AIFM regime: navigating the new landscape for alternative investment fund managers

On 14 July 2026, both the Treasury and the FCA published key documents that will transform the UK's regulatory landscape for alternative investment fund managers (AIFMs).

The Treasury published the draft Alternative Investment Fund Managers Regulations 2026 (the 2026 Regulations), along with a policy note. These new regulations will replace the Alternative Investment Fund Managers Regulations 2013 (the 2013 Regulations).

The 2026 regulations give powers to the FCA to set its own rules for AIFMs in areas currently set out on a statutory basis in the 2013 Regulations, including the thresholds at which more stringent requirements on firms apply.

On the same day, the FCA published consultation paper CP26/28 which proposes substantial changes to the UK AIFM regime. The consultation paper includes:

• a proposed new sourcebook for managers of unauthorised funds: the Alternative Investment Funds Sourcebook (ALTS) which will, when finalised, replace the Investment Funds sourcebook (FUND); along with
• proposed changes to the rules on valuation, leverage, risk management and liquidity risk management, delegation, annual reporting and investor disclosures, closed-ended funds and internally managed investment companies, the national private placement regime (NPPR) and cross border marketing; and
• discussion chapters on depositaries, prime brokers, removing the business restriction for AIFMs, and the proposed prudential regime.

The Treasury and the FCA are expecting the new rules to be finalised in 2027, and for the regime constituted under the 2026 Regulations and ALTS to go live in 2028.

In this article we look at some of the main proposed changes in more detail, and what they mean for firms in scope.

How do the 2026 Regulations change the UK AIFM regime?

The 2026 Regulations clarify definitions relating to AIFs, and give powers to the FCA to make rules relating to AIFM regulation, including those setting the regulatory thresholds above which requirements change, which should allow them to be amended more quickly. The current thresholds have not been amended since 2013 when the 2013 AIFM regulations originally came into force.

The 2026 Regulations were published in draft for technical comments only, so the policy position is broadly settled. The consultation closes on 14 October 2026.

Regulation 3 of the 2026 Regulations sets out a new definition of an AIF which, subject to certain exceptions, is defined as a collective investment undertaking which:

"raises, has raised or intends to raise capital from a number of investors, with a view to investing it in accordance with a policy as to how the capital is to generate a return or investment outcome for the benefit of these investors, and … is not a UK UCITS."

This is an expansion of the current definition.

Regulation 4 of the AIFM Regulations provides a definition of an AIFM, which is a legal person, the regular business of which is managing one or more AIFs, that is, performing at least risk management or portfolio management for the AIF. The AIFM can be either another person appointed by or on behalf of the AIF, or if permitted, the AIF itself. This definition is also subject to certain exceptions.

The new definition of an AIF is intended to clarify certain grey areas, particularly around elements of the AIF definition including the concepts of 'raising capital' making clear that this does not just apply where capital is being raised but also where capital was raised in the past or it is proposed to raise capital in the future,  and that what is currently called a  'defined investment policy' can be implicit.

Under the 2026 Regulations, some residual CIS operators, which are currently managers of funds which are neither AIFs nor UCITS, will be caught by the new regime and be required to be authorised as AIFMs. The FCA has set out more detail of the implications of these changes in Chapter 3 of its consultation.

The Treasury has also decided to abolish the Small Registered AIFM regime for the most part, but is maintaining it for Registered Venture Capital Funds (RVECA Funds), Social Entrepreneurship Funds (SEFs) and below-threshold, internally managed investment companies. Managers of these funds will still be able to register with the FCA and will not be required to seek authorisation.

The Small Registered AIFM regime has proved popular for new and emerging managers which are either operating property investment vehicles, or undertaking venture capital and smaller private equity investment through an unlisted investment company. It offers a light-touch, low-cost approach to raising early funds. Most of these managers will now come within the new ALTS regime set out below, and are likely to see a significant increase in their compliance burden.

