The private fund management sector will face unprecedented regulatory change in the UK in 2026 as new rules and regulations are introduced, which are designed to promote competition and growth, whilst supporting financial stability and maintaining an appropriate degree of investor protection. In addition, the UK government will continue its post-Brexit programme of revoking assimilated EU law and replacing it with rules (including with amendments), which will primarily be housed in the Prudential Regulation Authority Rulebook and the Financial Conduct Authority (FCA) Handbook.
Existing rules and regulations are expected to be streamlined and simplified and managers should also start to see improvements in the time it takes the FCA to respond to authorisation and registration applications. New rules will be introduced to support and facilitate the use of new technology and products (including digital assets).
Whilst the FCA has signalled that it will adopt a more proportionate approach to supervision and enforcement, managers should still expect enhanced scrutiny and engagement in relation to their governance, policies, procedures and controls, including through thematic reviews and the ongoing publication of examples of good and bad practice.
As the UK and EU governments and regulators continue to finesse the regulatory framework for their respective markets, managers will encounter growing divergence between UK and EU rules, which will have to be carefully navigated and managed (including at an IT and operational level). This will require firms to review their compliance arrangements and controls to ensure that they remain fit for purpose and compliant with regulatory requirements.
This year ahead paper highlights some of the key UK regulatory changes that are expected to apply to private fund managers during the course of 2026/early 2027, along with some commentary on regulatory changes at an EU level. The topics covered fall into the following categories: (a) authorisation, appointed representative regime, and prudential requirements; (b) fund, product, and marketing reforms; (c) digital assets regulation; (d) market reforms; (e) conduct and culture; and (f) sustainability.
In Depth
Regulatory Change
Authorisation, Appointed Representative Regime and Prudential Requirements
Changes to the UK Authorisation Timings
In 2025, the Chancellor of the Exchequer announced new targets for the FCA to cut times for approving authorisations and registrations. In response, the FCA published its plan to speed up the process for approving authorisations and registrations for firms and individuals, which will apply from 2026 as follows:
- Statutory change: new firm authorisations and variations of permission (VOP) applications to be completed in four months (currently six) for complete applications, and ten months (currently twelve) for incomplete applications;
- Voluntary change: VOPs where the new permissions closely align with the firm’s existing business model: a three-month target for complete applications and six months for incomplete applications; and
- Voluntary/Statutory changes: senior manager regime (SMFs) applications: half of all applications targeted to be completed within thirty-five days, with a proposed statutory deadline of two months (currently three) for all applications.
This approach is still intended to give applicant firms sufficient time to respond to feedback from the FCA, thereby reducing the risk of outright rejection or refusal of authorisation and registration applications.
Managers should factor these new timescales into any proposed changes to their business activities and/or the appointment of new SMFs. That said, it would be prudent to prepare for the longer timescale.
UK appointed representative regime
On 11 August 2025, HM Treasury published a policy statement which proposes to introduce legislation to: (a) require authorised firms to have a specific permission from the FCA to act as a principal firm (the Principal Firm) of an appointed representative (the AR); and (b) extend the powers of the Financial Ombudsman Service to investigate the AR directly, where it has acted outside the scope of arrangements agreed with the Principal Firm.
Although existing Principal Firms are expected to be grandfathered across to the new regime, the FCA will still retain the power to revoke or vary the scope of a Principal Firm’s permissions should it have any concerns about its ability to oversee and monitor the ARs’ activities.
A manager which acts as a Principal Firm should monitor any further developments and details relating to the intended operation of the grandfathering provisions to determine whether any steps are required to be taken to retain the ability to register ARs. Equally, managers who operate as ARs should engage with their Principal Firms to ensure that they retain the necessary permissions.
UK MIFIDPRU Changes
On 15 October 2025, the FCA published its policy statement and final rules on proposed changes to the definition of capital for FCA investment firms, which will include collective portfolio management investment firms (i.e., AIFMs with MIFID top-up permissions). The new rules will apply from 1 April 2026.
