All change for UK AIFMD?

What is the UK AIFMD review?

HM Treasury and the Financial Conduct Authority (FCA) have published the much-awaited proposals on changes to the UK AIFMD regime.  The changes aim at simplifying and clarifying the UK AIFMD regime and removing some of the less effective rules as part of the general growth and competitiveness objective. Some of the changes also affect operators of residual non-AIF collective investment schemes (Residual CISs).

The proposals consist of a number of separate documents, namely HM Treasury's draft The Alternative Investment Fund Managers Regulations 2026 (AIFM Regulations 2026), the FCA's consultation in CP26/28: The UK AIFM Regime as well as proposals for reporting by asset managers in CP26/26: Fund Reporting for Asset Management Entities (FRAME).  A further consultation on remuneration for solo-regulated firms, including many asset managers, has also been published.  This is covered in our briefing: Remuneration relaxation: The UK FCA's proposals in CP26/27 | Travers Smith.

The FCA also promises that over time, it will continue to work to make the asset management regime more coherent and consistent. Relevant to this will be the FCA's expected changes to the rules on the categorisation of investors (expected to be finalised later in 2026) and a policy statement to streamline and reconcile asset managers' rules on conflicts of interests. 

What are the key proposals?

The key proposals include:

• New thresholds and levels of rules: AIFMs would be classified on a three-tier approach based on NAV with the rules applying proportionately. The proposals also change rules for Residual CIS operators.
  
  
• Additional funds potentially within scope:  The Treasury has also clarified the definition of an alternative investment fund (AIF). The FCA expects that some Residual CIS operators may have to recategorise their Residual CISs as AIFs and will therefore fall within the scope of the UK AIFMD regime for the first time. While the changes appear modest, this will likely require a refresh of historic Residual CIS analyses.
  
  
• Leverage: Firms will no longer be required to calculate leverage on a gross and commitment basis.  Instead, UK AIFMs would have the flexibility to calculate their leverage using the methods that they consider most appropriate.
  
  
• FCA reporting: There will be a reduction in regulatory reporting requirements for AIFs (currently known as "Annex IV reporting") managed by a UK AIFM where the relevant fund has a NAV under £500 million. However, there are also additional requirements for specific types of funds, such as private equity and private markets funds.
  
  
• Some relaxation of current rules: This includes the rules on delegation, annual reports, investor reporting, marketing and the use of external valuers.
  
  
• New "look-through" for liquidity risk management: There will be a new requirement for larger AIFMs with open-ended AIFs to "look through" to the liquidity of underlying assets when investing in other open-ended funds.

These proposals are discussed in more detail below.

What is the timing?

The deadline for comments on the main FCA consultation and the discussion chapter on prudential reforms is 14 October 2026 (with comments on the discussion chapters on the depositary regime, prime broker rules and AIFM business restriction by 18 September 2026). The FRAME consultation closes on 22 September 2026. Comments on the draft legislation can be provided until 14 October 2026.  

Final rules are expected to be published in 2027 and to take effect in 2028.  However, where a rule is being removed, the FCA may allow this to take effect earlier.

Who is this relevant to?

The proposed changes would be relevant for all UK AIFMs (i.e. both full-scope and sub-threshold AIFMs, as well as small registered UK AIFMs), operators of Residual CISs, non-UK AIFMs marketing into the UK and external valuers.  AIF depositaries and prime brokers may also be interested in the FCA's discussion on their roles.

UK registered venture capital funds (or RVECAs) and UK social entrepreneurship funds are not in scope of the FCA's proposals but are expected to be considered as part of a review of venture capital in 2028.

Is this a positive development?

Any reduction in the regulatory obligations for UK AIFMs would be welcome. Many of the proposed changes to the operation and management of AIFs are more wide-ranging and helpful than anticipated, particularly around leverage and marketing. This is particularly the case for private equity and other private capital managers with closed-ended, unleveraged AIFs, which will be exempt from liquidity rules entirely and subject only to baseline risk management.

However, for large and medium AIFMs (see the new tiered approach below), the changes are relatively modest overall. There are missed opportunities in not adopting a more tailored treatment for private equity funds and failing to remove the main portfolio company requirements. Similarly, bringing small registered AIFMs within the regulatory perimeter and requiring them to become FCA-authorised would be a significant additional burden (even if most of these would fall under the lighter touch regime for smaller AIFMs, which would help soften the impact).  Finally, it is unclear how much funds which are currently Residual CISs would be affected, given that many of these are expected by the FCA to be reclassified as AIFs.

UK AIFMs will also likely be relieved that the UK is not adopting the increased regulation on AIFMs that has resulted from the EU's AIFMD II (and also potentially the EU Retail Investment Strategy).  However, this does mean that the rules for UK AIFMs will diverge further from the EU, requiring asset management groups operating in both jurisdictions to grapple with two sets of increasingly different rules.  It also arguably makes any regulatory recognition based on equivalence between the UK and the EU even more remote.

