Key Takeaways
- • The FCA has published CP26/28, proposing the most significant overhaul of the UK Alternative Investment Fund Managers regulatory framework since the AIFMD's 2013 implementation, replacing the current binary distinction between "full-scope" and "small" AIFMs with a new three-tier structure based on net asset value thresholds.
- • The new three-tier categorisation establishes Small AIFMs (under £750 million NAV), Medium AIFMs (£750 million to £5 billion NAV), and Large AIFMs (above £5 billion NAV), with regulatory obligations scaling progressively across these categories to align compliance burden with firm size and systemic risk.
- • The reforms represent a fundamental redesign of UK fund manager regulation post-Brexit, intended to create a more proportionate and flexible framework while maintaining investor protection, market integrity, and risk management standards—particularly benefiting smaller and mid-sized managers through reduced compliance complexity.
- • HM Treasury has released draft Alternative Investment Fund Managers Regulations 2026 alongside coordinated FCA consultations on fund reporting and remuneration, positioning this as part of the broader Government financial services reform agenda rather than simple deregulation.
- • The consultation eliminates the distinction between full-scope and below-threshold AIFMs, with new depositary requirements proposed for larger tiers, while delegate oversight obligations now apply uniformly across all authorised UK AIFMs regardless of size.
Summary
The FCA has initiated the most comprehensive restructuring of the UK Alternative Investment Fund Managers regulatory regime in over a decade through Consultation Paper CP26/28, published on July 14, 2026. The proposals, developed in coordination with HM Treasury's draft Alternative Investment Fund Managers Regulations 2026, establish a fundamentally redesigned regulatory framework for the estimated thousands of UK fund managers currently operating under rules inherited from the 2013 implementation of the AIFMD.
The centerpiece of the reform is a new three-tier asset-based classification system that replaces the existing binary split between full-scope and small AIFMs. Under the proposed structure, Small AIFMs manage assets below £750 million in net asset value, Medium AIFMs operate between £750 million and £5 billion, and Large AIFMs exceed £5 billion. This tiered approach anchors regulatory obligations directly to firm scale, creating a proportionate compliance framework where requirements intensify progressively as firms grow larger. This represents a fundamental shift from the current regime, which applies substantially identical rules across a broad spectrum of fund managers.
The FCA frames these reforms as part of the Government's wider post-Brexit financial services modernisation programme, emphasizing a balance between regulatory flexibility and investor protection. Rather than a deregulatory exercise, the consultation positions the changes as a systemic redesign that maintains standards for investor protection, market integrity, and systemic risk management while eliminating unnecessary compliance burden for smaller players. For mid-sized and smaller fund managers, the proposals carry particular significance, potentially reducing compliance complexity and aligning regulatory costs with the risk profile and resources of the firm.
Concurrent consultations address depositary requirements, delegate oversight obligations, fund reporting standards, and remuneration frameworks. The FCA proposes that all authorised UK AIFMs, regardless of tier, must ensure delegates—whether service providers or affiliated entities—maintain adequate expertise, resources, and governance structures. The consultation papers also address how the reformed regime applies to specific fund structures, including investment trusts, REITs, and VCTs listed on UK markets.
The consultation period is now live, with the reforms expected to reshape UK fund manager regulation significantly. The FCA's approach signals an intent to maintain UK competitiveness in alternative asset management while creating a regulatory environment that better reflects the operational realities and risk profiles of funds across the size spectrum.
The centerpiece of the reform is a new three-tier asset-based classification system that replaces the existing binary split between full-scope and small AIFMs. Under the proposed structure, Small AIFMs manage assets below £750 million in net asset value, Medium AIFMs operate between £750 million and £5 billion, and Large AIFMs exceed £5 billion. This tiered approach anchors regulatory obligations directly to firm scale, creating a proportionate compliance framework where requirements intensify progressively as firms grow larger. This represents a fundamental shift from the current regime, which applies substantially identical rules across a broad spectrum of fund managers.
The FCA frames these reforms as part of the Government's wider post-Brexit financial services modernisation programme, emphasizing a balance between regulatory flexibility and investor protection. Rather than a deregulatory exercise, the consultation positions the changes as a systemic redesign that maintains standards for investor protection, market integrity, and systemic risk management while eliminating unnecessary compliance burden for smaller players. For mid-sized and smaller fund managers, the proposals carry particular significance, potentially reducing compliance complexity and aligning regulatory costs with the risk profile and resources of the firm.
Concurrent consultations address depositary requirements, delegate oversight obligations, fund reporting standards, and remuneration frameworks. The FCA proposes that all authorised UK AIFMs, regardless of tier, must ensure delegates—whether service providers or affiliated entities—maintain adequate expertise, resources, and governance structures. The consultation papers also address how the reformed regime applies to specific fund structures, including investment trusts, REITs, and VCTs listed on UK markets.
The consultation period is now live, with the reforms expected to reshape UK fund manager regulation significantly. The FCA's approach signals an intent to maintain UK competitiveness in alternative asset management while creating a regulatory environment that better reflects the operational realities and risk profiles of funds across the size spectrum.
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