The UK AIFM Regime: A Practical Guide to FCA CP26/28

On 14 July 2026, the Financial Conduct Authority (FCA) published CP26/28: The UK AIFM Regime, proposing to move most of the rules for alternative investment fund managers (AIFMs) out of legislation and into a new Alternative Investment Funds sourcebook (ALTS), and to replace the current full-scope and sub-threshold split with three categories based on aggregate net asset value (NAV): small below £750m, medium between £750m and £5bn, and large above £5bn. These are consultation proposals and not final rules. Responses on the draft rules close on 14 October 2026, final rules are intended for 2027 alongside HM Treasury's statutory instrument, and implementation is envisaged for 2028.

Classification drives almost everything else in the package, which is why the proposals matter now rather than in 2028. The FCA estimates that 638 firms currently in the full-scope regime would move into the new small or medium categories, and that around 69 currently registered AIFMs would need to become authorised, with no grandfathering proposed.

Which Firms Are Affected by the New UK AIFM Regime?

The consultation reaches beyond the AIFM population alone. The FCA identifies it as relevant to UK authorised and registered AIFMs, firms marketing alternative investment funds in the UK, residual collective investment scheme (CIS) operators, depositaries, prime brokers and delegates, and UCITS management companies in relation to the prudential discussion chapter. On the FCA's own estimates the new regime would contain 1,007 small, 175 medium and 64 large AIFMs, although those are modelled figures rather than confirmed classifications.

CP26/28 also does not stand alone. It accompanies HM Treasury's parallel consultation on the underlying legislation, which would remove the AIFM registration regime for most firms, clarify the legal definition of an AIF and retain the National Private Placement Regime. It sits alongside CP26/26 on Fund Reporting for Asset Management Entities and CP26/27 on remuneration reform for solo-regulated firms, so firms reviewing one should review all three.

The Main Proposals in CP26/28

The paper runs to 17 chapters and 47 questions, four of those chapters being discussion chapters that seek views before rules are drafted. The proposals below are those with the widest practical effect on firms.

A Three-Tier Regime Based on Net Asset Value

Firms would be categorised by the aggregated NAV of all the AIFs they manage, together with any residual CIS they operate, using the mean NAV for each fund averaged over the most recent calendar quarter. The small to medium threshold has been set at £750m, well above the £100m floated in the FCA's earlier Call for Input, after consistent feedback that the original figure was too low. The upper threshold remains £5bn.

Movement between tiers would be handled by notification rather than application. A firm crossing a threshold would notify the FCA through a SUP 15 material change notification, rather than applying for a variation of permission, and would have six months to comply with its new obligations, extended to twelve months where a depositary must be appointed for the first time.

Registered AIFMs and the Regulatory Perimeter

The most significant change for the smallest firms comes from the Treasury rather than the FCA. Registration would be removed except for Registered Venture Capital Funds and Social Enterprise Funds, so unauthorised property fund managers and internally managed AIFMs outside the proposed statutory exemption would need to become authorised. No grandfathering is proposed, and the FCA estimates the cost to these firms of becoming authorised at £65.6m over its ten-year appraisal period.

The Treasury also proposes to clarify the definition of an AIF in legislation, incorporating elements of existing guidance in the Perimeter Guidance Manual (PERG 16). Some schemes currently treated as residual CIS would then fall within that definition, with the operator needing the Part 4A permission of managing an AIF and having to notify investors. The FCA expects reasonable transitional time to be allowed, but the detail is not settled.

Valuation, Risk Management and Liquidity

Valuation rules would apply to AIFMs of every size, including small authorised firms that currently sit outside them. They draw on the FCA's March 2025 multi-firm review of private market valuation practices and align with recently published standards from the International Organization of Securities Commissions (IOSCO), including an express expectation that investments are valued at fair value. Small firms would need valuation policies and procedures that are reviewed regularly, while the largest firms remain close to current standards.

Risk management would follow a baseline and additions model, with fund type mattering as much as firm size. Managers of only closed-ended, unleveraged AIFs would be subject to the baseline alone. Others would need a risk management function independent of portfolio management, with proportionality for small firms and full separation, a documented policy and risk limits for medium and large firms. The FCA also names three market integrity risks it expects firms to consider: leverage, concentrated positions, and the use of models and automated trading, including strategies driven by artificial intelligence.

The liquidity proposals follow the same logic. No liquidity rules would apply to managers of unleveraged closed-ended AIFs, while small AIFMs of open-ended or leveraged closed-ended funds would take on simplified new requirements, including consistency between investment strategy, liquidity profile and redemption policy at both the design stage and on an ongoing basis, and annual stress testing. The FCA estimates the cost of the liquidity changes to small authorised firms at £38.1m.

Leverage, Delegation and Annual Reporting

Three further changes would affect day-to-day compliance activity:

1. Leverage. The gross and commitment method calculations and the substantially leveraged threshold would be removed. Firms would instead disclose the quantum of leverage using a method suited to the fund and its strategy, and a proposed hedging exemption would treat closed-ended funds that use derivatives only for hedging as unleveraged for the risk and liquidity rules.

2. Delegation. The rules would apply to all authorised UK AIFMs regardless of size, which is new for small authorised firms, as is the requirement to justify a delegation model with objective reasons. Pre-notification would be replaced by notification as soon as practicable after the arrangement takes effect.

3. Annual reporting. Medium and large AIFMs would produce an audited annual report for each unauthorised AIF they manage, with a more principles-based approach to content, while small AIFMs and in-scope residual CIS operators would produce an unaudited annual summary for investors.

