UK: Private fund managers and the FCA overhaul of the AIFM regime

Why should I read this?

On 14 July 2026, the UK Financial Conduct Authority (FCA) published Consultation Paper CP26/28, “The UK AIFM Regime”. The paper sets out proposals for a new UK regulatory framework for alternative investment fund managers (AIFMs). HM Treasury published a parallel consultation on a draft Statutory Instrument (SI), the Alternative Investment Fund Managers Regulations 2026, together with a policy note. 

The proposals represent the most significant reform of the UK AIFM regime since the Alternative Investment Fund Managers Directive (AIFMD) was implemented. While presented as a simplification exercise, the proposals will have materially different effects on different parts of the market.

The papers propose:

• a new three-tier size classification based on net asset value (NAV) for AIFMs, the current small registered AIFM, small authorised AIFM and full scope AIFM regime will be abolished;

• a new Alternative Investment Funds sourcebook (ALTS);

• depositary and delegation reforms; and

• reforms to the valuation requirements and methods used to calculate leverage for AIFs.

The proposals affect all UK AIFMs, including the many private equity, venture capital and private credit managers that currently rely on sub-threshold registration rather than full authorisation.

This consultation primarily covers unauthorised funds, which include most private fund structures. Changes for authorised funds, such as Non-UCITS Retail Schemes (NURS), Qualified Investor Schemes (QIS) and Long-Term Asset Funds (LTAFs) will follow in a second consultation.

Implementation is expected to be in 2028.

Michaela Arter, Partner in the Financial Services Team, product Group Head and European Head of Financial Services Sector, comments:

“CP26/28 signals the most significant overhaul of the UK AIFM regime since AIFMD was first implemented, and its reach extends well beyond the largest managers. The new NAV-based tiering, coupled with the planned removal of the registration route, means that even the smallest private fund managers need to reassess their regulatory footing. Asset managers of every size should be mapping their obligations under the new regime and factoring the transitional timelines into their planning.”

What should private fund managers do now?

Private fund managers should start assessing the impact of CP26/28 now, given the scale of the proposed changes and the lead time needed for some transitions:

• Assess your current classification against the new thresholds

Model whether your firm’s aggregate NAV will place it in the small, medium or large tier, and identify any resulting change in your compliance obligations. The aggregate NAV is based on the aggregate NAV of all alternative investment funds (AIFs), collective investment schemes (CIS) and non-CIS AIFs and non-AIF CIS managed by the AIFM.

The FCA estimates that under their proposals most full scope UK AIFMs will be reclassified as either small or medium AIFMs, with most being reclassified as small AIFMs. For a typical private fund manager, this means aggregating NAV across all funds, co-investment vehicles, parallel funds, joint venture and other structures that qualify as AIFs or CIS.

• Assess whether you need to review your depositary arrangements

Under the proposals, small AIFMs may have a depositary but will not be required to do so. These AIFMs should consider the implications carefully.

AIFMs of all tiers should consider the proposals relating to split depositaries, and whether they may benefit from dividing depositary functions.

For private fund managers currently operating without a depositary under the sub-threshold regime, the key question is whether their aggregate NAV places them in the medium or large tier, which would require them to appoint a depositary for the first time.

• Engage with the relevant discussion chapters

By 18 September 2026, if you are affected by the proposed depositary regime for unauthorised funds, or the removal of the AIFM business restriction.

• Consider your consultation response

By 14 October 2026, focusing on the threshold levels, the transitional ‘cliff-edge’ mitigations and the prudential discussion chapter, either directly or through trade body engagement.

Richard Batchelor, Partner in the Private Funds Team, comments:

• “While the FCA’s proposals are a positive step towards a more streamlined and proportionate regime, they are likely to deliver only modest change for many larger and medium-sized AIFMs, leaving opportunities for more ambitious reform untaken. Equally, while there will be welcome relief for many that the UK is not implementing the increased regulatory requirements seen in the EU with AIFMD II, questions still remain for managers of residual CISs and, more broadly, around the increasing divergence between the UK and EU regulatory regimes.”

What do private funds and their managers need to know about the proposed UK AIFM Regime?

Direction of travel

The reforms represent a move away from the one-size-fits-all AIFMD framework inherited from the EU on Brexit, towards a UK regime that applies requirements according to business size and risk profile.

AIFMs will now be assessed based on aggregate NAV. The FCA has raised the proposed small to medium threshold from the current legislative thresholds (€100 million AUM for most AIFMs, or €500 million AUM for unleveraged closed-ended AIFMs) to £750 million NAV. Most new rules in ALTS will apply to unauthorised AIFs, while NURS, QIS and LTAF reforms will follow in a second consultation. Firms that manage both authorised and unauthorised funds will need to track both consultations.