In its policy note however, the Treasury acknowledges the importance of addressing barriers to entry for the smallest asset managers, and is planning to consider whether there should be a new regime to support asset managers starting new funds, where they raise money from institutional investors.

The 2026 Regulations also set out further provisions relating to marketing restrictions, AIFs which acquire control of non-listed companies and issuers, and the liability of depositaries for loss.

What are the current AIFM categories and how are they changing ?

Under the current UK AIFM regime, all AIFMs fall under one of three regimes:

• Full-scope regime: for the largest AIFMs, subject to the full requirements of FUND. The full-scope regime applies to AIFMs managing, broadly speaking, open-ended funds of more than EUR 100m AuM, or closed-ended funds of more than EUR 500m.
• Small authorised regime: under which AIFMs must be authorised but are not subject to full-scope requirements and falling below the AuM thresholds set out above; and
• Small registered regime: only applies to managers of SEFs, RVECA Funds, Unauthorised Property CISs, and 'internally managed investment companies', and has minimal ongoing regulatory requirements.

The FCA plans to categorise firms under three tiers based on a simpler calculation of net asset value (NAV) rather than leveraged assets under management (AuM), which is the current metric. This represents a shift from the current AuM measure, which can capture leverage, to a NAV-based measure of the funds managed.

The FCA originally proposed thresholds for the tiers to be set at £100m NAV and £5bn NAV. However, taking into account substantial feedback, the FCA has proposed higher thresholds than originally suggested as follows:

• Small AIFMs that have less than £750m NAV .
• Medium AIFMs that have £750m NAV and above, but less than £5bn NAV.
• Large AIFMs that have £5bn NAV and above.

The thresholds are important since the FCA's rules will apply proportionately, with requirements generally scaling depending on the AIFM's size.

Firms, especially those in the mid-market, may welcome the simplicity of moving to a NAV calculation, and the higher thresholds.     

The removal of the 'cliff edge' scenario as they go through a size category is also welcome. For example, under the proposed regime:

• Rather than seeking a variation to their permission when they go through thresholds, firms will simply be required to notify the FCA of a change in size classification using a SUP 15 notification.
• There will be a six-month grace period to comply with any new requirements resulting from a change in size classification.
• If the appointment of a depositary is required following a change of size from a small AIFM to a medium or large AIFM, that firm will have a 12-month grace period to appoint a depositary. 

What other changes is the FCA proposing within the new ALTS?

Valuation

The FCA expects all AIFMs (regardless of size) to ensure that valuations are carried out impartially and with proper conflicts management. In line with recently published IOSCO standards on valuation, the FCA also expects AIF investments to be valued at their fair value (meaning the value they could be exchanged, transferred or settled for between knowledgeable willing parties in an arm's length transaction).

The proposals will differ according to firm size as follows:

• For large AIFMs: the FCA's expectations under the new regime will be in line with the current AIFMD-derived rules.
• For medium-sized firms: the FCA proposes reducing the detailed rules with which those firms must comply.
• For small firms: the FCA proposes a principle that they must have valuation policies and procedures and must regularly review them.

To the extent that external valuers are used (and it is possible that their use may become more ubiquitous following the removal of their strict statutory liability), the FCA proposes that AIFMs only appoint an independent valuer if the valuer has the knowledge, skills and experience to value the relevant assets, sufficient personnel and technical resources, and can act independently of the AIFM.

Leverage calculations

The FCA proposes removing the current mandatory calculations - the commitment method and the gross method – to simplify the regime. The FCA does not believe that a 'one-size-fits-all' leverage calculation is helpful as leverage risk is not comparable across different investment strategies. The FCA proposes that firms disclose the quantum of leverage to investors using methods best suited to their investment strategies. Disclosures must be fair, clear and not misleading.

Closed-ended funds that use derivatives only for hedging would be classified as ‘unleveraged’ for the purposes of the proposed FCA risk management and liquidity risk management rules.