The new rules: (a) clarify the types of instruments that qualify as “own funds” capital; (b) move away from an approval-based regime to a notifications-based regime for certain requirements (e.g., with respect to the treatment of verified interim profits as common equity tier 1 (CET1)); (c) provide greater clarification on the distinction between the different types of qualifying capital (i.e., CET1, additional Tier 1 and Tier 2); (d) clarify the application of the rules in the context of group treasury operations; and (e) introduce enhanced disclosure requirements for firms with non-standard capital structures (e.g., where non-CET1 instruments rank equally with CET1 instruments).
In the longer term, the FCA still intends to introduce an integrated prudential sourcebook for FCA investment firms.
Managers should: (a) consider whether any changes are required to be made to their prudential procedures and controls and make any necessary changes in advance of the 1 April 2026 deadline; and (b) continue to engage with the FCA consultation process on future changes to the prudential regulatory framework.
UK and EU Fund, Product, and Marketing Rules
UK AIFM Regulation
On 7 April 2025, HM Treasury consulted on proposed changes to the current UK alternative investment fund managers regulatory framework, which will result in the abolition of the “below-threshold registration regime”, and the FCA published a call for input on how to create a more proportionate, streamlined and simplified regime, which should reflect the size, nature and scale of the manager’s business. This is likely to be one of the most consequential changes to the UK regulatory framework in 2026.
Managers will be classified into three broad categories (i.e., large, medium and small), with larger managers being subject to more prescriptive obligations than smaller managers, and the rules will be better aligned to reflect the activities and strategy applied by the manager (e.g., a hedge fund manager would have risk limits as an integral part of its investment process, whereas a private market fund manager may not need to apply all of the risk limits contemplated in the rules).
The FCA is expected to publish a consultation paper and draft rules in the first half of 2026. These are expected to cover the following: (a) the appropriateness of the existing leverage and risk management rules, (b) the prudential capital rules; (c) regulatory reporting, (d) investor and regulatory disclosure, (e) distribution and marketing rules, (f) remuneration requirements, and (g) whether the current restriction on the activities that can be undertaken by an AIFM remains appropriate.
The FCA has indicated that it intends to retain the depository regime (at least) for larger and medium sized managers, unless market participants are able to propose appropriate alternatives during the course of the consultation process.
Whilst the consultation will be of most interest to UK AIFMs that manage UK AIFs, some of the changes will have extra-territorial application.
Managers should: (a) engage with the consultation process, including through industry bodies; (b) determine whether and how they will be classified under the proposed new regime; (c) undertake a gap analysis against the proposed new rules; (d) determine the changes that will be required to be made to the manager’s governance, policies, procedures and controls; and (e) ensure that senior management is actively engaged and informed throughout the entire consultation and implementation process.
EU AIFM
The proposed changes to the EU AIFM regime (known as AIFMD 2), which are required to be implemented in each EEA Member State by 16 April 2026, represents the first significant update to the AIFMD framework since it was introduced in 2011. AIFMD 2 includes changes to authorisation conditions, delegation, conflicts of interest, liquidity management, pre-contract and periodic disclosures, regulatory reporting, loan origination activities and controls, depositories, and provides some clarity around the conditions applicable to third-country marketing.
Some of the supplementary “level 2” technical standards and regulations will not be formally adopted until after the 16 April 2026 deadline, and it is unclear whether all EEA Member States will have incorporated AIFMD 2 into local law by that time. Accordingly, managers will need to maintain a watching brief and take note of any local nuances and variations (including any gold plating) at an individual EEA Member State level.
UK Retail Disclosure
On 8 December 2025, the FCA published a policy statement and final rules on the new retail disclosure regime that will replace the current UK packaged retail investment and insurance-based products regulations (UK PRIIPS), which required in-scope firms and products to, amongst other things, produce a key information disclosure document (known as the KID) for retail investors. This change is likely to be relevant to managers who are active in the private market space and either wish to (a) market to sophisticated retail investors who cannot be opted up to elective professional client status or (b) include certain “no retail investor” disclaimer language in their funds offering documents.
The new consumer composite investments regime (the CCIR): (a) will abolish the requirement to produce a KID under UK PRIIPS and replace it with a requirement to produce a product summary that highlights product features, costs, risks, returns, and performance information; (b) clarifies that manufacturers (e.g., fund sponsors) have the sole responsibility for providing and maintaining product summaries; (c) replaces the risk score concept with a risk and return metric with flexibility to disclose risk ratings for illiquid funds and ten-year standard deviation measures; (d) requires past performance to be disclosed using monthly data points rather than quarterly data points; and (e) introduces a new costs and charges disclosure requirement.