The AIF definition

HM Treasury proposes clarifying the definition of an AIF, so the capital raising can be in the past, present or future, and the investment policy of an AIF no longer needs to be written down. The changes may result in some CISs that are not currently classified as AIFs being reclassified, or treated more clearly, as AIFs. For private funds managers, the practical implication could be significant. Vehicles like co-investment special purpose vehicles (SPVs), general partner (GP) commitment vehicles, carried interest structures and joint ventures may now more clearly fall within the AIF definition.

New Alternative Investment Funds sourcebook (ALTS)

ALTS will bring together most AIFM rules for unauthorised funds in one place. ALTS replaces the current mix of FUND, assimilated EU technical standards and other Handbook provisions. Because the rules will sit mainly in the FCA Handbook rather than legislation, the FCA will be able to update them more quickly in the future. 

Valuation

The FCA wants valuation rules that are more robust, with clear records of how valuation decisions are made and when ad hoc valuations are needed. It proposes removing the statutory concept of an external valuer and the strict liability that comes with it, following feedback that the market for external valuers is not working well. Valuers will still face liability under ordinary contract and negligence law, and under professional indemnity arrangements, but the statutory backstop will go. This change applies to all AIFs, including private equity (PE), infrastructure and real estate managers holding hard-to-value assets and who may currently rely on the statutory valuation framework as a governance backstop.

The practical effect is that contractual protections will matter more. Managers should review valuation engagement letters, liability caps, reliance language and professional indemnity cover to assess how the proposals may affect them.

Leverage

The FCA proposes scrapping the current gross and commitment method leverage calculations. It says these methods are complex and burdensome to calculate. Under the proposals, firms will disclose their leverage using a method suited to their fund and strategy, provided the disclosure is clear, fair and not misleading.

Funds that use derivatives only to hedge risk will still be classed as unleveraged. The related FCA consultation paper CP26/26 Fund Reporting for Asset Management Entities (FRAME), will ask firms to report raw leverage data instead, so the FCA can apply its own calculations.

The change may reduce formulaic disclosure, but it may also reduce comparability across managers and create questions for investors used to EU AIFMD style gross and commitment figures. For private fund managers using subscription line or capital call facilities, the practical question is whether those facilities will be treated as leverage under the new disclosure methodology, and how institutional investors, particularly those accustomed to ILPA reporting standards, will respond to a less standardised approach.

Risk management and liquidity

The FCA proposes a tiered risk management framework for unauthorised funds. Closed-ended funds that do not use leverage face only basic rules. Other closed-ended funds and all open-ended funds will be subject to fuller rules. Medium and large AIFMs managing funds subject to the fuller rules will need an independent risk management function with its own risk limits and stress testing. 

Small AIFMs running open-ended or leveraged closed-ended funds will be subject to liquidity rules for the first time, including an annual liquidity stress test. Medium and large AIFMs will be subject to fuller rules, including a possible “look through” duty if a fund invests in other open-ended funds. Most traditional private equity and venture capital funds, being closed-ended and unleveraged, will be subject to only basic risk management rules under the proposals. Private credit and real estate debt funds that use leverage will be subject to the fuller regime.

Delegation

The FCA proposes keeping the core delegation rules, including the rule that a firm cannot become a letter box entity through delegation. The requirement for prior FCA approval before a firm delegates risk or portfolio management to an unauthorised entity will be removed. Instead, firms must notify the FCA as soon as practicable after the delegation takes effect, and confirm the arrangement through FRAME reporting. A new, narrower category called additional core AIFM functions would cover delegation of valuation, compliance monitoring and marketing. For private fund managers with overseas advisory affiliates, a common structure in PE and private credit, the removal of prior FCA approval for delegation of portfolio management could significantly reduce friction during fundraising and onboarding of new mandates.

Depositaries

Under the proposals for unauthorised funds, medium and large AIFMs will still need a depositary, while small AIFMs will not, although they could choose to appoint one. The FCA proposes allowing a split depositary model, in which one UK based depositary takes overall oversight and other providers handle safekeeping. It is also considering scrapping the depositary’s duplicate re-performance of an AIFM’s cash reconciliations. The key issue is cost and capacity. Medium and large AIFMs may want to consider whether a split depositary model would be operationally helpful and how this may affect costs.

Reporting and investor disclosures

The FCA proposals bring pre-contractual disclosures for professional investors into a shorter, more principles based regime under ALTS 9 and 10, dropping the current past performance requirement. Medium and large AIFMs will need to prepare a full annual report for each unauthorised AIF, while small AIFMs and residual CIS operators can give investors a shorter annual summary instead. Residual CIS, such as carried interest vehicles, joint ventures and single investor vehicles, will move into the same professional disclosure regime as unauthorised AIFs. Carried interest and co-invest structures often have minimal investor reporting today, and bringing them into the same disclosure regime as unauthorised AIFs could create new compliance work for private fund managers.

Business restriction

The current rules stop a full-scope UK AIFM from carrying on much beyond managing funds and closely related services. The FCA sets out four options:

• apply the restriction to all authorised AIFMs;

• keep it for medium and large AIFMs only;

• modify it to align with other rules; or

• remove it entirely.

