HM Treasury (“HMT”) and the Financial Conduct Authority (“FCA”) have published a range of consultation papers (“CPs”) on their proposals to reform the rules for UK asset managers.  

1. HMT Draft regulations for Alternative Investment Fund Managers 
2. FCA CP26/28 The UK AIFM Regime 
3. FCA CP26/26 Fund Reporting for Asset Management Entities ("FRAME") 
4. FCA CP26/27 Remuneration: Solo-regulated firms' rules reform 

The review looks at the rules that apply to fund managers running funds for institutional investors such as insurance companies and sovereign wealth funds.  

These fund managers are referred to as alternative investment fund managers (“AIFMs”), and the rules being reviewed came into effect in 2017 as the Alternative Investment Fund Managers Directive (“AIFMD”). 

The review draws a distinction between the level of protection that retail investors in funds of any type need and that required by large, sophisticated investors.  

Responses to the HMT draft regulations and CP26/28 are due by 14 October 2026, CP26/26 by 22 September 2026 and CP26/27 by 16 September 2026. 

The AIFMD’s rules have been in place for almost a decade and are due for a review into their effectiveness. The EU has already reviewed and in places, amended its version of the AIFMD. 

Post-Brexit, a lot of the very detailed AIFMD rules that would normally be looked after by financial regulators are in primary legislation. This means that very minor, technical changes to detailed rules requires parliamentary assent. 

This is an opportunity to simplify the UK’s rules and so enhance its resilience as a major asset management hub.  

HMT Draft Regulations 

The draft Statutory Instrument ("SI") enables HMT to remove a great deal of the detailed AIFMD rules from primary legislation and into the FCA's handbook of rules. It also: 

• Clarifies the definition of an alternative investment fund ("AIF") to reduce the scop for regulatory arbitrage; 

• Exempts some small internally managed investment companies; 

• Removes the AIFMD thresholds to allow the FCA to set different requirements set out in CP26/28; 

• Removes strict liability requirements from independent valuers; 

• Keeps the National Private Placement Regime as it is but gives the FCA more powers over reporting; and  

• Amends private equity portfolio company disclosures. 

Consultation paper on the UK AIFM Regime 

This sets out how the FCA thinks the rules can be changed so they better reflect the wide range of business models and types of funds AIFMs managed. The key proposals are: 

• New definitions of small (under £750 million), medium (£750 million to £5 billion) and large (over £5 billion) AIFMs. The FCA had previously proposed the definition of a small AIFM began at £100 million; 

• The way their size is calculated will also change from assets under management (“AuM”) to net asset value (“NAV”); 

• Some residual collective investment schemes ("CIS") will be recategorised as AIFs; 

• AIFMs will have to ensure that third party independent valuers meet a range of standards and can act independently. 

• The current definition of leverage will remain unchanged, but firms will no longer have to use the "gross calculation method" and instead use a method that suits a fund and its investment strategy. Changes to reporting to the FCA are set out in CP26/26. 

• All AIFMs will have to comply with base line requirements for risk management, but the way they do this will depend on both the size of the AIFM and the type of funds they are managing – for example, are the funds open or closed-ended and whether they have any leverage. 

• The way liquidity risk is managed will also have baseline requirements and then depend on the type of fund and they will be proportionate to their size under the new thresholds. 

• Delegation requirements will be streamlined for non-core AIFM functions but AIFMs still cannot delegate responsibility for those functions or become a letter box entity; 

• Investor disclosure will become more principles-based with some mandatory features. The requirement for small AIFMs will not have to produce a formal annual report, but an annual summary with key data prepared in line with applicable accounting standards; and 

• Professional investor disclosure will be streamlined. 

It also has discussion chapters on further consultations which will take place later this year on depositaries, prime brokers, removing the business restriction and reviewing the Investment Firms Prudential Regime. Responses to the discussion chapters are due by 18 September 2026. 