The CCIR will apply from 6 April 2026, with grandfathering applying until 8 June 2027.
Managers should: (a) assess the scope of the new regime; (b) determine whether any changes are required to be made to existing communications and disclosures; (c) update governance, policies, and procedures to facilitate compliance; and (d) continue to track pronouncements by the FCA on this topic.
EU Retail Disclosure
The EU has proposed changes to the existing EU PRIIPS regime pursuant to the Retail Investment Strategy (the RIS), with the final rules expected to be published in early 2026 and implemented by 2028. These reforms are expected to include: (a) adjustments to the scope of the regime; (b) revisions to the content of the KIDs, which should be provided in a machine-readable format; (c) limitations on the length of the KIDs (expected to be no more than four pages); and (e) detailed rules for multi-option products.
In the absence of the final text, it remains unclear whether these amendments, along with the other proposed changes flowing from the RIS, will contribute to the much discussed “democratisation” of private funds.
Managers should (a) await the publication of the final text to assess its impact on the fund’s distribution strategy, including whether to offer the fund to retail investors, (b) identify the steps required to ensure compliance with the new requirements.
Digital Assets Regulation
UK New Cryptoasset Framework
During 2025, the FCA published a series of consultation papers designed to introduce a comprehensive, tailored regulatory framework for firms undertaking activities relating to cryptoassets (e.g., issuing, operating a cryptoassets trading platform, dealing as principal or agent, arranging, lending and borrowing, staking, and safeguarding). The proposed rules are similar to those that apply to firms that operate in the traditional financial and capital markets space under UK Financial Services and Markets Act (with some tweaks to reflect the nature of digital assets). Further consultation papers, along with policy statements and final rules, are expected to be published during the course of 2026, with the new framework taking effect in 2027.
The authorisation gateway for those undertaking regulated cryptoasset activities is expected to be open during 2026 in order to provide firms with sufficient time to obtain the relevant authorisations.
Managers should: (a) engage with the consultation process, including through industry bodies; (b) assess whether they are required to apply for authorisation or a variation of permissions to conduct any new regulated cryptoasset activities; (c) take steps to prepare for the new rules, which will cover, amongst other things, regulatory capital, operational resilience, conduct (e.g., client classification, best execution, order handling), conflicts of interest, valuations, liquidity and volatility risk, market abuse, reporting, and record keeping; and (d) ensure that senior management have been properly briefed and informed.
Managers should also note that funds that have control or subsequently obtain control of FCA-authorised cryptoasset firms may be required to obtain a change-in-control approval from the FCA.
UK Fund Tokenisation
On 14 October 2025, the FCA published a consultation paper which sets out key proposals and guidelines on how the FCA intends to support the adoption of fund tokenisation and includes a roadmap for future regulatory developments in this space.
For these purposes, the FCA notes that: (a) tokenisation refers to the representation of an asset, or ownership of an asset, by recording it on distributed ledger technology (DLT); and (b) DLT is a digital system that records details of transactions in multiple locations at the same time, rather than on a centralised database.
The proposals confirm the possibility of operating a tokenised fund register under the existing legal framework, introducing an optional direct fund dealing model (so investors can deal directly with the fund); the use of tokenised funds as collateral; and a discussion on future tokenisation models and uses, including how regulation may need to change to support such efforts. The FCA is expected to publish a policy statement and final rules in the first half of 2026.
Whilst the consultation is primarily addressed to UK authorised funds, it may still be of interest to other funds.
Managers should consider whether and how a future tokenisation framework may impact their processes, procedures and compliance arrangements and continue to maintain a watching brief on further FCA consultations on this topic.
EU MICA
The EU implemented a comprehensive regime for the regulation of cryptoassets in 2024, known as the Markets in Crypto-Assets Regulation (known as MICA). This included an authorisation and passporting regime for cryptoasset service providers (e.g., trading platforms, exchange services, placement, reception and transmission of orders, portfolio management, custody, and transfer services), rules governing the issuance of asset-referenced tokens, and electronic money tokens, and the offering and trading in cryptoassets, alongside consumer protection rules and measures to prevent market abuse.
