficiently detailed understanding of how surveillance systems operated. The FCA required all reviewed firms to strengthen their arrangements and, in some cases, used skilled-person reviews.
Although the review focused on retail brokers, the FCA expressly states that its findings may be relevant to other firms. All firms subject to UK MAR should therefore review the appropriateness and robustness of their market abuse governance and control framework in light of the above findings. Where enhancements are identified, these should be remediated in a timely manner to ensure FCA expectations are met on an ongoing basis.
Calls for stronger conflicts management in private markets
On 23 October, the FCA published the results of a detailed multi-firm review of conflicts of interest in private equity, private credit and real estate. The FCA found significant variation in standards and identified recurring weaknesses involving cross-fund and continuation transactions, connected and multi-party transactions, gifts and entertainment and information barriers. Stronger firms used independent challenge, enhanced governance, separate decision-making arrangements, independent valuations and appropriate LP or LPAC engagement. Weaker firms were often unable to evidence how competing investor interests had been balanced and relied excessively on disclosure, investor consent or existing first-line governance processes.
Private-market AIFMs and investment advisers should treat this as a direct supervisory benchmark. Firms should review their conflicts inventory across the full investment lifecycle, particularly allocation, valuation, cross-fund transfers, continuation vehicles, warehousing arrangements, side letters, fees and expenses, gifts and entertainment and confidential information. Policies alone will not be sufficient: firms should retain documented evidence showing how conflicts were assessed, escalated, independently challenged and resolved and how fairness between different funds and investor groups was demonstrated.
Second phase of major SM&CR reform
On 22 October, the FCA published CP26/37 setting out the second phase of its proposed reform of the Senior Managers and Certification Regime (“SM&CR”). The proposals are extensive and include reducing the number of Senior Management Functions (“SMF”) requiring FCA approval, streamlining SMF applications, increasing thresholds for Enhanced SMCR firms, ending ongoing submissions of Statements of Responsibilities (“SORs”) and Management Responsibilities Maps (“MRMs”), simplifying Prescribed Responsibilities, removing the Certification Regime, retiring the FCA Directory for certified and assessed persons and simplifying Conduct Rule training and breach-reporting requirements. CP26/37 closes on 22 January 2027, with final rules expected in H1 2027.
All firms subject to SM&CR should be aware of the above proposals but should ensure that they continue to comply with the existing requirements that they are bound by.
Proposals for a major update to Financial Crime Guide
CP26/38, published on 23 October, proposes updates to the FCA's Financial Crime Guide to reflect changes in both financial-crime risks and firms' operating models. The proposed amendments cover fraud, financial and trade sanctions, proliferation financing, money laundering and terrorist financing, data security, wider financial-crime systems and controls and the forthcoming cryptoasset regulatory regime. The FCA specifically highlights the increasing use of artificial intelligence (“AI”) and third-party technology in financial-crime controls and the continuing evolution of sanctions requirements. Responses are due by 24 December 2026.
Firms should compare the proposed guidance against their financial-crime framework, particularly enterprise-wide risk assessments, sanctions screening, transaction monitoring, customer and investor due diligence, proliferation-financing risk, fraud controls and the governance of AI or externally supplied financial-crime technology. Where systems or screening tools are outsourced, firms should ensure they understand the methodology and limitations and retain effective oversight. Firms with higher-risk clients, jurisdictions, private-market structures or complex ownership arrangements should consider whether existing controls remain proportionate to their risk profile.
Updated guidance on which cryptoasset businesses need to register
The FCA updated its cryptoasset registration guidance on 8 October, reiterating that firms carrying on specified cryptoasset services by way of business in the UK must register with the FCA under the Money Laundering Regulations (“MLR”) before commencing those activities. The FCA also highlights the forthcoming wider UK cryptoasset regulatory regime, which is due to commence on 25 October 2027. The updated page includes current registration data and directs firms considering entering the market to the FCA's pre-application and registration processes. As at 1 October 2026, the FCA reported that 427 applications for MLR registration had been received since January 2020, with 68 firms ultimately registered.
Investment firms, fund managers and groups considering cryptoasset activities should undertake a perimeter assessment before launching services to determine whether FCA MLR registration is required under the existing regime and whether additional authorisation will be required under the new regime from October 2027. Firms should consider not only direct crypto trading or exchange activities but also custody, group structures and the location from which UK-facing services are provided. Existing firms planning to expand into crypto should build sufficient regulatory lead time into product-development plans and should separately assess financial-promotion, financial-crime, custody, operational-resilience and conflicts requirements.
UNITED STATES.