Consultation paper on UK remuneration rules for AIFMs and investment managers 

The current rules and remuneration codes are based on EU legislation, the AIFMD and Markets in Financial Instruments Directive (“MIFID 2”). There is also the UCITS Remuneration code. The FCA proposes to have one single code replacing these current three. The single code will have fewer prescriptive rules and guidance and will instead be outcomes focussed and will: 

• Apply to all staff as a general requirement with more detail for material risk takers; 

• Replace fixed deferrals with a principles-based approach; 

• Keep the malus and clawback but remove the mandatory application requirements; 

• Remove the need for a remuneration committee and an annual independent review and instead rely on general governance and oversight; 

• Remove form MIF088; and 

• Only apply it to the new medium and large AIFM categories as well as UCITS management companies. 

Consultation paper on reporting 

The current patchwork fund reporting requirements for asset management firms are proposed to be replaced by a “single framework calibrated to the type, size and activity of the fund”. 

The frequency, scope and nature of the requirements applicable to reporting with respect to each fund are proposed to depend on: 

• the size of the fund, with only essential requirements applying to funds with a net asset value under £500 million as of the end of the reporting period and both essential and enhanced reporting requirements applying to funds (other than OFR/s272 funds) that are larger than that; and 

• the type of fund.  All funds are in scope but different sections will apply depending on whether the funds is a UK UCITS, NURS, LTAF, QIS, OFR/s272 fund, hedge fund, loan origination fund, private equity fund, infrastructure/real estate fund or other type of fund.  

Manager type is not relevant. 

Essential reporting requirements will include questions around: 

• General information; 

• Value at Risk (VaR): applies only to UK UCITS that use VaR to calculate global exposure; and  

• Counterparty exposure: applies only to funds that use leverage for investment purposes and to hedge funds. 

Enhanced reporting requirements will include questions around: 

• Fund profile and strategy; 

• Dealing terms and investor rights; 

• Investor base and distribution; 

• Fees, performance and flows; 

• Portfolio concentrations; 

• Liquidity risks and LMTs; 

• Portfolio exposures: does not apply to UK UCITS or NURS; 

• Private markets: applies only to LTAFs and QIS that invest in private markets, loan origination funds, private equity funds and infrastructure/real estate funds.  These requirements vary depending on the type of fund.  For example, loan origination funds (which are broadly similar to LOFs under AIFMD II) would need to report at the portfolio level on various metrics relating to their deployment activity and the credit quality of their loan portfolios;  

• Portfolio sensitivities and VaR: applies only to UK UCITS, NURS, LTAFs, QIS and hedge funds; 

• Share classes and benchmarks: applies only to UK UCITS and NURS; 

• Holdings: applies only to UK UCITS and NURS; 

• Counterparty exposures and borrowing: applies only to funds that use leverage for investment purposes and to hedge funds.; and  

• Event based reporting: applies only to hedge funds.  If a hedge fund has a 10% or more drawdown, it is required to make a special report to the FCA. 

Hedge funds would be required to report quarterly with a 45-day lag. Authorized funds would report quarterly with a 60-day lag for LTAFs and FAIFs and a 30-day for UK UCITS, NURS, QIS and OFR/s272 funds. All other funds would report annually with a 120-day lag. 

The reporting consultation paper includes a pair of helpful graphics at the bottom of page 6 and spanning pages 11-12. 

Under this proposal, a hedge fund is defined as: 

“an unauthorised AIF which is an open-ended AIF in relation to which both (a) and (b) are satisfied: 

1. a person involved in the management of the AIF or the selection of investments (whether delegated or otherwise) is entitled to be paid a performance fee or allocation calculated wholly or partly by reference to unrealised gains even if such a fee or allocation is not payable for a particular period; and 
2. it is possible for the exposure of the AIF to be increased by either borrowing cash or securities in an amount in excess of half of the AIF’s NAV or embedding leverage in derivative positions in excess of twice the AIF’s NAV.” 

This should be familiar to Form PF filers, although, notably, this version does not include any closed-end funds as hedge funds nor does it capture any fund based on whether it sells (or can sell) securities or other assets short or enter into similar transactions. 

MiFID investment firms would also be required to submit a new annual report that includes a short section on derivatives and borrowings at the aggregated manager level and a breakdown of funds under management and funds under advice. 

Responses to the reporting consultation paper are due by 22 September 2026. 

Please contact Jennifer Wood or James Hopegood with any questions.

• 

  Jennifer Wood

  Managing Director, Global Head of Asset Management Regulation & Sound Practices

• 

  James Hopegood

  Director, Asset Management Regulation, AIMA