On 13 July 2026, the FCA published CP26/28: The UK AIFM Regime, alongside a parallel Treasury consultation on the underlying legislation. Together, the two consultations represent the most significant reshaping of UK alternative fund manager regulation since AIFMD was implemented in 2013. The proposals will be relevant to all alternative investment fund managers, but in this article we focus on what they could mean for private equity firms, where the direction of travel looks particularly favourable.
The consultation closes on 14 October 2026 (18 September 2026 for certain discussion chapters), with final rules expected in 2027 and implementation intended for 2028.
Background
The current regime divides AIFMs into small and full-scope firms based on assets under management calculated including leverage, with thresholds of €100m, or €500m for managers of unleveraged, closed-ended funds. The FCA has long acknowledged that the full-scope regime, designed with more liquid and leveraged strategies in mind, does not sit comfortably with private equity and other closed-ended, illiquid strategies. CP26/28 follows the FCA’s 2023 Discussion Paper and its 2025 Call for Input, and is intended to replace the AIFMD-derived framework with a new FCA sourcebook, the Alternative Investment Funds sourcebook (ALTS).
The headline changes
At the centre of the proposals is a move to three size tiers based on aggregate NAV alone: small firms (with a NAV below £750m), medium firms (with a NAV of £750m to £5bn) and large firms (NAV above £5bn). This is a significant change. The current thresholds are calculated on assets under management including exposure created through leverage, whereas the new tiers would be determined by NAV alone, with leverage excluded from the size calculation. For firms running leveraged strategies in particular, this is one of the clearest benefits of the new rules. The £750m small threshold is also a substantial increase on the £100m the FCA originally proposed in its Call for Input, following strong industry feedback. Firms crossing a threshold would simply notify the FCA rather than apply for a variation of permission, with six months to comply with the new tier’s rules.
The wider package is extensive, and the following is by no means a definitive list, but ten of the key points are:
- The depositary requirement would apply only to medium and large AIFMs, with small firms subject to the CASS 6 custody rules instead, and a twelve-month window to appoint a depositary on crossing the threshold.
- The gross and commitment leverage calculations would be removed entirely, with firms instead disclosing leverage to investors using a method suited to the fund
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A new hedging exemption would mean funds using derivatives solely for hedging purposes, such as currency hedging, are treated as unleveraged.
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Valuation rules would apply to AIFMs of all sizes for the first time, codifying the findings of the FCA’s 2025 private markets valuation review.
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Risk management requirements would be tailored to the type of fund managed, with managers of closed-ended, unleveraged funds subject only to baseline investment due diligence requirements.
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Liquidity risk management rules would not apply to closed-ended, unleveraged funds at all, with simplified requirements for small AIFMs elsewhere.
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Audited annual reports would be required of medium and large AIFMs only, with small firms instead producing a lighter, unaudited annual summary.
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Disclosures to professional investors would become more principles-based, with the more prescriptive retail regime retained but streamlined.
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The registration regime for small registered AIFMs would be removed (other than for RVECA and SEF managers), with affected firms required to become fully authorised and no grandfathering proposed.
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Annex IV transparency reporting would be replaced with simplified reporting for all asset managers, proposed in the parallel FRAME consultation (CP26/26).
It is worth noting that most current small authorised AIFMs already sit outside the depositary and annual reporting requirements, so the benefit of these changes accrues mainly to firms moving down from the full-scope regime. For firms already in the small category, the proposals in some areas represent a modest increase, particularly the new valuation and liquidity baselines.
On prudential requirements, the CP contains a discussion chapter rather than draft rules, with a separate prudential consultation expected later in 2026. The FCA’s preferred direction is to bring fund managers within its new Core Prudential Sourcebook (COREPRU), addressing the cliff edges in the current framework, most obviously the jump in base capital from £5,000 to €125,000 (or €300,000 for internally managed AIFMs) on becoming full-scope. One point worth noting is that the existing capital requirements are calculated on funds under management measured on a gross basis, whereas the new tiers would be determined by NAV, so a firm’s size classification and its future capital treatment will be settled by different measures, and the latter not until the prudential consultation lands.
What this means for firms
For many managers, the proposals would deliver a meaningful reduction in regulatory burden. A typical mid-market manager running closed-ended, unleveraged funds with an aggregate NAV below £750m would move from the full-scope regime to the small tier, shedding the depositary requirement, audited annual reporting, and much of the prescriptive risk and liquidity framework in one step. This is likely to be felt most keenly by private equity and similar closed-ended fund managers, for whom much of the current framework has always been an awkward fit. Even firms landing in the medium tier would face less prescription than today.
That said, firms should be careful not to read “small” as “lightly supervised”. The proposed valuation rules would apply to every AIFM, codifying the findings of the FCA’s 2025 private markets valuation review, and valuation practices remain a clear supervisory priority. It is also worth remembering that investor expectations frequently exceed regulatory minimums; investors will continue to ask about depositaries, audited accounts and risk frameworks in due diligence whether or not the rules require them.
Finally, nothing changes yet. Firms should not begin unwinding existing arrangements on the strength of a consultation. The steps now are to assess where the firm and its funds would sit in the proposed tiers, identify which requirements would fall away or newly apply, and consider responding to the consultation before it closes on 14 October 2026.
Looking ahead
This article is an initial view of a substantial package of reforms. We will be publishing more detailed material on the proposals over the coming weeks, including an explainer video series. Both our investments team and our prudential team are on standby to provide guidance, so do get in touch if you would like to learn more. We will also be in touch with all our clients over the next few weeks to discuss what these proposals mean for them.