The UK AIFMD review is a step in the right direction, but it may not be as impactful as the industry might have wished.

AIFMs which fall within one tier would also have the option to elect to comply with a higher tier regime without formally entering that size classification.  This could be to reflect client demand or to allow alignment with other, stricter international regimes.  

Finally, AIFMs which move between size categories would not need to apply to the FCA for a Variation of Permission but would simply need to notify the FCA.  They would also have six months to comply with any new obligations (or 12 months for the depositary requirements).

Existing small registered AIFMs will need to seek FCA authorisation and comply with the relevant FCA rules.  An exemption is proposed for internally managed traded closed-ended investment companies which fall below the current small AIFM thresholds and meet certain other criteria.  UK registered venture capital funds (RVECAs) and UK social entrepreneurship funds which also currently fall within the small registered AIFM regime will be addressed as a separate future workstream.

Changes to the definition of an AIF

The Treasury has proposed changes to the definition of an AIF itself.  These include clarification that the defined investment policy can be implicit, and that the raising capital criterion does not just apply where capital is currently being raised, but also where it has previously been raised or is intended to be raised in the future. 

Although, on the face of it, these do not appear to be particularly significant changes, the FCA is expecting that these would lead to some current Residual CISs falling within the definition of an AIF. This would require operators of those Residual CISs to seek authorisation as AIFMs and to comply with the revised UK AIFMD regime. There are also some proposed changes to the Residual CIS regime to reflect the more limited number of firms which are expected to fall within this category. One example of a Residual CIS under the new regime would be a carried interest vehicle, with the FCA proposing a formal glossary definition of such vehicles for the first time.

The FCA's FRAME consultation in CP 26/26 includes provisions relevant to reporting by UK AIFMs and funds marketed under the UK National Private Placement Regime (NPPR).  The FCA has also issued its proposed reporting templates.

For AIFs managed by a UK AIFM where the relevant fund has a NAV under £500 million, only "essential" information would need to be reported.  This is expected to apply to around 90% of funds. 

This essential information would include general information on the fund; its profile and strategy; investor base and distribution; performance and flows; liquidity profiles and (for leveraged funds and hedge funds) counterparty exposure.

"Enhanced" information would need to be reported for AIFs managed by a UK AIFM where the relevant fund has a NAV of £500 million or more (although AIFMs can choose to report enhanced information for smaller funds if they wish). 

Enhanced information would include some of the essential information, as well as portfolio exposures and concentrations; dealing terms and investor rights; fees; market risk sensitivities (unless the fund is a private market fund); and value-at-risk (VaR) metrics.  Leveraged funds and hedge funds would also need to report financing maturity information, and financing, collateral, margin and derivative exposures. 

There would also be specific additional information required for certain types of funds, including private markets funds, private equity funds, loan origination funds and hedge funds. 

• For private markets funds this would include additional information on the fund's activities and capital as well as information on valuations, reflecting the recent thematic review on private market valuation practices.
  
  
• Private equity funds would need to include their net and gross internal rate of return; accounting for leverage; and their multiple on invested capital, as well as information on companies over which they have a dominant influence, and the typical deal size.
  
  
• Loan origination funds (provisionally defined as a fund whose investment strategy is mainly based on the use of originated loans or has originated loans of at least 50% of NAV) would need to report information on their lending activity and the quality of loans.
  
  
• Hedge funds would be subject to some event-based reporting aimed at managing systemic risk.
  
  
• Authorised funds would need to report on liquidity management tools.

Both essential and enhanced reporting would be quarterly for hedge funds and authorised funds, or annually for other fund types. 

There would also be some tweaks to the leverage information to be reported and to reporting in respect of feeder funds.

Equivalent reporting requirements would apply for funds marketed under the NPPR.  The FCA is also proposing annual reporting for Residual CISs.

Leverage

The current FCA definition of leverage would remain, i.e. broadly any method by which the exposure of the fund is increased through any type of borrowing. However, the requirement to calculate leverage on a gross and commitment basis would no longer apply. Instead, UK AIFMs would have the flexibility to calculate their leverage using the methods that they consider most appropriate, provided that this is clearly disclosed to investors.   

Closed-ended funds that use derivatives only for hedging would be considered "unleveraged" for the purposes of the FCA rules. 

Delegation

The requirement for FCA approval for a delegation of risk or portfolio management would be removed.  The pre-notification requirement would also be replaced by a requirement to notify the FCA as soon as practicable after the delegation occurs. 

Most of the other delegation requirements would remain but with reduced obligations for the delegation of certain ancillary functions.  There would therefore be a new concept of "additional core AIFM functions", which would include valuations, regulatory compliance monitoring and AIF marketing.  Delegations of risk or portfolio management or additional core AIFM functions would need to be objectively justified and recorded in a written agreement.