Proposals for a new adviser and fund custody framework, including cryptoassets
On 1 October, the SEC proposed new rules and amendments dealing with custody by registered investment advisers (“RIAs”) and regulated investment funds. The proposals specifically address custody of crypto securities and other crypto assets while also seeking to modernise broader adviser custody requirements, related recordkeeping and reporting. The SEC proposal contemplates circumstances in which crypto assets could be self-custodied and in which state trust companies could act as custodians, subject to conditions. Comments are due by 7 December 2026.
UK managers registered with the SEC should assess the proposal even where crypto exposure is currently limited, as elements of the consultation concern the wider custody framework. Crypto-active managers should map custody arrangements at asset and vehicle level, including wallet control, private-key arrangements, custodian status, insolvency protections, books and records and adviser oversight. Firms should not change existing arrangements on the assumption that the proposal will be adopted in its current form.
Proposals for an expansion of cross-trading by registered funds
On 9 October, the SEC proposed amendments to Rule 17a-7 under the Investment Company Act governing cross trades between registered investment companies and certain affiliates. The proposal would broaden the range of securities eligible for cross trading, modernise the conditions applying to those transactions and introduce aggregated reporting of trading activity and cross trades on Forms N-PORT and N-MFP. The proposed changes are particularly significant for fixed-income portfolios, where current valuation rules have limited the practical availability of cross trading. Comments are due by 14 December 2026.
RIAs managing US registered funds should assess whether an expanded Rule 17a-7 could alter portfolio-transition, liquidity and transaction-cost arrangements. At the same time, firms should review pricing methodologies, conflicts controls, independent oversight and trade-allocation arrangements to ensure that any future increase in cross trading does not disadvantage one client or fund for the benefit of another.
Regulatory enforcement reinforces fair trade-allocation expectations
On 6 October, the SEC sought final judgment against the former co-chief investment officer of Western Asset Management in connection with an alleged multi-year cherry-picking scheme. The SEC alleged that trades were allocated after price movements could be observed, resulting in favourable first-day gains being disproportionately allocated to certain portfolios and losses to others. The proposed judgment would impose a $3 million penalty and other sanctions. This follows the SEC's June 2026 settlement with Western Asset, under which the firm agreed to a $100 million civil penalty and a Fair Fund for affected investorsFirms with SEC exposure that are managing multiple funds, accounts or mandates should review trade allocation controls, particularly the timing of allocations and amendments, omnibus-account procedures, treatment of errors and exceptions and monitoring for systematic differences in investment outcomes. Policies should require allocations to be determined on an objective basis before subsequent price movements can influence decisions, with compliance surveillance capable of identifying patterns favouring particular accounts or strategies.
FY2027 examination priorities
On 23 October, the SEC's Division of Examinations published its FY2027 examination priorities. Key areas include investment advisers' fiduciary obligations, conflicts of interest, investment recommendations and compliance programmes; private funds and private credit; complex, higher-risk and illiquid investments; cybersecurity and operational resilience; emerging technologies; and evolving market infrastructure, including Treasury clearing and tokenisation. The priorities are not exhaustive but provide a clear indication of areas likely to receive increased examination attention.
Clients with SEC exposure should use the priorities as an input to their 2027 compliance risk assessment and annual review. Private-fund managers should focus particularly on conflicts, fees and expenses, valuation, private-credit practices, illiquid assets, fiduciary obligations and compliance governance. Firms should also assess cyber resilience, technology governance and readiness for Treasury-market infrastructure changes and ensure that compliance testing can demonstrate that identified risks are actively monitored rather than addressed only through written policies.
Innovation Exemption begins moving into operation
The SEC's temporary Innovation Exemption, originally issued on 17 September, became more operationally relevant during October as the SEC published implementation information and staff FAQs and additional Tokenized Securities Venues notified the SEC of their intention to rely on the exemption. The framework provides temporary and conditional relief from the Exchange Act definition of an "exchange" for qualifying venues trading tokenised NMS stocks through permissioned automated market makers and liquidity pools, together with conditional dealer relief for certain liquidity providers. Conditions include limits on trading volumes and securities, requirements that tokenised shares confer the same rights as the corresponding conventional NMS shares, issuer notification in specified circumstances, auditable smart contracts deployed on public permissionless distributed ledgers, coordinated trading halts and public disclosures concerning venue activities. The exemptions are due to expire five years after publication unless modified or replaced.
UK investment managers and advisers investing in or considering tokenised US equities should assess how the exemption may affect market access, execution, custody, valuation, settlement and counterparty due diligence. Firms should distinguish tokenisation of an existing NMS security from investment in a separate cryptoasset and verify the legal and economic rights attached to any tokenised instrument before trading. Managers considering use of a Tokenized Securities Venue should also assess venue eligibility, smart-contract and operational risks, liquidity arrangements, custody and private-key controls and whether existing best-execution, conflicts and investment-mandate processes adequately address on-chain trading. The exemption is temporary and conditional, so firms should monitor subsequent SEC guidance and any amendments to the framework.
