Key Takeaways
- • The FCA published Consultation Paper CP26/16 on 21 May 2026, proposing rule changes to permit depositaries of authorised Alternative Investment Funds (AIFs) to delegate registration and custody functions to third parties for non-safe custody assets, including real estate, infrastructure, private credit, and private equity holdings.
- • The proposed amendments address perceived gaps in the Alternative Investment Fund Managers Directive (AIFMD) implementation, specifically allowing depositaries to outsource the Collective Investment Schemes Sourcebook (COLL) registration function for assets that are neither safe custody investments nor AIF custodial assets.
- • For safe custody investments that are not AIF custodial assets, the FCA proposes permitting delegation of both the COLL registration function and CASS 6 custody function to third parties, expanding operational flexibility for fund managers.
- • Delegation of registration functions for non-safe custody assets (such as real estate and non-CIS partnerships) would be restricted to affiliates of the Authorised Fund Manager (AFM), with new investor protections proposed to mitigate operational and counterparty risk.
- • The consultation reflects the FCA's strategic priority to preserve and promote authorised AIFs' ability to invest in private markets assets while maintaining investor protection standards, recognising private markets' importance to UK economic growth and financial sector competitiveness.
Summary
The Financial Conduct Authority (FCA) initiated a formal consultation on 21 May 2026 regarding the registration framework for authorised fund assets, publishing Consultation Paper CP26/16 to address operational constraints affecting Alternative Investment Funds (AIFs). The paper proposes substantive amendments to existing ruleset derived from the Alternative Investment Fund Managers Directive (AIFMD), centred on permitting depositaries of authorised AIFs managed by full-scope Authorised Investment Fund Managers (AIFMs) to delegate certain functions previously treated as non-delegable under current regulatory interpretation.
The core proposal targets two distinct asset categories with differentiated delegation pathways. For assets not classified as safe custody investments or AIF custodial assets—such as real estate, infrastructure assets, and non-Collective Investment Scheme (CIS) partnerships—the FCA proposes allowing depositaries to delegate their COLL registration function, but exclusively to affiliates of the AFM, accompanied by newly designed investor protections. For safe custody investments that fall outside AIF custodial asset definitions, the FCA would permit delegation of both the COLL registration function and CASS 6 custody function to unaffiliated third parties, providing greater operational flexibility.
The FCA's rationale centres on preserving and promoting authorised AIFs' practical capacity to invest in private markets assets—encompassing real estate, infrastructure, private credit, and private equity—while maintaining rigorous investor protection standards. The regulator characterised private markets as vital to UK economic growth and financial sector positioning, indicating that current AIFMD-derived rules create unnecessary operational friction that may disadvantage UK-domiciled funds competing in global alternative asset management. The proposed rule changes directly address perceived gaps in the existing AIFMD framework, which the FCA considers does not currently permit the delegations now under consultation.
This consultation paper represents a calibrated regulatory evolution: the FCA is not relaxing substantive investor protections but rather modernising the operational architecture through which those protections are delivered. By permitting delegation to affiliates under enhanced safeguards, and to qualified third parties where assets carry lower operational risk, the regulator aims to balance market competitiveness with prudential oversight. The 21 May 2026 publication initiates the formal feedback period, during which market participants including fund managers, depositaries, and investor representatives may submit responses shaping the final ruleset.
The core proposal targets two distinct asset categories with differentiated delegation pathways. For assets not classified as safe custody investments or AIF custodial assets—such as real estate, infrastructure assets, and non-Collective Investment Scheme (CIS) partnerships—the FCA proposes allowing depositaries to delegate their COLL registration function, but exclusively to affiliates of the AFM, accompanied by newly designed investor protections. For safe custody investments that fall outside AIF custodial asset definitions, the FCA would permit delegation of both the COLL registration function and CASS 6 custody function to unaffiliated third parties, providing greater operational flexibility.
The FCA's rationale centres on preserving and promoting authorised AIFs' practical capacity to invest in private markets assets—encompassing real estate, infrastructure, private credit, and private equity—while maintaining rigorous investor protection standards. The regulator characterised private markets as vital to UK economic growth and financial sector positioning, indicating that current AIFMD-derived rules create unnecessary operational friction that may disadvantage UK-domiciled funds competing in global alternative asset management. The proposed rule changes directly address perceived gaps in the existing AIFMD framework, which the FCA considers does not currently permit the delegations now under consultation.
This consultation paper represents a calibrated regulatory evolution: the FCA is not relaxing substantive investor protections but rather modernising the operational architecture through which those protections are delivered. By permitting delegation to affiliates under enhanced safeguards, and to qualified third parties where assets carry lower operational risk, the regulator aims to balance market competitiveness with prudential oversight. The 21 May 2026 publication initiates the formal feedback period, during which market participants including fund managers, depositaries, and investor representatives may submit responses shaping the final ruleset.
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