The Financial Conduct Authority (FCA) has recently published Consultation Paper (CP) 26/28: The UK AIFM Regime, setting out its proposed reforms to the UK's Alternative Investment Fund Managers (AIFMs) regime.
At the same time, HM Treasury (HMT) has also published its draft amended Alternative Investment Fund Managers Regulations 2026 in parallel. This comes against a backdrop of growth in the UK and global alternative asset sector, with the FCA seeking to ensure that AIFMs and their funds remain resilient and able to absorb market shocks, to protect investors and support the stability of the wider financial system while at the same time keeping the UK an attractive location to do business from.
For the full text of the CP, see: CP26/28: The UK AIFM Regime and HMT's draft regulations, see: The Alternative Investment Fund Managers Regulations 2026.
The FCA has stressed that proportionality is the central theme of the proposed reforms, as it seeks to develop a regulatory regime that is better aligned to the varying sizes and activities of the firms that will be bound by it.
Summary of core proposals
1. Three-tier size threshold
The FCA proposes that the current AIFMD thresholds, based on Assets Under Management (AUM), be replaced by a new size-based tiered framework. Under this proposed framework, AIFMs will be categorised according to their Net Asset Value (NAV):
- Small AIFMs: less than £750 million;
- Medium AIFMs: between £750 million and £5 billion; and
- Large AIFMs: above £5 billion.
The scope of regulations and requirements firms are subject to increases progressively across the categories. It will be necessary for firms to calculate the aggregate NAV of the Alternative Investment Funds (AIF) managed on an ongoing basis and particularly upon any material change to the business or a significant change in AUM.
2. Revised key regulatory requirements
The FCA intends to reform several operational requirements, including, amongst others:
- Valuation: Extension of valuation rules to all AIFMs, including small authorised AIFMs that are currently subject to no specific obligations, applied proportionately. Following HMT's proposals to remove statutory provisions on external valuers (including strict liability), the FCA proposes that independent valuers should be appointed where they demonstrate appropriate competence, resources and independence;
- Risk management: A new tiered, activity-specific risk management framework. Baseline due diligence obligations would apply to all AIFMs, with no further risk management rules for AIFMs managing only closed-ended unleveraged AIFs. Medium AIFMs would face additional governance and risk limit requirements and large AIFMs would be subject to substantive but simplified AIFMD-equivalent standards;
- Leverage: Streamlining the regulation and reporting of leverage, including abolishing both the gross and commitment leverage calculation methods. Streamlined reporting for all leveraged funds would replace leverage calculations as the trigger for regulatory obligations. For investor disclosure, firms would choose whichever leverage methodology best reflects their strategy, provided disclosures are clear, fair and not misleading;
- Annual reporting: A more principle-based approach to annual reporting, removing prescriptive EU AIFMD content requirements and narrowing remuneration disclosure to total pay for material risk-takers only. Authorised funds, recognised overseas schemes and listed closed-ended funds would be excluded from the new reporting requirements. Annual reports would no longer need to be proactively filed with the FCA. Small AIFMs would instead produce a lighter-touch "annual summary" of unaudited financial information and material changes.
In addition, there are other proposed reforms related to liquidity risk management, delegation and investor disclosures.
3. Residual Collective Investment Schemes Operators
Post 2013, there has been continued uncertainty between the definitions of an AIF and a Collective Investment Scheme (CIS), which has led to some firms misclassifying funds while also leaving a category of funds that fall outside both the AIF and UCITS frameworks, known as "residual CIS".
The FCA proposes to address this issue by updating reporting standards to require residual CIS operators to periodically submit basic information relating to the number of residual CIS they operate, their gross notional value and the purpose of each vehicle. However, not all residual CIS operators would be caught by the enhanced disclosure rules including carried interest, joint venture and single investor vehicles, alongside excluded entities. Any vehicle that does not fall into one of these categories would be in scope.
HMT is consulting, in parallel, on amending the legal definition of an AIF, to resolve longstanding grey areas. Firms already authorised to manage AIFs must notify the FCA and their investors, while firms without the necessary permission must apply for authorisation. HMT is expected to provide a transitional period to allow firms adequate time to comply. (See: Policy Note AIFMR for the full text).
In practice, the immediate impact on most residual CIS operators managing lower-risk, administrative vehicles is expected to be limited. The more significant implications are likely to arise where HMT proceeds with its proposed reforms to the AIF definition, at which point firms will need to consider whether any of their vehicles should be reclassified and take the necessary steps to comply with the proposed regime.
4. Fund Reporting
The FCA proposes to restructure the current reporting framework through the introduction of the Fund Reporting for Asset Management Entities (FRAME) regime. It is underpinned by three core principles:
- International alignment: Reporting requirements will be aligned with other regulators. Where a firm is already reporting a particular figure to another regulator and that figure is broadly comparable, the FCA intends to accept it, avoiding duplicative reporting obligations;
- Simplicity: Streamlining reporting questions to focus on what is essential, making the process more efficient and reducing unnecessary complexity; and
- Proportionality: Reporting obligations depend on the level of risk posed by the fund. The FCA proposes to achieve this through two principal mechanisms:
- Size-based thresholds. A threshold of £500 million NAV at fund level is proposed. Managers with funds below this threshold would be subject to a streamlined set of requirements that are significantly reduced from current requirements. Managers with funds above the £500 million threshold would be subject to "enhanced requirements", reflecting the greater risks associated with larger vehicles.
- Reporting frequency and lag times. It is proposed for managers of unauthorised AIFs to report annually, regardless of fund size and all other fund types would report on a quarterly basis.
Next steps
The FCA is expected to publish a final policy statement and revised rules in 2027, with the new regime anticipated to take effect in 2028. In preparation, firms should begin assessing how the new framework will apply to the AIFs they manage, as well as their reporting systems.