Risk management

Risk management is a core requirement for AIFMs and the draft rules are set out in chapter 5 of the proposed ALTS. In essence, the proposed rules are more proportionate (according to a firm's size), and tailored to firms' activities, differentiating between:

• AIFMs of closed-ended unleveraged AIFs;
• AIFMs of closed-ended leveraged AIFs; and
• AIFMs of open-ended AIFs.

Generally speaking, the larger the firm, the more detailed and specific their obligations. Also, firms managing AIFs whose business models create greater potential for harm eg through leverage, liquidity mismatch or wider market footprint, are to be subject to more detailed rules on governance, oversight, risk limits and risk management.

The proposed baseline riskmanagement requirements are that AIFMs should:

• carry out a level of research and due diligence that matches the type of investment; and
• have sufficient knowledge and a reasonable understanding of each investment.

These are the only risk management requirements that would apply to AIFMs of closed-ended unleveraged AIFs.

For AIFMs managing AIFs other than closed-ended unleveraged AIFs, the FCA proposes requiring the AIFM to:

• establish and maintain a risk management function which is hierarchically and functionally independent from the portfolio management function (subject to proportionality for small firms but which must be more formally separated as regards medium and large firms); and
• have systems, processes and controls in place that enable the AIFM to identify, measure and monitor material risks in relation to the AIFs it manages.

The risk management function must also have the authority to take such action as is necessary or appropriate to manage risks.

For medium and large firms, except those only managing closed-ended, unleveraged AIFs, there are additional proposed requirements as follows:

• To have a documented risk management policy in place. This needs to explain how the AIFM identifies and monitors risks to each AIF, how it complies with the rules, how it safeguards the independence of the risk management function and when and how that function will act to manage risks.
• To manage conflicts of interest associated with the independent performance of the risk management function.

• To have rules on setting risk limits in relation to material risks.
• To periodically review the risk management function and its policy, systems, processes and controls.

For large firms the FCA proposes retaining (with some simplification to the wording) the more detailed set of requirements that replicate the standards of the Level 2 Regulation.

Liquidity risk management

The FCA believes that the existing liquidity risk management rules requiring full-scope AIFMs to:

• have appropriate liquidity management systems and procedures;
• manage liquidity risks;  and
• conduct stress tests.

These rules already provide a high standard of liquidity risk management. As such the FCA does not consider reforming these rules for firms that are currently full-scope UK AIFMs and that are not managing unleveraged closed-ended AIFs.

The FCA proposes that no liquidity rules will apply when an AIFM is managing an unleveraged closed-ended AIF (including those using derivatives to manage risks who benefit from the hedging exemption). However, such firms will need to consider the FCA's principles, and commitments to investors when designing the fund including the length of its lifecycle and monitor it as part of its risk management exercise.

The FCA proposes requiring small AIFMs of open-ended AIFs:

• To ensure, when manufacturing the AIF, that the redemption policy is consistent with its investment strategy.
• To ensure on an ongoing basis that the AIF's investment strategy and liquidity profile remain consistent with the redemption policy of any other obligations of the AIF.
• to have liquidity management tools it deems necessary to manage an AIFs liquidity.

In addition, the FCA proposes that small AIFMs of open-ended AIFs or leveraged closed-ended AIFs:

• Have a framework of liquidity risk management systems, processes and controls appropriate to the AIF's size, investment strategy, liquidity profile and investor base.
• Conduct liquidity stress tests at least annually.
• Have regard to the guidance on good liquidity risk management practices and stress testing guidelines set out in CP25/38 which reflect the key themes of IOSCO's recommendations on liquidity risk management.

Medium and large UK AIFMs will be subject to the same rules set out above for small UK AIFMs plus rules reflecting their greater potential to incur risks to market integrity or financial stability. These rules are those which are in line with the current full-scope regime except that the FCA will also seek to introduce a 'look through' requiring medium and large AIFMs to consider not only the redemption terms of funds they invest in, but also the liquidity of the assets held in those funds.

