The FCA has published CP26/28, its long-awaited consultation on the future UK AIFM regime. Together with the Treasury's parallel consultation on the underlying legislation, this is the most significant reshaping of UK alternative fund regulation since AIFMD was implemented in 2013. Most of the regime would move out of legislation and into a new FCA sourcebook, “ALTS”, with implementation targeted for 2028. For private capital managers, the direction of travel is broadly positive: a regime that is more proportionate to closed-ended, illiquid strategies, but with a wider perimeter that could catch some structures currently sitting outside it.
A new three-tier regime, with a much higher depositary threshold
The familiar small and full-scope categories would be replaced by small, medium and large AIFMs, measured by aggregate net asset value (NAV) rather than the current leverage-adjusted assets under management calculation. Following industry feedback on its original £100m proposal, the FCA proposes to set the small threshold at £750m NAV, with medium firms being those between £750m and £5bn, and firms above £5bn NAV classified as large.
Under the proposals, small AIFMs would not be required to appoint a depositary for each unauthorised UK AIF they manage. This would raise the point at which a depositary is generally required to £750m aggregate NAV, compared with the current €500m threshold for unleveraged closed-ended funds. Small AIFMs would instead remain subject to CASS 6 custody rules.
The cliff-edge on crossing a threshold would also be softened: firms would have six months to comply with the other requirements of their new category and 12 months to appoint a depositary. Moving between tiers would require notification to the FCA rather than a variation of permission as before. Different requirements would continue to apply where a UK AIFM manages a non-UK AIF that is marketed in the UK.
A wider perimeter: registration changes and CIS structures pulled in
The Treasury proposes to abolish the AIFM registration regime, except for Registered Venture Capital Funds and Social Enterprise Funds, with no grandfathering for those required to become authorised. Unauthorised property fund managers would need to seek FCA authorisation ahead of implementation, although certain small, internally managed closed-ended investment companies would be exempt.
Alongside this, the definition of an AIF would be clarified in legislation. The FCA is explicit that some vehicles currently treated as collective investment schemes but not AIFs would be re-categorised as AIFs, requiring their operators to seek the Part 4A permission of managing an AIF and to notify investors.
Helpfully for private capital managers, the FCA proposes to exempt carried interest vehicles, joint venture vehicles, single-investor vehicles and excluded entities from the enhanced disclosure requirements that would otherwise apply to certain residual CISs. Other residual CIS operators would nonetheless face new periodic reporting to the FCA on the number, gross value and purpose of the vehicles they operate. Managers may therefore want to begin reviewing their structure charts now to assess which entities may be affected.
A more proportionate regime for closed-ended, unleveraged funds
The FCA has accepted the longstanding criticism that parts of the current framework appear to have been designed with more liquid, leveraged and trading-oriented strategies in mind. Under the proposals, firms managing only closed-ended, unleveraged AIFs would be subject to baseline risk management requirements, essentially appropriate due diligence and understanding of investments, and no liquidity risk management rules at all.
Importantly, a proposed hedging exemption means that funds using derivatives solely to hedge risks, for example currency or interest-rate risk, would be treated as unleveraged for these purposes. Funds that borrow to invest at fund level would remain leveraged and subject to the relevant risk and liquidity rules. Managers may therefore need to consider how particular borrowing arrangements, including subscription lines and NAV facilities, would be treated under the proposed framework.
Leverage calculations scrapped
The gross and commitment methods are proposed to be removed entirely. The FCA acknowledges these calculations are complex, burdensome and of limited value in comparing a buyout fund with a hedge fund. Instead, firms would disclose the quantum of leverage to investors using whichever method best suits the fund and its strategy, provided the disclosure is fair, clear and not misleading.
FRAME to replace UK Annex IV reporting
Most unauthorised AIFs other than hedge funds would report annually only, with more detailed requirements for larger funds and certain private market strategies. Reporting timelines for these funds would also be pushed to 120 days post reporting period end, rather than the typical 30 days currently.
For funds under £500 million in NAV, only ‘essential’ reporting needs to be completed going forward. This is a much-reduced version of the current reporting, with a tight set of questions intended to provide the FCA with only the data it absolutely requires to market map. For funds over this threshold, ‘enhanced’ reporting would be required, with a question set more similar to the existing Annex IV requirement.
Loan origination funds would need to complete their own specialised set of questions specific to their portfolios, with the intention of providing the FCA with more insights into this fast-growing market. The additional questions are expected to be measures which the majority of managers already track through their portfolio monitoring and reporting processes.
