New UK AIFM regime

HM Treasury and FCA publish proposals for new UK AIFM regime

In July 2026, HM Treasury published a draft of the Alternative Investment Fund Managers Regulations 2026 (the Draft Regulations). The Draft Regulations are intended to replace the assimilated law in the UK relating to the management of alternative investment funds (AIFs) set out primarily in the Alternative Investment Fund Managers Regulations 2013 which implemented the European Union (EU) Alternative Investment Fund Managers Directive (AIFMD). The Draft Regulations propose the establishment of a new framework for the regulation of UK alternative investment fund managers (AIFMs). Although some of the existing regulations will be retained, the Government intends to tailor the new regime to better suit the UK market. Consistent with the approach taken to the onshoring of other regulatory regimes inherited from the EU, most of the firm-facing requirements of the new UK AIFM regime will be contained in rules made by the Financial Conduct Authority (FCA) rather than in legislation. 

On the same day the Draft Regulations were published, the FCA published CP26/28, its consultation on new rules for AIFMs (the FCA Consultation). Following the FCA Consultation, the FCA will draft the new firm-facing rules that will apply at the same time the final version of the Draft Regulations come into force, which is expected in 2028. 

Together, the Draft Regulations and the FCA Consultation represent the most significant reform to the UK’s regulatory framework for AIFMs since 2013. Most of the detailed firm-facing requirements proposed in the FCA Consultation will be set out in the new FCA Alternative Investment Funds sourcebook, the aim of which is to simplify the regime, reduce unnecessary burdens on firms and allow the rules to be updated relatively quickly by the FCA without the need for new legislation. 

Some of the main highlights of the proposed new UK AIFM regime are summarised below.

A new three-tier regime

The current split between “small” and “full-scope” AIFMs will be replaced by three tiers – small, medium and large – measured by the aggregate net asset value (NAV) of all funds managed, and the current leverage-adjusted assets under management test will be removed. The FCA proposes a small AIFM threshold of below £750 million NAV, which was raised sharply from the initial proposal of £100 million, to broaden the scope of the small regime, a medium AIFM threshold of £750 million up to £5 billion NAV and a large AIFM threshold of NAV above £5 billion. Rules would scale up through the tiers, with larger firms subject to more prescriptive requirements.

Crossing a threshold would no longer require a formal change in authorisation status, variation of permissions or requirements. Instead, firms would simply notify the FCA and have six months to comply with their new category’s rules and 12 months to appoint a depositary, if required. The proposal seeks to moderate the “cliff-edge” effects of the current regime under which an AIFM must immediately comply with new rules when crossing a threshold. Firms will also be permitted to voluntarily elect a higher AIFM classification once per calendar year by notifying the FCA. 

AIFM registration

The Draft Regulations propose to abolish the AIFM registration regime except for registered venture capital funds and social enterprise funds. There would be no grandfathering: unauthorised property fund managers and most internally managed funds must become fully FCA-authorised before implementation of the new rules in 2028. However, small internally managed closed-ended investment companies that are below the current thresholds would be exempted from the regime entirely, provided they are admitted to trading on a UK multilateral trading facility or a UK-recognised investment exchange.

Separately, closed-ended investment companies trading on UK markets (including investment trusts, certain real estate investment trusts and venture capital trusts) would be subject to a more streamlined and tailored regime. The FCA considers that many of the existing AIFM requirements duplicate protections already provided by the UK Listing Rules, the UK Market Abuse Regulation, company law and other applicable regulations. These fund types would therefore, for example, be exempt from the AIFM investor disclosure and annual report rules. 

AIF definition and residual CISs

The Draft Regulations clarify the legislative definition of an AIF. AIF is currently defined as a collective investment undertaking that raises capital from a number of investors with a view to investing in accordance with a defined investment policy for the benefit of these investors and which is not a UK UCITS. The modified definition in the Draft Regulations provides that raising capital may refer to activities occurring in the past, present or future, and the reference to a “defined investment policy” is replaced with “a policy as to how the capital is to generate a return or investment outcome”. Accordingly, the Draft Regulations clarify that the capital raising requirement is not limited to where capital is being raised currently and the “policy” may be explicit in writing or implicit. As a result of the proposed changes, some vehicles currently treated as collective investment schemes (CISs) but not as AIFs or UK Undertakings for Collective Investment in Transferable Securities (which are referred to as a residual CIS) may fall within the revised definition of an AIF. In those circumstances, a residual CIS operator may need to obtain regulatory permission from the FCA to manage an AIF.