MICA includes grandfathering provisions which permit firms that provided cryptoasset services prior to 30 December 2024 (in accordance with local law) to continue to do so until 1 July 2026 or until they are granted or refused MICA authorisation.
Please see our previous client briefing on EU MICA.
Market Reforms
UK Short Selling
On 28 October 2025, the FCA published a consultation paper setting out proposed changes to the UK short selling regime, which are designed to “reduce unnecessary and disproportionate costs which may inhibit or discourage short selling activity”, whilst maintaining transparency of short selling activities in the UK market. The consultation closed on 16 December 2025. The FCA is expected to publish a policy statement and final rules during the course of 2026.
Managers should: (a) review and update their internal reporting processes to reflect the shares listed or removed from the FCA list, any new data requirements, the waiver provisions, and the extended reporting deadline; (b) update their procedures to reflect the new FCA reporting system, notification documents, and reporting forms; (c) make changes to “cover arrangements” to ensure compliance; (d) ensure that appropriate records are maintained of cover arrangements for at least five years; (e) continue to engage with the consultation process, including through industry bodies; (f) ensure that senior management are properly briefed and engaged; (g) prepare and apply for exemptions; and (h) engage with guidance that the FCA will publish, including in relation to group reporting, and make adjustments to ensure compliance.
Please see our previous client briefing for further details.
UK EMIR
The government has indicated that it intends to prioritise its review of the existing counterparty requirements in UK EMIR (e.g., risk mitigation, reporting and clearing). Proposed amendments are expected to be consulted on in Q1 2026.
In addition, on 5 November 2025, the government published a draft statutory instrument, which included provisions to make the intragroup exemptions for margin and clearing requirements permanent, and remove the link to equivalence decisions by replacing it with a requirement to notify the FCA of the intention to rely on the exemption (thirty-days prior notice will be required). Technical comments are due by 16 January 2026, and the new regime is intended to take effect by the end of 2026.
Managers should: (a) assess whether they or the funds that they manage currently rely on an intragroup exemption; (b) determine whether and notifications will be required to be made to the FCA; and (c) maintain a watching brief on FCA developments in this space.
UK MIFID
Changes flowing from the UK wholesale markets review will start to take effect during the course of 2026, including: (a) changes to certain transparency requirements; (b) the commencement of operations by consolidated tape providers (CTP); and (c) changes to the ancillary activities exemption (this exemption is of primary relevance to unregulated firms who trade in commodity derivatives and emission allowances). In addition, the FCA is expected to finalise its proposed changes to the transaction reporting regime during the course of 2026.
Managers should: (a) consider whether and how the changes will impact their trading activities; (b) consider what changes are required to be made to existing procedures (including any IT and operational implementation changes); (c) consider whether and how to use CTP data, including making arrangements to facilitate connection; and (d) ensure that senior managers are briefed and engaged.
EU EMIR
The changes to the EU EMIR framework will take effect in 2026, including: (a) the controversial active account regime; (b) changes to the clearing thresholds; (c) changes to margin transparency for cleared derivatives; and (d) margin requirements, with the publication of various “level 2” technical and delegated standards.
Managers should: (a) consider whether and how the changes will impact their trading activities; (b) consider what changes are required to be made to existing procedures (including any IT and operational implementation changes); (c) consider whether and how to use CTP data, including making arrangements to facilitate connection; and (d) ensure that all internal stakeholders are briefed and engaged.
Please see our previous client briefing for further details.
EU Securitisation Regulation
On 17 June 2025, the European Commission proposed various changes to the EU securitisation framework, including in relation to the due diligence requirements (e.g., by clarifying that investors will not be required to verify compliance with risk retention or reporting requirements or to check whether the STS criteria have been satisfied). The trialogue negotiations are ongoing and are not expected to conclude until 2027.
Managers should maintain a watching brief to understand the impact, if any, on their structures and activities. Please see our recent client briefings on the proposed changes to the EU securitisation regime and their impact on significant risk transfer (SRT) transactions.
Conduct and culture
UK FCA Conduct Reviews
In 2025, the FCA undertook a series of multi-firm reviews of firms’ practices and procedures in a range of areas, including private market valuations, conflicts of interest, financial advice, off-channel communications and consolidation, leading to the publication of good and bad practice guidance (the Guidance). Further reviews are expected to be undertaken by the FCA in 2026, and firms may be required to demonstrate how they have reflected the Guidance in their policies, procedures, and controls.