Delegation

The FCA believes that the current delegation rules work well but it wishes to simplify requirements. The FCA also wishes to apply delegation requirements to all UK AIFMs, regardless of size.

Under the current regime, if a full-scope AIFM delegates risk or portfolio management to an entity that is not authorised or registered for asset management, the AIFM must seek approval from the FCA.  The Treasury is seeking to remove this requirement and the FCA proposes new rules about permitted delegation to those unauthorised entities.

The FCA is proposing a new defined term of 'additional core AIFM functions' to apply to the delegation of:

• marketing of AIFs;
• regulatory compliance monitoring; and
• valuations to a third-party valuer appointed in accordance with the ALTS.

It is proposed that the delegation of AIFM investment management functions and these additional core AIFM functions will be subject to greater controls than the other AIFM management functions, and there are additional proposed requirements relating to portfolio management only. The proposed requirements include:

• the AIFM should be able to justify its delegation model or structure with objective reasons (this will be a brand-new measure for firms that are currently sub-threshold, but a familiar obligation to those that are full-scope).
• retaining the requirement for the arrangement to be recorded in a written agreement clearly setting out:
  • the respective rights and obligations of the AIFM and delegate;
  • the AIFM's ability to terminate or withdraw the delegation including with immediate effect where it is in investors' interests; and
  • allow the AIFM to give instructions to and monitor the delegate on an ongoing basis.
• removing the requirement to notify the FCA of delegations before they take effect (including the requirement to notify the FCA of delegations to unauthorised entities that require approval). AIFMs must instead provide information via a notification as soon as possible after the delegation becomes effective and confirm the arrangements through regulatory reporting.
• AIFMs will not be permitted to delegate investment management functions to an unauthorised entity in relation to a specified investment, unless it is registered or subject to supervision to carry on the management of an asset in its own jurisdiction (as more specifically set out in the ALTS).
• Authorised UK AIFMs must instruct delegates on the implementation of the investment policy if the UK AIFM is delegating its portfolio management function. It must also monitor whether the delegate complies with this on an ongoing basis and take appropriate action if it does not.

Annual reporting to investors

The FCA is proposing a more principles-based, less prescriptive approach to investor disclosures. For example, the FCA does not consider that it is proportionate to require small UK AIFMs and in-scope residual CIS operators to produce a formal annual report to investors. However, the FCA considers it appropriate to introduce a requirement for such firms to annually provide investors with a baseline level of information, which it calls an annual summary.

For medium and large UK AIFMs, the FCA proposes that:

• In line with the current regime, they produce annual audited financial statements for each AIF they manage.
• The annual report covers material changes to the information made available to investors before they invested in the relevant AIF (the FCA proposes that it retains the requirement to report on activities of the financial year but removes some prescription around the level of detail required when reporting on the activities of the financial year).
• The annual report sets out the total remuneration in relation to material risk takers only (allowing investors to assess whether the remuneration paid by the AIFM is in line with investors' interests). This is a departure from the current regime which requires the report to set out the total remuneration to AIFM staff. The FCA is consulting separately on the remuneration regime for solo-regulated firms, and these requirements may change.

Investor disclosures

The proposed ALTS will create a clearer distinction between disclosures for professional clients and disclosures for retail clients.

The professional disclosure regime is proposed to be more principles-based with certain mandatory disclosures deemed important for market integrity including how fund assets are valued and how liquidity risk is managed.

The retail disclosure regime will naturally be more prescriptive than the regime for professional investors. The FCA proposes retaining the more extensive set of mandatory disclosures required for unauthorised AIFs and residual CISs marketed to retail investors therefore preserving the combination of pre-contractual information and periodic statements (albeit moving these from COBS to ALTS).