However, the change may create a different rather than necessarily simpler reporting burden, as the new UK framework would need to sit alongside continuing European reporting obligations. This is likely to be one of the most significant practical implications of the reforms, especially for managers marketing funds in both the UK and throughout Europe.
This is expected to be implemented from 2028 onwards, with the consultation ending in September 2026. Langham Hall will continue to engage with the FCA on the impact of any changes to managers, especially those who currently report across multiple jurisdictions and frameworks.
Valuation rules for all, informed by the 2025 multi-firm review
Valuation rules would apply to AIFMs of every size for the first time, including firms that are currently small authorised AIFMs. The rules embed the findings of the FCA's March 2025 private market valuations review: documented conflicts identification, defined triggers for ad hoc valuations during market events, and record keeping around valuation decisions. Assets would need to be valued at fair value, with the proposed approach aligned with IFRS definitions and IOSCO standards. The Treasury proposes to remove the statutory strict liability regime for external valuers, replacing it with conditions that an independent valuer must meet before appointment. Full functional independence of the valuation function would be expected only of the largest firms, with small and medium AIFMs instead required to take appropriate steps to manage conflicts.
Reporting, disclosure and delegation
Medium and large AIFMs would be required to produce audited annual reports for each fund, but remuneration disclosure would narrow to material risk-takers only. Small AIFMs and in-scope residual CISs would instead prepare a lighter, unaudited annual summary. Pre-contractual disclosure to professional investors would become principles-based, reflecting that LPs negotiate for information directly. The proposals retain a prescriptive disclosure regime for retail investors.
On delegation, the proposals would remove the requirement to pre-notify the FCA. AIFMs would instead be required to notify the FCA as soon as practicable after the delegation becomes effective, with the substance and letter-box provisions retained.
A further cross-border question is whether entities within each of the proposed UK AIFM tiers would be regarded as meeting the EU requirements for portfolio management delegates to be authorised or registered for asset management and subject to supervision. This is particularly relevant for UK-based sponsors using Luxembourg or Irish third-party AIFMs.
The depositary regime: open for debate
A discussion chapter, ahead of formal proposals in a second consultation, indicates that medium and large AIFMs would continue to appoint a depositary for each unauthorised UK AIF. Two ideas stand out. First, small AIFMs would be able to opt in to appointing a depositary, where investors want one, without taking on the whole medium firm rulebook. Second, the FCA is contemplating allowing the depositary functions to be split between more than one provider and removing the daily re-performance of cash reconciliations in favour of oversight of the manager's own processes.
The core oversight responsibilities are not expected to change significantly, although the proposals could create greater flexibility around how safekeeping, cash monitoring and oversight are delivered. The FCA explicitly invites views on whether the regime is disproportionate for private equity funds with limited trading and infrequent cash movements, a question with wider relevance across private capital.
Our view is that independent depositary oversight remains an important part of the AIFMD framework, providing valuable challenge around governance, operational risk, safekeeping and cash monitoring. The question is therefore how the role can be applied proportionately and in the context of the type of assets held by a fund, rather than whether it adds value.
Langham Hall has long taken a risk-based approach to the delivery of depositary services, including cash monitoring. We welcome the FCA’s recognition that greater proportionality can be achieved without weakening the core oversight function and will continue to engage with the FCA and the wider market as the proposals develop.
Also worth noting
The FCA is minded to remove the business restriction on AIFM activities and has opened up a separate discussion on moving fund managers into a single prudential framework, COREPRU, partly to smooth the jump from the £5,000 base capital requirement to €125,000 on becoming full scope.
The National Private Placement Regime would remain
The Treasury proposes to retain the National Private Placement Regime, with limited changes intended to support its continued operation. For many international private capital managers, this would provide important continuity in a key route used to market non-UK funds in the UK.
What managers should consider now
Managers can begin mapping aggregate NAV across their AIF and residual CIS structures, identifying vehicles that may be affected by the clarified AIF perimeter and assessing whether their reporting data will support the proposed FRAME requirements. International managers should also consider how the proposals may affect their UK marketing approach, including their continued use of the National Private Placement Regime.
Timing
Responses on the discussion chapters covering depositaries, prime brokers and the business restriction are due by 18 September 2026. Responses to the FRAME consultation are due by 22 September 2026, with the main AIFM consultation closing on 14 October 2026. The FCA aims to publish final rules in 2027, with implementation currently envisaged for 2028.
We are reviewing the proposals in detail and will be responding to the consultation. If you would like to discuss what the proposed regime could mean for your funds, please speak to your usual Langham Hall contact.