Managers should: (a) continue to review governance and control procedures and assess how they are operating in practice; (b) assess the adequacy of management information; (c) ensure risks are properly identified and mitigated; (d) expect enhanced engagement from the regulator; and (e) ensure that the senior management are properly briefed and engaged.
UK Senior Managers and Certification Regime and Non-Financial Misconduct
On 15 July 2025, the FCA consulted on proposed changes to the Senior Managers and Certification Regime (SMCR) as part of the first phase of changes. This included:
- Changing the twelve-week rule to give firms more time to submit applications for approving new senior managers (SMFs) when there has been an unexpected or temporary change (i.e., the twelve-week rule clock will start ticking from the date of submission of the SMF application to the FCA rather than the date of approval of the SMF application by the FCA). However, the FCA has emphasised that the twelve-week rule does not apply when a SMF’s departure is reasonably foreseen and that firms should have effective succession plans in place. In other words, reliance on the twelve-week rule should be the exception rather than the rule;
- Giving firms more time to report updates to any statement of responsibilities for SMFs;
- Increasing the validity period for criminal record checks for SMFs from three months to six months;
- Providing guidance on the definition of certain SMFs roles;
- Removing duplicate certification requirements for employees who are certified to undertake multiple certified functions;
- Providing guidance on how firms can streamline the annual fitness and propriety assessment;
- Giving firms more time to update the FCA directory that is maintained for certified individuals; and
- Issuing guidance, including in relation to on the allocation of prescribed responsibilities for SMFs, by emphasising that they can only be split where justified, the application of the Conduct Rules, and related regulatory reporting and reference requirements.
Under phase 2, legislation is expected to be published to permit more material changes to be made by the FCA under the SMCR, including the abolition of the certification regime, a reduction in SMF roles, and a relaxation of the SORs.
From 1 September 2026, non-financial misconduct (e.g., bullying, harassment, or violence) will be treated as a conduct issue for SMCR firms, and firms will be required to factor this into the annual fitness and propriety assessment for SMFs and certified individuals.
Managers should: (a) review the proposals to assess the impact; (b) update policies and procedures, including any internal disclosure requirements; (c) ensure that records are retained and audit trails remain robust; (d) provide training, when necessary; (e) ensure that senior management are briefed and actively engaged; and (f) maintain a watching brief on the changes in this space.
UK Enforcement
In 2025, the FCA updated its approach to supervision and enforcement by moving to one that is more data-driven, targeted, and measured focussing on high-risk areas such as financial fraud, anti-money laundering, and market abuse. That said, the fines imposed were significantly higher, and there was an increase in fines imposed on individuals. This trend is set to continue in 2026.
Managers should note that some of the key issues arising out of recent enforcement action have emphasised: (a) poor governance and oversight arrangements; (b) the failure to escalate issues and concerns to the appropriate level within the firm; (c) inadequate resources, including personnel and IT; (d) poor management information and data; and (e) ineffective policies, procedures, and controls (i.e., paper policies which have not been properly embedded). In addition, the FCA has emphasised that as firms grow in size and scale, they must ensure that their controls keep pace with such developments, and remain appropriate.
Recent Market Watch publications have emphasised the need for firms to improve oversight of market abuse surveillance and to more promptly implement remediation measures where breaches or issues have been identified.
In relation to AML, the FCA pointed to failures to properly implement effective procedures to undertake risk assessments, customer due diligence, transaction monitoring, and update risk assessments.
Managers should: (a) review existing financial crime policies, procedures and controls against regulations, as well as FCA expectations (including any lessons learnt from recent FCA enforcement action); (b) expect enhanced scrutiny from the FCA and ensure that they can evidence steps taken to manage and mitigate the risk of their business being used to further financial crime (including new threats); (c) ensure that senior management is appropriately briefed and actively engaged; and (d) stay abreast of developments in this space, including tracking FCA statements and pronouncements.
