UK: FCA removes collective investment scheme (CIS) concentration limit for UCITS

Why should I read this?

On 27 March 2026, the FCA removed the concentration limit in COLL 5.2.29R(3) that restricted how much a UK UCITS scheme can invest in units of another collective investment scheme (CIS).  The FCA considers that other rules in the Handbook already address the risks this limit was designed to manage.  AFMs should review any arrangements for strategies involving funds investing in other funds and update their prospectuses if they want to use the additional flexibility.

The change is set out in Handbook Notice 139 and the Collective Investment Schemes Sourcebook (Concentration Limits) (No 2) Instrument 2026.

What do I need to know about the removal of the CIS concentration limits?

Purpose of this concentration rule

The CIS concentration rule was originally implemented to prevent an investing UCITS fund (typically one following a fund-of-funds strategy) from taking excessive exposure to a single target fund.  

This helped to ensure that a UCITS scheme maintained a prudent spread of risk and limited the influence an investing fund could have over a target fund. It also reduced liquidity risk during redemptions or suspensions and double charging of entry or exit fees.

31 January 2025 rule change

Following consultation CP24/11, “Quarterly Consultation #44", the FCA made the following changes to the CIS concentration rule, which took effect on 31 January 2025:

• applied the limit at sub-fund level, rather than umbrella level;
• clarified that the threshold of ‘more than 25% of the units’ refers to the value of the target fund's scheme property, not the number of units; and
• added a limited disapplication of the concentration rule for investment in other funds where a UCITS is investing in a target fund with the same AFM, provided any portfolio or risk management for the investing and target funds is undertaken by the same firm. These disapplication provisions were complex and in our experience have not been simple for AFMs to understand.

There was a 12-month transitional period to implement these changes until 31 January 2026, which, following feedback, the FCA later extended until 31 January 2027.

Problems with the rule change

At the time the FCA made its change to clarify that the reference in COLL 5.2.29R(3) to 'more than 25% of the units' related to the value of scheme property, not the number of units in issue, the FCA believed that most AFMs already interpreted the rule in that way, and so the change was only "for the sake of clarity".

However, the FCA received feedback that this was not always the case.  For instance, applying the 25% limit on a value-of-scheme-property basis apparently caused problems if target funds had unit classes of different denominations, e.g. for institutional and retail investors.  In such cases, an investing fund could hold fewer than 25% of the target fund's units by number but more than 25% on a value basis.  This meant the investing fund might be compelled to redeem from the target fund to stay within the limit.

27 March 2026 rule change

Rather than fixing this problem arising from the 31 January 2025 change, the FCA decided to delete the CIS concentration limit in COLL 5.2.29R(3), following consultation CP25/37 “Targeted clarifications of Handbook materials”.

The FCA also deleted COLL 5.2.29R(6) and COLL 5.2.29AR, the rules which provided for the limited disapplication of the concentration rule noted above, and the related transitional provisions in COLL TP 66 and 67, given that the underlying rule no longer exists.

Reasons for the 27 March 2026 rule change

What does this mean for fund-of-funds UCITS prospectuses?

AFMs of UK UCITS that invest in other CIS should review their prospectuses.  If a prospectus currently discloses the COLL 5.2.29R(3) concentration limit as a restriction on the fund's investment powers, that disclosure will need to be updated to reflect the deletion of the rule.

If an AFM wants to use the additional flexibility — for example by increasing an investing fund's holding in a target fund beyond the former 25% threshold — it should assess any impact this will have on the fund’s investment strategy and risk profile before updating the prospectus.  The change is unlikely to need FCA approval or pre-notification to investors but this should be assessed on a case by case basis, as for some funds of funds with a focused policy it could make a practical difference.   Investors should be able to understand from the prospectus how the fund will use this flexibility.

AFMs should check whether their prospectuses cross-refer to COLL 5.2.29R generally or to specific sub-paragraphs that have been deleted.  A prospectus that refers to the concentration rule by rule number may need updating even if the fund does not plan to change its investment approach.

Timeline of changes to the CIS concentration rule

What should I do?

Practical steps AFMs should take include:

• Review your arrangements for funds that invest in other CIS to assess how the deletion of COLL 5.2.29R(3) affects your investment strategy and whether you want to use the additional flexibility.
• Check your prospectuses for references to COLL 5.2.29R(3), (6), COLL 5.2.29R and the related transitional provisions. Update disclosures to remove references to rules that no longer exist.
• If you plan to increase holdings in target funds beyond the former 25% threshold, update your prospectuses to reflect the revised investment strategy and risk profile.
• Brief your compliance and portfolio management teams on the change. Update your compliance monitoring systems and investment guidelines to reflect the deletion of the rule.
• Remember that the other provisions the FCA relies on — including the diversification and risk management rules in COLL 6.11 and 6.12, the client's best interest rule in COBS, and the conflict of interest rules in SYSC — still apply.

What else do I need to know about concentration limits?

This change forms part of the FCA's wider review of the UK funds regime.  The FCA plans to amend the COLL sourcebook further as it continues to tailor the UK regime.  The deletion of the CIS concentration limit is a straightforward simplification, but further changes to investment and borrowing powers for authorised funds are possible.

How Eversheds Sutherland can help

Eversheds Sutherland advises asset managers, fund operators, trustees and depositaries on the full range of regulatory requirements for UK‑authorised funds. We help clients assess the impact of FCA rule changes on their funds, update prospectuses and fund documentation, and review compliance monitoring arrangements.

We also assist firms in responding to specific amendments to the COLL Sourcebook, including changes such as the removal of concentration limits, by identifying the practical implications for investment strategies and ensuring fund disclosures remain accurate and compliant. Our team helps integrate these updates into operational processes and governance frameworks, providing clear and commercially focused guidance that supports well‑managed and fully compliant authorised fund ranges.