Key Takeaways
- • The FCA has published CP26/28 proposing the most significant reform of the UK AIFM regulatory framework since the Alternative Investment Fund Managers Directive was implemented in 2013, representing a fundamental redesign rather than simple deregulation.
- • A new three-tier categorisation structure will replace the current "full-scope" and "small" AIFM distinction, based on net asset value thresholds: Small AIFMs (under £750 million NAV), Medium AIFMs (£750 million to £5 billion NAV), and Large AIFMs (over £5 billion NAV).
- • The FCA proposes creating a new Alternative Investment Funds (ALTS) sourcebook to consolidate rules for unauthorised fund managers, with regulatory requirements scaling progressively based on firm size and scope of activities to enhance proportionality.
- • The reforms aim to reduce compliance complexity for smaller and mid-sized managers while maintaining investor protection, market integrity, and risk management standards, positioning the UK to cement its role as the second-largest alternative investment fund centre globally.
- • HM Treasury has published draft Alternative Investment Fund Managers Regulations 2026 alongside the FCA consultation, with responses expected in the first half of 2026 as part of the Government's post-Brexit financial services reform programme.
Summary
The FCA has initiated a comprehensive consultation on sweeping reforms to the UK alternative investment fund manager (AIFM) regulatory regime through CP26/28: The UK AIFM Regime. Published alongside HM Treasury's draft Alternative Investment Fund Managers Regulations 2026 and related consultations on fund reporting and remuneration, these proposals represent the most substantial overhaul of UK AIFM regulation since the Alternative Investment Fund Managers Directive was transposed into UK law in 2013. The reforms mark a deliberate departure from the onshored EU AIFMD framework in several material respects, reflecting the UK Government's broader post-Brexit financial services reform agenda.
The centrepiece of the FCA's proposals is a new three-tier categorisation system for AIFMs based on net asset value, replacing the existing binary "full-scope" versus "small" distinction. Under the new structure, Small AIFMs will manage less than £750 million in NAV, Medium AIFMs will operate between £750 million and £5 billion, and Large AIFMs will exceed £5 billion in assets. The FCA proposes implementing proportionate regulatory requirements that scale progressively with firm size and complexity, with the most extensive obligations applying to the largest and most systemically significant managers. This tiered approach is intended to better align regulatory burdens with the risk profile and operational scale of individual firms.
A complementary structural change involves the creation of a new Alternative Investment Funds (ALTS) sourcebook that will consolidate and clarify rules for managers of unauthorised funds. This consolidation is designed to simplify the existing regulatory framework and remove less effective provisions, supporting the Government's stated objective of creating a more flexible, proportionate, and UK-specific regulatory environment. The proposals maintain appropriate standards of investor protection, market integrity, and financial crime prevention while reducing unnecessary compliance complexity, particularly benefiting smaller and mid-sized managers that have historically borne disproportionate regulatory costs under the previous regime.
The broader strategic context underpinning these reforms reflects the UK's determination to maintain its competitive position as the second-largest alternative investment fund centre globally. By streamlining the regulatory framework and improving its proportionality, policymakers aim to enhance the UK's attractiveness to both domestic and international asset managers while retaining rigorous oversight of systemic risks. Consultation responses are expected in the first half of 2026, allowing stakeholders time to assess the implications of the proposed changes for their compliance programmes and business operations.
The centrepiece of the FCA's proposals is a new three-tier categorisation system for AIFMs based on net asset value, replacing the existing binary "full-scope" versus "small" distinction. Under the new structure, Small AIFMs will manage less than £750 million in NAV, Medium AIFMs will operate between £750 million and £5 billion, and Large AIFMs will exceed £5 billion in assets. The FCA proposes implementing proportionate regulatory requirements that scale progressively with firm size and complexity, with the most extensive obligations applying to the largest and most systemically significant managers. This tiered approach is intended to better align regulatory burdens with the risk profile and operational scale of individual firms.
A complementary structural change involves the creation of a new Alternative Investment Funds (ALTS) sourcebook that will consolidate and clarify rules for managers of unauthorised funds. This consolidation is designed to simplify the existing regulatory framework and remove less effective provisions, supporting the Government's stated objective of creating a more flexible, proportionate, and UK-specific regulatory environment. The proposals maintain appropriate standards of investor protection, market integrity, and financial crime prevention while reducing unnecessary compliance complexity, particularly benefiting smaller and mid-sized managers that have historically borne disproportionate regulatory costs under the previous regime.
The broader strategic context underpinning these reforms reflects the UK's determination to maintain its competitive position as the second-largest alternative investment fund centre globally. By streamlining the regulatory framework and improving its proportionality, policymakers aim to enhance the UK's attractiveness to both domestic and international asset managers while retaining rigorous oversight of systemic risks. Consultation responses are expected in the first half of 2026, allowing stakeholders time to assess the implications of the proposed changes for their compliance programmes and business operations.
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