UK Client Classification Changes
On 8 December 2025, the FCA published a consultation paper on proposed changes to the client categorisation regime, which included replacing the current quantitative elective professional client test with a new test that will require: (a) a client to have net investable assets in excess of £10 million; or (b) the firm to confirm that the client has the requisite expertise, experience and knowledge to make their own investments decisions, and understand the risks involved, taking account of certain relevant factors (e.g., occupation, investment history, financial resilience, knowledge and understanding of risks, and objectives).
Importantly, firms will be required to exercise discretion and make judgement calls, and they will no longer be able to rely solely on client self-assessment/certifications. Firms will also be required to consider the impact of any adverse information, such as: (i) vulnerability, (ii) inconsistent or implausible information, (iii) responses that suggest a lack of knowledge and expertise, and (iv) historic trading settlement issues. In addition, the client must still request to be treated as an elective professional client (although firms can still bring this to their attention, where appropriate and without applying any pressure on the client to “opt-up”), and the firm must obtain informed consent (i.e., a signature) from the client in order to give effect to the opt-up.
Any decisions around client categorisation will have to be properly documented and evidence retained. Managers will be required to reassess all existing elective professional clients within a year of the new rules coming into effect, ensuring compliance with the updated criteria.
Additionally, the FCA is also simplifying and clarifying the per-se professional client test by making it clearer that any entity authorised or regulated in the UK, or a third country, to operate in the financial markets can be treated as a per se professional client, without firms needing to identify the specific sub-category that the client falls into (i.e., whether it is in the banking, investment firm, insurance sector etc).
The consultation closes on 2 February 2026.
Managers should: (a) engage with the consultation process; (b) review their client categorisation procedures to determine what changes will be required to be made once the rules are finalised; (c) consider what communications will be required to be made to existing and new clients, including any repapering exercise; and (d) ensure that senior management are briefed and engaged.
EU Client Categorisation Changes
The elective professional client test is also being recalibrated as part of the RIS. Under the proposed amendments, a client will qualify as an elective professional client where two out of the following three criteria have been met:
- The client has carried out either 15 significant transactions over the last three years, 30 transactions over the previous year, or 10 transactions over EUR 30,000 in unlisted companies in the past five years;
- The size of the client’s investment portfolio exceeds EUR 250,000;
- The client has worked and carried out related activities in the financial sector for at least one year or can provide proof of education or training in these activities and has the ability to evaluate risk.
Whilst the proposed changes are an improvement on the existing elective professional client test, they do not go far enough, are less flexible than the proposed UK changes, and raise more questions than they answer.
Managers should: (a) maintain a watching brief; (b) review their client categorisation procedures to determine what changes will be required to be made once the rules are finalised; (c) consider what communications will be required to be made to existing and new clients, including any repapering exercise; and (d) ensure that senior management are briefed.
Sustainability for asset managers
UK Progress Report
During 2025, in scope managers continued to embed the requirements in the FCA Sustainability Disclosure Requirements (SDR) into their processes, disclosures and reporting systems. On the basis of feedback from market participants regarding the challenges of complying with the label requirements in the SDR, the proposed extension of the SDR to portfolio managers and overseas funds appears to have been put on hold for now. That said, the expectation is that both HM Treasury and the FCA will provide further updates on its plans to amend and extend the SDR during 2026.
The FCA has indicated that it will consider amending the entity-level disclosure requirements in the SDR to reflect the UK Sustainability Reporting Standards (the SRS), which is currently being developed by the UK Government and the Transition Plan Taskforce Disclosure Framework. It may provide an update on progress in 2026 or early 2027.
Whilst the SDR is primarily directed at UK managers and UK funds (especially retail funds), some of the requirements have broader application, private fund managers should keep abreast of any future plans to expand the application of the regime.
EU Progress Report
The EU has proposed a significant overhaul of the EU SFDR, with the existing article 6, 8 and 9 framework set to be replaced by a new labelling regime, and the removal of certain product- and entity-level disclosure and reporting requirements. The negotiations to finalise the new regime will continue during 2026, which will give market participants the opportunity to provide input.
Please see our previous client briefing on the proposed changes to the EU SFDR.
Managers should: (a) maintain a watching brief on both UK and EU sustainability reforms, (b) actively engage with any upcoming consultation, and (c) assess the impact of such changes of their procedures and fund documentation and processes.
[View source.]
About the Author
