A New Regime for UK Private Fund Managers: Latest From the FCA and HMT

On 14 July 2026, the UK Financial Conduct Authority (FCA) launched its consultation (CP26/28) on new rules for alternative investment fund managers (AIFMs) and His Majesty’s Treasury (HMT) published draft changes to the UK AIFM Regulation (AIFMR) along with its policy note. The consultations follow the FCA and HMT discussion papers published in April last year, discussed in our previous alert Reforming the UK Regime for Private Fund Managers: FCA and HMT Papers Point the Way and recent horizon scan for private fund managers Horizon Scan for Private Investment Funds: Recent Developments and What to Look Out For (May 2026).

The FCA also published a consultation on revisions to remuneration rules for solo-regulated firms (CP26/27), which will apply to most private fund managers, and on a new fund reporting regime for asset management entities (FRAME), intended to replace Annex IV reporting (CP26/26).

In this alert, we discuss those aspects of the UK AIFM regime in CP26/28, as supplemented by the proposed changes to the AIFMR, that we expect to be of the most interest to the managers of private equity, real estate, venture capital, infrastructure, and credit funds. 

The consultation periods for CP26/28 and the AIFMR changes close on 14 October 2026, with separate consultation on the regulatory capital and other prudential rules for managers and on reforms to the authorised AIF, including the Long Term Asset Fund, regimes to follow. Most of the changes are expected to take effect in 2028. 

Headline Points

• The policy changes set out in CP26/28 and the draft AIFMR are materially the same as those proposed in the HMT and FCA papers published in April last year. However, the consultation materials, running to more than 400 pages, provide substantially more detail on how HMT and the FCA will implement those policies through legislation, FCA rules, and guidance.
• The key policy change remains unchanged: Instead of a one-size-fits-all approach to compliance, there is to be a three-tiered approach, with compliance requirements applied by reference to and proportionately calibrated by net asset value (NAV): >£5 billion NAV to distinguish large AIFMs; a range of £750 million to £5 billion NAV for medium AIFMs; and a lower threshold of <£750 million NAV for small AIFMs. Any AIFM, unless they qualify under the Social Entrepreneurship Funds (SEF) or Registered Venture Capital Funds (RVECA) regimes will require FCA authorisation, with the registration regime for small AIFMs otherwise no longer available.
• The reduced compliance requirements include the elimination of mandatory leverage calculations, relaxation of valuation independence requirements, a new “annual summary” (replacing detailed annual reports), and streamlined investor disclosure regimes.
• These and other compliance requirements are to be set out in a single FCA Alternative Investment Funds Sourcebook (ALTS), which seeks to improve clarity and accessibility. ALTS and AIFMR contain new and updated definitions, including that of an AIF, to clarify that raising capital can happen in the past, present, or future and that a defined investment policy can be implicit. They also contain new glossary definitions of carried interest, joint venture, and single investor vehicles.
• In keeping with the trend towards the transfer of powers from HMT to the FCA, requirements connected with authorisation and registration, such as the setting of size thresholds, will no longer be locked into the AIFMR. Instead, the FCA will have the power to determine these requirements. 

We discuss various requirements in more detail below. 

Strategic Considerations

• Managers should use the consultation period to assess how the three-tier framework and new authorisation requirements (including extension of scope to residual CIS operators), simplified leverage disclosure, streamlined reporting, and enhanced delegation framework could affect their regulatory footprint, compliance costs, and growth strategy.
• Fund managers that are also subject to the AIFMD and other regimes in the EU should consider any likely gaps that may arise between the new UK regime and these EU regimes (in particular concerning investor reporting and disclosures), noting also that EU law continues to change, with recent and further anticipated changes to the AIFMD under the EU Market Integration and Supervision Package (MISP) (expected to have a “start-up” period mid-2027/2029) under the Savings and Investment Union Strategy and Retail Investment Strategy. See our recent briefings here and here on these topics.

Some of the Changes in Detail

Proportionate Regulation Based on Asset Size

As noted above, the new regime seeks to move away from the current leverage-based assets under management metric to a straightforward NAV-based three-tier system. The new tiering thresholds proposed reflect industry feedback that the originally proposed £100 million threshold was too low and that a higher midsize threshold would reduce cliff-edge compliance jumps. In addition:

• Small and medium UK AIFMs can elect into a stricter classification.
• The NAV calculation is calculated across all AIFs an AIFM manages and any residual CIS it operates, using quarterly mean NAV and notifying the FCA if a size classification changes. For open-ended funds, calculations should be run at least monthly or such lesser frequency as set out in ALTS; otherwise, they should only be run when there is a material change to the volume or value of an AIFM’s business that may impact the classification.
• Firms no longer need to apply for a formal variation of permission when crossing size thresholds; they simply notify the FCA using a material change notification form.
• Transition periods (six months for most new obligations; 12 months to appoint a depositary) apply to ease the burden of moving up a category.