The Draft Regulations retain the exclusions from the definition of AIF that currently apply to occupational pensions schemes, holding companies, employee participation schemes, employee saving schemes and securitisation special purpose entities. In addition, arrangements under which money or an asset is held for the stabilisation of a qualifying stablecoin are excluded provided certain conditions are met.

For residual CISs that remain outside the AIF definition, the FCA Consultation proposes extending the investor disclosure rules, but with exemptions for carried interest vehicles, joint venture vehicles, single investor vehicles and excluded entities (e.g., employee participation schemes). Residual CIS operators would also need to report periodically to the FCA on the number of residual CISs they operate, the gross notional value of their funds and the purpose of the vehicles they operate.

Valuation rules for firms of all sizes

Under the new UK AIFM regime, valuation rules would apply to all AIFMs for the first time. The new rules reflect the findings of the FCA’s March 2025 private-markets valuation review and the new standards on valuation published by the International Organization of Securities Commissions. Notably, the Draft Regulations propose removing the strict liability currently imposed on external valuers (discussed below). The change is intended to make it easier for AIFMs to appoint independent third-party valuers. The FCA proposes that AIFMs only appoint an independent valuer if it meets certain criteria, including that the valuer has the knowledge, skills and experience to value the relevant assets, sufficient personnel and technical resources, and can act independently of the AIFM.

As noted above, the FCA proposes to apply valuation rules to all AIFMs on the basis that investors in AIFs managed by AIFMs of any size are entitled to expect basic valuation standards. Under the current rules, small authorised AIFMs are not subject to any specific rules around valuation. 

Leverage calculations and hedging exemption

The FCA proposes to remove the two mandatory leverage calculations - the gross and commitment methods - and to adjust the “substantially leveraged” reporting threshold. This reflects industry feedback that the existing calculations are complex and burdensome and do not allow for meaningful comparison across different investment strategies. Instead, firms would disclose the quantum of their leverage to investors using a method or methods that best suit the fund’s strategy, provided disclosure is clear, fair and not misleading. Streamlined leverage data would be reported to the FCA separately.

The FCA also proposes to exclude certain hedging arrangements when determining whether a fund is leveraged. Funds using derivatives solely to hedge risks outside their core strategy (e.g., currency or interest rate hedging) would count as “unleveraged” under the FCA’s new risk and liquidity management rules. Funds that borrow to invest would remain leveraged. 

Risk and liquidity risk management

Risk-management rules would be tiered both by firm size and by fund type, distinguishing managers of closed-ended unleveraged AIFs (where only baseline requirements apply), closed-ended leveraged AIFs, and open-ended AIFs. This would address concerns that the current AIFMD framework is better suited to liquid, trading-oriented strategies than to private equity and real assets. Liquidity rules would be calibrated in a similar way: simplified rules for small firms and full-scope-equivalent rules for medium and large firms. 

Delegation 

The principal features of the existing delegation framework applicable to UK AIFMs would remain in place. In particular, AIFMs would remain liable to the AIFs they manage or to investors in those AIFs for functions that have been delegated or sub-delegated. But the FCA Consultation also proposes reducing friction in relation to delegation arrangements: the current requirement for prior FCA approval for delegation of investment management functions to unauthorised entities would be replaced with a requirement to notify the FCA “as soon as practicable” after the delegation takes effect. In addition, the rules on delegation of ancillary services will be liberalised. More stringent requirements would apply to a new narrow category of “additional core AIFM functions”: third-party valuation, compliance monitoring and marketing of AIFs.

Reporting and disclosure 

Medium and large AIFMs would produce audited annual financial statements per fund, with remuneration disclosure narrowed to material risk-takers only. Small AIFMs and in-scope residual CISs would instead prepare a lighter, unaudited annual summary. Pre-contractual disclosures to professional investors would be governed by a principles-based standard. Disclosures to retail investors will remain more prescriptive, although the existing disclosure requirements will be streamlined. 