The FCA’s preferred option is to remove the restriction altogether, relying instead on the wider prudential, conduct and governance framework to manage risk.

Prudential regime

The FCA is looking at prudential requirements relating to AIFMs, UCITS management companies and residual CIS operators together. It considers the current framework too complex, inconsistent and incomplete, and wants a more consistent capital framework. Removing the AIFM business restriction, and the related Collective Portfolio Management Investment (CPMI) regime, should cut the dual compliance costs that currently fall on firms holding both AIFM and MiFID permissions.

Listed funds

HM Treasury proposes exempting certain small internally managed listed closed-ended investment companies from the AIFM regime entirely. Larger listed closed-ended funds, including investment trusts, Real Estate Investment Trusts (REITs) and Venture Capital Trusts (VCTs), will stay within the regime. Private fund managers that also manage or advise listed closed-ended vehicles should assess whether those structures are affected.

Cross-border marketing

HM Treasury will retain the national private placement regime (NPPR). The main change is the move from prior permission to after the event notification for authorised UK AIFMs marketing UK AIFs, with the current 20 day notice period removed. Cross border managers should still assess local marketing rules in each jurisdiction.

For more information on how the proposals affect cross-border marketing of funds, see our client briefing, “UK: Implications of FCA’s overhaul of AIFM regime for cross-border distribution of funds”.

Our view

The proposals matter for private fund managers of every size from registered sub-threshold firms to the largest PE and credit houses.

The proposals are best understood as a bespoke UK AIFM regime, rather than a deregulatory exercise. For established AIFMs the question is whether the new regime gives UK managers greater flexibility than AIFMD while preserving standards that institutional investors, depositaries and overseas regulators expect.

The proposals should benefit some managers. Smaller authorised AIFMs may see a more proportionate regime if they fall below the £750 million NAV threshold. For private fund managers holding both AIFM and MiFID permissions, the removal of the business restriction and rationalisation of the CPMI regime could significantly reduce dual capital, remuneration and compliance costs. Managers with extensive delegation models may welcome the move away from prior FCA approval for certain delegation arrangements.

Other firms may face more cost and complexity. Registered AIFMs may need to plan for authorisation. Medium and large AIFMs may need to revisit depositary, reporting, risk management and liquidity arrangements. Small AIFMs can consider dispensing with their depositary altogether, bearing in mind the CASS requirements that will still apply.

The proposals accelerate UK and EU divergence. The new NAV based tiering structure, ALTS, leverage methodology and delegation approval changes all move the UK away from the EU AIFMD framework. That may make the UK regime more flexible, but managers should consider how international investors will respond, particularly if fund documents or marketing materials currently assume EU AIFMD style disclosure. Managers marketing funds into the EU under AIFMD national private placement regimes, or raising capital from EU institutional investors, will also need to consider whether the divergence creates additional compliance layers or investor pushback on areas such as leverage disclosure and depositary requirements.

• In practice, the consultation creates an opportunity for managers to shape the regime before it is finalised. The points most worth testing are whether:

• the £750 million and £5 billion thresholds are set at the right level;

• the proposed depositary model will work for private funds;

• the removal of the business restriction goes far enough; and

• the new leverage and reporting approach gives investors enough comparable information.

Stefanie Sahla-Jones, Partner in the Private Funds Team, comments:

“Private fund managers should focus on three things now:

• first, whether the proposed thresholds and tiering genuinely reduce the regulatory burden for mid-market managers or simply shift it;
• second, how the removal of external valuer strict liability will affect the terms they negotiate with valuation advisers and the comfort institutional investors take from the current statutory backstop; and
• third, whether the new leverage disclosure approach will satisfy institutional investors and their consultants, who are used to standardised AIFMD gross and commitment figures.

“These are the elements of this consultation that will determine whether the UK becomes a more competitive home for private capital or creates new friction for managers raising from a global investor base.”

Next steps

You can comment on CP26/28’s main proposals and the prudential discussion chapter until 14 October 2026. Comments on the other discussion chapters, covering depositaries, prime brokers and the business restriction, are due by 18 September 2026. You can send technical comments on HM Treasury’s draft Statutory Instrument to AIFMR@hmtreasury.gov.uk until 14 October 2026. 

The FCA expects to publish a policy statement and final Handbook rules in 2027, alongside HM Treasury’s finalised legislation, ahead of the target implementation date of 2028. We will be responding to the consultation. We can help with your response or we can include your comments with ours on an attributed or anonymous basis.

How ES can help

Our private funds team advises private fund managers across all asset classes, including private equity, venture capital, private credit and infrastructure, their depositaries and their boards on the full range of UK regulatory change. We can help you plan for authorisation if you currently rely on the registration regime, review your fund documentation and PPM disclosure against the new ALTS requirements, and assess the impact on your delegation, valuation and depositary arrangements.