   
   

Investor Disclosures and Listed Investment Companies

The disclosure rules would be brought together in ALTS and split more clearly by investor type. The professional regime would become more principles-based, supported by mandatory disclosures in areas the FCA considers important for market integrity, such as how assets are valued and how liquidity risk is managed. The retail regime would remain more prescriptive and would move across from the Conduct of Business Sourcebook (COBS), and should be read alongside the Consumer Composite Investments regime, which comes into full force on 8 June 2027 and which the FCA says sits alongside these disclosures rather than replacing them.

Closed-ended investment companies trading on UK regulated markets, a sector the FCA puts at around £270bn, would be exempt from the AIFM disclosure and annual reporting rules where equivalent outcomes already come through the UK Listing Rules.

The Four Discussion Chapters

Four chapters seek views before any rules are drafted, giving affected firms an early opportunity to shape them. They cover:

1. Depositaries, including whether more than one firm could perform different depositary functions for the same AIF.

2. Prime brokers, where the FCA intends to retain but simplify existing requirements once the depositary approach is settled.

3. The AIFM business restriction, where the FCA sets out four options and says that, on balance, removal for all firms is the best of them.

4. The prudential regime for fund managers, where the FCA is considering bringing fund managers within its Core Prudential Sourcebook (COREPRU) and expects to consult later in 2026.

   
   

Key Themes

Two messages run through the package. The first is that proportionality is delivered through fund characteristics as well as firm size: whether a fund is open-ended or closed-ended, and whether it uses leverage for investment purposes, now determines as much as the NAV tier does.

The second is that less prescription is not the same as less expectation. The FCA states that firms complying with the current risk management rules should already meet the standards required by the new regime, and that smaller firms may treat the rules written for larger firms as guidance. Firms reclassified into a smaller tier will need to decide deliberately what to retain. The smallest firms also carry most of the estimated cost, with one-off familiarisation, gap analysis, training and governance costs put at £20.6m.

What Should Firms Do Now

Nothing in CP26/28 requires changes to policies or controls today, and a proportionate response at this stage is analysis and engagement rather than implementation. Firms should consider the following steps:

• Calculate aggregate NAV on the proposed basis, including all AIFs managed and any residual CIS operated, and identify the likely tier and whether the firm sits near a threshold.

• For registered firms, assess the authorisation route, the documentation required and the realistic lead time.

• For operators of vehicles currently treated as residual CIS, review each against the proposed AIF definition and identify where a permission or an investor notification may be needed.

• Carry out a high-level gap analysis where change is most likely, which for smaller managers usually means valuation, liquidity risk management, delegation and investor disclosures.

• Record the rationale for anything the firm would stop doing once prescription is removed, so the decision is evidenced rather than assumed.

• Decide whether to respond, and allocate ownership for tracking the second consultation paper, the policy statement and the statutory instrument.

  
  

For most firms this is a scoping exercise rather than a framework rebuild, and those changing tier, changing permission status or taking on requirements for the first time should start earliest.

Frequently Asked Questions

Is CP26/28 a final rule change?

No. CP26/28 is a consultation paper containing proposals and draft rules, published on 14 July 2026. The FCA intends to publish a policy statement with final Handbook rules in 2027, in line with the Treasury's finalised statutory instrument, with implementation currently envisaged in 2028.

What are the proposed AIFM size thresholds?

The FCA proposes three categories based on the aggregate net asset value of the AIFs a firm manages: small below £750m, medium from £750m to £5bn, and large above £5bn. The small threshold was raised from the £100m proposed in the FCA's earlier Call for Input following industry feedback.

Will small registered AIFMs need to become authorised?

Most will. HM Treasury proposes to remove the registration regime except for Registered Venture Capital Funds and Social Enterprise Funds, and is not proposing grandfathering. The FCA estimates that around 69 registered AIFMs would need to become authorised, and says it wants to engage with those firms before implementation.

When are responses to CP26/28 due?

Responses on the consultation proposals and draft rules, and on the discussion chapter on prudential reform, are due by 14 October 2026. Responses on the other discussion chapters, covering depositaries, prime brokers and the AIFM business restriction, are due by 18 September 2026.

What is the ALTS sourcebook?

ALTS is the proposed Alternative Investment Funds sourcebook, a new part of the FCA Handbook that would bring together most of the rules for managers of unauthorised funds, replacing rules currently spread across the FUND sourcebook, the AIFMD Level 2 Regulation and legislation.

How Compliance Angle Can Help

Compliance Angle supports FCA-regulated firms and firms seeking authorisation, with a focus on practical outcomes rather than documentation for its own sake. On CP26/28, the areas where support is most likely to help are:

• FCA authorisation and application support, for registered AIFMs and residual CIS operators that will need authorisation or an additional Part 4A permission.

• Compliance frameworks and policies, where valuation, delegation, disclosure or liquidity documentation needs to be created or proportionately reduced.

• Risk management and governance support, including gap analysis against the proposed rules and Board reporting on a change in classification.

• Ongoing compliance support and monitoring, to reflect the new requirements in monitoring plans and management information as the rules are finalised.

• Compliance training, for staff and senior managers whose responsibilities change under the new structure.

  
  

Support is scaled to the firm's business model, permissions, size and regulatory risk: a firm reclassified into the small category needs a different response from one facing authorisation for the first time. Our guide to improving FCA applications for authorisation may also be useful.

To discuss what CP26/28 means for your firm, contact us at info@complianceangle.co.uk.

Source: Financial Conduct Authority, CP26/28: The UK AIFM Regime, published 14 July 2026.