Cross-border marketing 

The FCA proposes to retain the National Private Placement Regime (NPPR), which is the route by which non-UK funds are marketed to UK professional investors, subject to limited operational improvements. This will provide continuity for international managers marketing to UK investors.

Further consultation: depositaries, prime brokers, business restriction and prudential standards

The FCA Consultation includes four matters that are discussion-only which will be addressed more fully during subsequent consultations: depositaries, prime brokers, the AIFM business restriction and the prudential regime for AIFMs. 

The FCA indicates that small AIFMs would not be required to appoint a depositary. However, the FCA Consultation explains that small AIFMs may be permitted to opt-in and appoint a depositary without taking on the whole rulebook applicable to medium threshold AIFMs. The FCA also suggests that it will permit splitting depositary functions between providers (which is currently only permitted for non-UK AIFs) and discontinuing the depositary’s performance of cash reconciliations given that this is already done by the AIFM or the fund operator. On prime brokers, the FCA intends to propose simplified rules that will follow changes made to the depositary regime. 

The FCA also intends to remove the business restriction limiting what activities larger AIFMs may conduct. Under the existing rules, there is a restriction on the range of activities that a full‑scope AIFM may carry on; broadly, managing AIFs and providing certain closely related ancillary services. Small authorised AIFMs are not subject to this restriction. The FCA views removing the business restriction as the best option but will continue to consider the implications of this change in other areas. In relation to prudential requirements, the FCA identified three main issues with the current framework: (i) complexity, (ii) inconsistency, and (iii) omissions. The FCA’s aim is to remove complexity and support growth and innovation, while ensuring there is adequate consumer protection and market integrity. The FCA considers that the most effective way to address these issues is to bring fund managers within the scope of the Core Prudential Sourcebook (COREPRU). COREPRU is the integrated prudential framework developed as the common baseline for firms prudentially regulated by the FCA. 

Deadlines and next steps

In the Policy Note published alongside the Draft Regulations, HM Treasury notes that, although the policy approach is broadly settled, the drafting approach and other technical aspects of the proposals set out in the Draft Regulations may change before the final instrument is laid before Parliament. Technical comments on the Draft Regulations must be submitted by 14 October 2026. 

Responses to the FCA Consultation should be submitted by 22 October 2026, although comments on the discussion chapters of the FCA Consultation covering depositaries, prime brokers and the AIFM business restriction need to be submitted by 18 September 2026 (we expect there will be an opportunity for further comments on these topics during subsequent consultations). The FCA aims to publish final rules in 2027 and implement the new regimes in 2028. 

Additional consultations

In addition to the proposals described above, the FCA has published consultations on fund reporting requirements for asset managers (CP26/26) and changes to the remuneration rules applicable to AIFMs, MiFID firms and UCITS managers (CP26/27).

In particular, CP26/26 proposes replacing the AIFMD-derived Annex IV reporting regime with a new reporting framework that aims to significantly reduce the regulatory reporting burden on asset management firms, including non-UK managers that market in the UK under the NPPR. To ensure proportionality, the FCA considers that the granularity of reporting requirements should correspond to the size of a fund. Accordingly, the FCA proposes that managers submit a set of ‘essential’ reporting requirements for each fund under £500 million NAV and more extensive ‘enhanced’ reporting for funds over £500 million NAV.

The UK framework relating to the remuneration requirements that apply to certain authorised firms derives from banking regulation and EU reforms following the 2008 financial crisis. The rules were designed to address excessive risk-taking and weak incentives among banks. Over time, these remuneration requirements were also applied to non-bank firms, such as asset managers and investment firms. In CP26/27, the FCA proposes to replace the three existing remuneration codes (the AIFM Remuneration Code, the UCITS Remuneration Code and the MIFIDPRU Remuneration Code) with a single, consolidated new code for in-scope solo-regulated firms. The FCA wants to move away from detailed, prescriptive remuneration rules towards a more outcomes-focused approach based on governance and accountability. 

Planning for the new AIFM regime

Although some of the finer details may change as a result of current and forthcoming consultations, the overall framework of the new UK AIFM regime is largely settled. Fund managers should start to assess the implications of the proposals on their business models both now and in the future and consider how relevant proposals can be implemented efficiently. In addition, there is still an opportunity for fund managers to provide feedback to the FCA on the firm-facing rules that will apply when the new regime goes live.