Unregulated Investment Schemes Brought Into Scope (Residual CIS Operators)

The new regime extends the regulatory net to “residual collective investment schemes,” being unregulated schemes that are collective investment schemes but are neither AIFs nor UCITS. Currently, these fall into a regulatory gap. Noting that residual CISs may often be low-risk administrative or special-purpose vehicles, the FCA proposes limited but meaningful regulation, including basic annual regulatory reporting and investor disclosure requirements aligned with the retail disclosure rules in ALTS. Excluded from these disclosure requirements are carried interest, joint venture, and single investor vehicles (that all have new glossary definitions, as mentioned above), as well as those entities excluded from being an AIF (such as employee participation schemes).

However, the scope remains under development; the FCA is seeking further information on residual CIS prevalence and may refine the proposals.

Clear, Consistent Fair-Value Standards for All Fund Sizes (Valuation)

Valuation rules will now apply consistently across all AIFM sizes (including small AIFMs, which currently have no specific rules around valuation). The new regime seeks to align the UK standard with IOSCO guidance and IFRS fair-value principles. A significant relief for smaller and medium-sized firms: The functional independence requirement for valuation functions is relaxed, as firms need only take appropriate steps to mitigate conflicts. 

HMT proposes removing external valuers’ strict legal liability from the legislation; this would mean that instead, liability will rest on the AIFM (contractually backed by the valuation service provider), placing responsibility squarely with the fund manager. This will be welcomed by real estate industry groups, in particular, as it will help facilitate the market for external valuers in this space.

Simplification and Flexibility in Leverage Disclosure (Leverage Calculations)

The new regime seeks to eliminate the current mandatory dual-calculation framework (gross method and commitment method) and the “substantially leveraged” trigger regime, which many firms find burdensome. Instead, funds will disclose their leverage quantum using methods suited to their strategy, with a clear written explanation to investors. The FCA will collect simplified leverage data from all leveraged funds via the FRAME reporting framework to support systemic risk monitoring. 

This change materially reduces compliance costs while giving funds flexibility to report leverage in economically meaningful ways.

Tiered Risk Governance Matched to Fund Complexity (Risk Management)

The new risk management framework is calibrated by fund type (closed-ended unleveraged funds, closed-ended leveraged funds, and open-ended funds) and AIFM size. Closed-ended unleveraged AIFs face only baseline risk management requirements. Other AIFs require a dedicated risk management function with appropriate independence from portfolio management (scaled for small firms). 

The detailed due diligence prescription for less-liquid assets in the AIFMR is removed; instead, a higher-level baseline due diligence standard applies. 

The FCA expects fund managers to monitor market integrity and financial stability risks. The consultation highlights three areas of concern: leverage unwind risk (forced simultaneous selling by mulitple leveraged funds), concentrated positions (fund holdings large enough to move markets), and use of algorithmic or model-driven trading (that can amplify volatility).

Liquidity Risk Management

The new regime looks to achieve a significantly differentiated approach to liquidity risk management, recognising that different fund structures and sizes present materially different risks. In summary:

• Unleveraged closed-ended AIFs are disapplied from most liquidity risk management rules entirely, though baseline FCA risk governance principles continue to apply.
• Small AIFMs managing open-ended AIFs or leveraged closed-ended AIFs will have a new, simplified, and proportionate liquidity management framework requiring alignment of redemption policy with fund strategy, establishment of a liquidity framework, selection of liquidity management tools, and annual stress-testing, replacing the current detailed prescriptions. 
• For medium and large open-ended AIFMs, a new “look-through” requirement mandates assessment of underlying asset liquidity in other open-ended funds they invest in, not merely the redemption terms of those funds themselves; however, exchange-traded funds (ETFs) and traded funds are carved out. 
• Medium and large AIFMs are subject to detailed stress-testing requirements with mandatory annual review and review of the effectiveness of their liquidity risk management framework (more frequently if there has been a material change). 
• No new leverage thresholds are proposed to be introduced; instead, a hedging exemption applies for closed-ended funds, whereby derivatives used solely for hedging do not trigger redemption or margin risk classifications.