The pre-contractual disclosure rules will require certain fund-specific information to be provided to retail clients which will go beyond the CCI product summary (when the CCI regime becomes effective).

It is therefore envisaged that the pre-contractual disclosures under the proposed new AIFM regime will sit alongside the CCI product summary and will be in addition to it.

NPPR and cross-border marketing

Following the UK's withdrawal from the EU, the NPPR regime applies to:

• full-scope UK and Gibraltar AIFMs marketing non-UK and non-Gibraltar AIFs in the UK; and
• non-UK and non-Gibraltar AIFMs marketing any AIFs in the UK.

It allows AIFs to be marketed to professional investors in the UK subject to compliance with the minimum requirements of AIFMD.

The FCA sets out draft guidance in ALTS to help firms comply with their obligations when marketing non-UK AIFs in the UK. These are largely in line with the current requirements, however, the Treasury is proposing to give the FCA enhanced powers to suspend or revoke marketing rights of AIFMs that fail to comply with the NPPR requirements. 

What do the proposed changes mean for new and emerging managers?

The raising of the threshold levels should marginally reduce the regulatory burden for mid-market managers, which will transfer from the existing full-scope regime and into either the Small AIFM or Medium AIFM tiers in the new regime. However, in common with AIFMs currently operating under the Small Registered regime, new and emerging AIFMs which are Small UK AIFMs under the current regime will face a significant step up in compliance burden under the new regime.

These firms will be required to comply, albeit on a less onerous basis, with ALTS requirements around valuation, risk management, liquidity management, delegation, pre-contractual disclosure, and ongoing reporting which the current regime does not extend to Small UK AIFMs on a formal basis. Small UK AIFMs need to start considering how they will comply with these enhanced requirements.

Discussion chapters

The FCA has also included discussion chapters on depositaries, prime brokers, removing the business restriction, and the prudential regime, on which they will consult further later this year. At this stage they are seeking stakeholders' views on their policy positions. These are subject to a slightly shorter consultation period, which will end on 18 September 2026 (apart from the prudential proposals, for which the FCA is also requesting feedback by 14 October).

What should firms be doing to prepare?

Although many firms will benefit from the more proportionate framework (namely the estimated 638 current full-scope firms that will find themselves in either the small or medium firm classification), others such as small registered and small authorised firms, will face increased regulatory requirements.

• Small registered firms who are to become small AIFMs will need to decide whether:
• they de-register and wind up their operations;
• seek a regulatory hosting solution; or
• seek FCA authorisation to manage an AIF before the regime is implemented in 2028.

The FCA is clear that there will be no grandfathering regime for these firms.

• CISs that have categorised themselves as not being AIFs will need to consider the new definition of an AIF and whether it applies to them. If it does, their managers/operators may need to seek FCA permission to manage an AIF.
• All AIFMs should continue monitoring developments as the details of the rules and principles evolve and perhaps engage directly or through industry bodies to respond to the consultations. AIFMs of authorised funds should await the pending FCA consultation and note the approach that the FCA takes to unauthorised AIFs may differ to those of authorised AIFs.

• In time, all AIFMs will need to calculate their NAV and check their classification. All AIFMs will also need to evaluate which rules apply to them, and how they will approach these including training staff on the new requirements and potentially overhauling policies and procedures to reflect the new regime.

What are the next steps?

The consultations close on 14 October 2026, after which the Treasury and FCA will consider responses. The Treasury is planning to lay the final legislation in 2027, and the FCA will publish its final rules early next year too, with a view to the regime going live in 2028. The FCA has indicated that if firms are ready, some parts of the regime may be brought in sooner.

To note that the FCA is also consulting on proposed reform to the remuneration regime for solo-regulated firms in CP 26/27.

As part of the package of measures for asset managers, the FCA published a separate consultation CP 26/26 on fund reporting for asset management entities (FRAME), which will apply to AIFs.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, July 2026