Delegations of risk or portfolio management would only need to be to an authorised or regulated person where the assets are regulated financial instruments, and for non-UK delegations, if the relevant activity is regulated in the jurisdiction of the delegate.

Where the UK AIFM is delegating portfolio management, it would also need to instruct the delegate on the implementation of the investment policy and monitor compliance.

Annual reports

The requirement to produce an annual report would be limited to medium and large AIFMs in respect of unauthorised AIFs.  The information to be included in the annual report would also be streamlined but with some specific requirements to reflect international accounting standards.  Information on remuneration would be limited to material risk takers only. 

The annual report would only need to be made available to the FCA on request but would still need to be made available to investors, as at present. 

Small AIFMs, as well as operators of Residual CISs, would need to provide an annual summary with core information, including a financial statement and an overview of material changes.

In both cases, investors would also have the right to receive additional information about the activities of the AIF on reasonable request (and this information would need to be made available to other investors). 

Non-UK AIFMs marketing under the NPPR would also need to comply with the requirements applicable to their size.

Investor disclosures

There would be a clear distinction between disclosures to professional and retail investors, which would be welcomed by many funds. 

The professional investor disclosure regime would include pre-contractual disclosures of information needed by investors to assess the merits, risks and costs of investing in the fund supplemented by some mandatory disclosures such as the investment policy of the fund, costs and valuation.

Ad hoc disclosures of material changes to pre-contractual information would only need to be made as soon as reasonably practicable. Ongoing disclosures of liquidity and leverage arrangements and disclosure of historical performance would no longer be required.

For retail investors, similar disclosures as for professional investors would also apply but with some additional retail specific information, such as whether further contributions may be required and complaints information.  Where a product summary is required under the new Consumer Composite Investment regime, only those disclosures which are not covered by that product summary would need to be provided.  This is expected to cover mainly fund-specific disclosures, such as redemption rights and use of leverage. 

The requirements would not apply to authorised AIFs or recognised schemes but would apply to Residual CISs, other than those which are specifically excluded – the categories of excluded Residual CISs for these purposes would include carried interest vehicles and single investor vehicles.

Marketing

The requirement to provide 20 working days' notice to the FCA before marketing a fund would be removed in order to allow new products to be launched more quickly.

The FCA would also have the power to suspend and revoke permission to market under the NPPR and to maintain a public register of AIFs notified for marketing under the NPPR.

Notifications

It had been hoped that the requirement to notify the FCA when acquiring large shareholdings would be removed but HM Treasury has decided against this.  This is a particular burden for private equity funds and is generally perceived to be of limited effectiveness for the FCA.

However, the obligation to notify the FCA periodically when increasing or reducing holdings in a portfolio company would be removed.

External valuers

The legal liability of an external valuer to the AIFM for its negligence or intentional failure to perform its tasks would be removed from legislation, with future liability depending on the terms of the contract between the external valuer and the AIFM.  This is intended to address the perceived reluctance of many external valuers to enter into arrangements with AIFMs under the current rules.

External valuers would, however, need to meet certain criteria under the FCA rules, including as regards their expertise and independence.

A second consultation is also due to be published at some point. This is expected to cover rules for depositaries of unauthorised AIFs and prime brokers, as well as whether to make changes to the existing AIFM business restriction (which currently limits the other regulated activities an AIFM can carry on) and the prudential regime. The FCA has set out some thoughts on possible changes.

For AIF depositaries, the FCA proposes not to require small AIFMs to appoint a depositary, but the rules in CASS 6 would apply instead. It is also seeking views on whether the depositary requirement may be disproportionate for certain types of funds, such as private equity funds and certain investment trusts.  The FCA also discusses the possibility of a split depositary model, with more than one entity carrying on aspects of the depositary function.  

As regards the business restriction, the FCA is proposing to remove this for all UK AIFMs and would assess any additional activities to be carried on by the AIFM at the time of authorisation instead.

For the prudential regime applicable to UK AIFMs, the FCA considers this currently to be too complex and inconsistent. It therefore proposes bringing fund managers within the scope of its (relatively new) Core Prudential Sourcebook (COREPRU), with some other additional rules.  The FCA is also seeking views on what the baseline financial resources for fund managers should be and whether a basic liquid asset requirement would be appropriate, as well as whether there should be structured risk management and wind-down planning requirements.  The regulator is also considering changes to the framework for collective portfolio management firms to try to avoid the application of overlapping rules under both AIFMD and MiFID.

Finally, the FCA has also suggested applying its existing rules on shareholder engagement to all UK AIFMs.  

If you would like further information or assistance in understanding the proposals and their implications for you, please speak to your usual Travers Smith contact or any of the individuals below.