Delegation

The new regime introduces a streamlined post-notification governance model with retained core safeguards and clearer authority to delegate to unauthorised managers. Core delegation safeguards are retained: The AIFM cannot transfer its overall responsibility, “letter-box” delegates are prevented via robust oversight requirements, and ongoing periodic reviews are mandated. 

We would highlight three governance changes:

• First, the FCA removes the prenotification requirement for delegation of investment management functions; firms must now notify the FCA only after delegation becomes effective and confirm details in their next regulatory report under the parallel FRAME proposals, reducing compliance friction and operational delays. 
• Second, new “additional core AIFM functions” are explicitly defined and subject to heightened controls: valuations by appointed third-party valuers, regulatory compliance monitoring, and marketing of AIFs. These functions, along with investment management functions, must now be supported by objective justification. This represents a new requirement for small AIFMs, which were not previously required to document such justifications. 
• Third, when delegating portfolio and risk management functions relating to specified investments, firms must generally delegate to authorised or regulated supervised entities, though a regulatory derogation clarifies this requirement does not apply where the delegate operates in a jurisdiction requiring no local authorisation for that activity. 

Investor Disclosures

The new regime seeks to differentiate explicitly between professional and retail investor disclosures, reflecting their different information needs and sophistication levels. Some highlights to note:

• Professional investors receive a principles-based regime with a limited set of mandatory precontractual disclosures (including valuation methodology, liquidity risk management approach, and key fund terms), plus a new rule requiring the firm to satisfy reasonable investor information requests beyond those mandatory items, trusting sophisticated investors to seek information they deem material. 
• Retail investors continue to receive more prescriptive protections, reflecting their greater vulnerability to information asymmetries, but these rules are streamlined and relocated from COBS (conduct of business rules) into the new ALTS sourcebook for clearer codification and better coordination with other fund rules.
• Both regimes extend to certain residual CIS operators, with carve-outs for carried interest vehicles, excluded entities, joint ventures, and single-investor vehicles (as mentioned above). 
• Key simplifications across both regimes: 
  • Ongoing disclosure of liquidity and leverage arrangements is replaced by precontractual disclosure, with updates only upon material change, dramatically reducing administrative burden. 
  • Investors receive leverage disclosure as a single total quantum with discretion on calculation method (no mandated gross-method calculation); with historical fund performance disclosure to be provided on request only.
  • Retail periodic statements are largely maintained (every six months unless parties agree to 12-month intervals), but the contingent-liability periodic statement requirement is removed (because the FCA considers it to be disproportionate), and COBS 16.3 periodic reporting rules are disapplied in favour of the new ALTS regime. 
  • Retail disclosures will sit alongside the new Consumer Composite Investment (CCI) product summary (effective 8 June 2027); the FCA proposes flexibility in format, including the ability to link from the product summary to detailed ALTS disclosures to avoid duplication and reduce investor confusion.

Annual Reporting to Investors

As noted above, the new regime introduces a size-based approach to annual investor reporting that significantly reduces compliance burden for smaller fund managers. Key points are: 

• Medium and large UK AIFMs managing unauthorised AIFs must continue to produce annual reports for each fund with audited financial statements. However, these annual reports are now provided to the FCA only on request rather than routinely filed, reducing regulatory filing burden. 
• Separately, a new transparency requirement provides that if an investor reasonably requests further information not contained in the published annual report, the firm must provide it and make it available to all other investors. 
• Small UK AIFMs and residual CIS operators must produce an “annual summary” in place of a formal annual report, being a concise document covering core information (including an unaudited financial statement and information for an investor to understand any material changes to the merits, risks, and costs of investing in the fund) that substantially reduces small-firm audit costs and compliance burden. 
• The FCA moves from detailed content prescriptions to a principles-based baseline, eliminating specific disclosure requirements (e.g., financial and nonfinancial key performance indicator disclosures) while retaining essential items such as special and liquidity management arrangements for illiquid assets held in an open-ended fund.
• Remuneration disclosures are narrowed: Only total remuneration of “material risk-takers” must be disclosed, as the broader FUND remuneration code guidance is being repealed under a separate code reform. Authorised funds, recognised schemes, and certain exempt listed closed-ended investment funds are excluded from these requirements.

The National Private Placement Regime (NPPR) & Cross-Border Marketing

NPPR currently allows UK AIFMs to market non-UK AIFs into the UK and permits overseas AIFMs to market into the UK, subject to conditions. The new regime seeks to materially simplify compliance:

• The requirement for UK AIFMs to notify the FCA at least 20 days prior to marketing an AIF is removed. 
• The broader NPPR regime itself is retained (including that there is no formal notice period for third-country AIFMs once a compliant NPPR notification has been submitted). AIFMR introduces an obligation for the AIFM to notify the FCA when it ceases marketing in the UK.
• HMT proposes to restate and improve the substantive NPPR requirements (primarily contained in secondary legislation) with greater clarity and precision, with the FCA providing practical guidance in ALTS rather than imposing extensive new FCA rulebook requirements. 
• The FCA guidance will assist firms in complying with NPPR conditions when marketing non-UK AIFs into the UK, covering key elements: FCA notification (now simplified), compliance with relevant AIFM requirements, cooperation and FATF standards, appointment of one or more depositary-function providers, payment of annual fees, and regulatory reporting obligations for third-country AIFMs as set out in the parallel FRAME proposals. 
• A notably preserved element is Gibraltar market access: Continued “passporting” (retained EU law post-Brexit), plus the future Gibraltar Access Regime, will enable UK funds to be marketed into Gibraltar and Gibraltar AIFMs to market into the UK without new regulatory impediments. 

These provisions collectively support UK fund managers seeking to expand their European distribution footprint and maintain operational links with key offshore financial centres, reducing cross-border operational complexity and related costs.

Other Points of Note and Discussion Areas

• The proposals also include a partial exemption for internally managed listed closed-ended investment companies below the current small AIFM threshold and reforms to notification requirements when an AIFM acquires control of a nonlisted company (particularly relevant to acquisitive private equity funds). The FCA has confirmed there is no proposal to remove the restrictions on capital reductions under the “asset-stripping” rules, which will remain as key investor protections.
• The FCA has identified four areas for consultation and rule-making:
  • On depositaries, the FCA is consulting on a tiered approach: medium and large UK AIFMs must continue to appoint a depositary for each unauthorised AIF they manage, while small AIFMs will not be required to do so (provided they comply with CASS 6 custody rules). At the discussion stage (on which the FCA seeks feedback before formulating detailed rules and taking into account feedback on CP26/16 on the registration of authorised fund assets), the FCA is also exploring two further changes. First, a “split depositary model” that would permit more than one depositary to carry out the depositary functions for the same UK AIFM/AIF (currently only permitted for non-UK AIFs marketed via the NPPR). There would be an oversight depositary maintaining a single record of ownership of all AIF assets (whether held in custody or for non-custodial assets that are subject to title verification only) to provide a safeguard designed to preserve accountability where custody is split across multiple entities. Secondly, the FCA proposes to discontinue the requirement for the depositary to re-perform the AIFM’s daily cash reconciliation, on the basis that this is unnecessary duplication and adds relatively little value to investor protection. The depositary’s broader oversight of the AIFM’s cash-handling procedures would be retained. The FCA notes that the current single-depositary requirement for UK AIFs creates an unlevel playing field compared with non-UK AIFs marketed into the UK via the NPPR, which already benefit from the flexibility to appoint different persons to carry out each depositary function. It is also keen to understand if the proposed greater flexibility would result in cost efficiencies. 
  • On prime brokers, the FCA intends to retain but simplify prime broker requirements, moving them into ALTS while reducing detailed prescriptions on due diligence and contractual arrangements), whilst preserving core safeguards.
  • For the current business restriction limiting full-scope AIFMs’ ancillary regulated activities, the FCA provisionally favours removing it entirely for all firms, relying on the wider regulatory framework to manage risks, as the restriction in practice forces separate entity structures and creates threshold cliff-edges inconsistent with other requirements such as transaction reporting. 
  • Finally, for the regulatory capital and other prudential rules, the FCA is exploring consolidating fragmented prudential requirements into a common COREPRU baseline (applying to AIFMs, UCITS ManCos, and residual CIS operators) with sector-specific add-ons. This would be in conjunction with adding forward-looking prudential elements (risk assessment, liquidity management, and wind-down planning) currently absent from the regime, thereby addressing complexity, inconsistency, and the cliff-edge effects of current thresholds. As mentioned above, detailed prudential rules consultation is scheduled for later in 2026.

Please do not hesitate to speak to one of the authors of this guide or your usual Goodwin contact if you have any questions or want to discuss how the new regime may impact your fund structures, operational arrangements, investor relationships, and investment strategy.