The Most Far-Reaching Reform of the UK AIFM Regime Since AIFMD — A Fundamental Rewrite of the AIFM Rulebook

A tiered domestic regime, a new reporting architecture and growing UK/EU divergence will require private fund managers to reassess their UK compliance model well before 2028.

At a Glance

HM Treasury and the Financial Conduct Authority (FCA) have proposed a coordinated repeal-and-replace package for the UK alternative investment fund manager regime. The package would introduce a new Alternative Investment Funds sourcebook (ALTS) within the FCA Handbook, classify UK alternative investment fund managers (AIFMs) under a three-tier classification by aggregate NAV, replace Annex IV with Fund Reporting for Asset Management Entities (FRAME) and consolidate three remuneration codes into a single principles-based regime. The proposals may reduce burdens for some smaller firms, but many medium and large managers — and cross-border groups — should expect a material governance, data and documentation project.

Executive Takeaways

• The UK is retaining an AIFM Regime but rebuilding it around proportionality, fund type and manager size.
• The proposals are relevant beyond classic UK AIFMs. Third-country managers using the UK National Private Placement Regime (NPPR), UK Markets in Financial Instruments Directive (MiFID) portfolio managers, UK Undertakings for Collective Investment in Transferable Securities (UCITS) management companies and listed closed-ended vehicles may also be impacted.
• UK and EU requirements will increasingly diverge. Groups with both UK- and EU-regulated AIFMs should plan for parallel compliance manuals, reporting processes and governance frameworks rather than a single harmonised AIFMD compliance programme.
• FRAME is not merely Annex IV with new labels. It changes scope, thresholds, frequency, event triggers, data fields and potentially submission mechanics.
• The consultation windows are short, but the implementation challenge is multi-year. Firms should use 2026 to classify entities and funds, identify data gaps, map UK/EU divergence and prioritise consultation responses.

The Package and Why It Matters

On 14 July 2026, HM Treasury and the FCA published a coordinated package comprising:

• A draft statutory instrument to replace the Alternative Investment Fund Managers Regulations 2013.
• FCA Consultation Paper CP26/28 on the proposed UK AIFM regime.
• FCA Consultation Paper CP26/26 on FRAME.
• FCA Consultation Paper CP26/27 on remuneration reform for FCA solo-regulated firms[1].

The package would replace much of the current legislative and Handbook architecture, move detailed operating requirements into FCA rules and create a new ALTS in place of the current investment fund sourcebook. ALTS is intended to consolidate the principal rules for managers of unauthorised alternative investment funds (AIFs) that are currently dispersed across the investment fund sourcebook, assimilated EU technical standards and other Handbook provisions. Placing the detailed framework primarily in the FCA Handbook should also make future amendment easier and faster. In practical terms, this is a repeal-and-replace exercise rather than a technical tidy-up.

The Timetable

Date	Milestone	What It Covers	Practical Impact
16 Sept 2026	CP26/27 closes	Remuneration reform	Compensation and governance teams should settle response positions first.
18 Sept 2026	Early CP26/28 chapters close	Depositaries, prime brokers and business restrictions	These topics may shape later rulemaking and operating-model choices.
22 Sept 2026	CP26/26 closes	FRAME	Data and regulatory-reporting teams should test the proposed fields and deadlines.
14 Oct 2026	Core CP26/28 closes	UK AIFM regime	Classification, perimeter, governance and fund-structure issues should be prioritised.
14 Oct 2026	HM Treasury technical comments close	Draft AIFM Regulations 2026	Perimeter, authorisation and legislative drafting points should be identified alongside the CP26/28 response.
2027	Final policy statements/rules targeted	FCA package	Some remuneration changes may begin earlier than the wider AIFM reform.
2028	Main implementation target	AIFM and reporting regimes	Implementation planning should not wait for final rules.

The response windows are staggered. Comments on CP26/28’s principal rule proposals and its prudential discussion chapter are due by 14 October 2026, while the discussion chapters on depositaries, prime brokers and the AIFM business restriction close on 18 September 2026. Technical drafting comments on HM Treasury’s proposed statutory instrument may also be submitted to AIFMR@hmtreasury.gov.uk by 14 October 2026. The FCA expects to publish final Handbook rules and a policy statement in 2027, alongside final legislation from HM Treasury, with implementation targeted for 2028.

A New Size-Based Architecture

The most visible change is a three-tier regime based on aggregate net asset value (NAV), replacing the current legislative thresholds that turn heavily on assets under management and leverage. The applicable rules would then scale according to both manager size and fund type.

Proposed Category	Aggregate AIF NAV	Likely Regulatory Profile
Small	Below £750 million	Core baseline standards; simplified requirements in a number of areas.
Medium	£750 million to £5 billion	Intermediate governance, risk, liquidity and reporting requirements.
Large	More than £5 billion	Most detailed framework, broadly preserving full-scope standards in key areas.

The NAV calculation is itself a legal and operational workstream. It is expected to focus on AIF business, include portfolios delegated out by the AIFM, and exclude UCITS, separately managed accounts and portfolios merely sub-managed for another manager. Firms may also elect into a stricter category.

The NAV Classification Is Not Just a Compliance Label

The category determination will drive governance, staffing, disclosure, valuation, risk, liquidity and reporting obligations. Groups should document the calculation methodology, treatment of delegated and sub-managed portfolios, aggregation assumptions and governance approval.

Perimeter and Cross-Border Implications

Registered Managers and Listed Closed-Ended Vehicles

HM Treasury proposes to remove the AIFM registration regime except for managers of registered venture capital and social enterprise funds. Certain unauthorised property fund managers and internally managed AIFs may therefore need FCA authorisation unless an exemption applies. The proposals do not currently include general grandfathering, although an efficient authorisation route is being considered.

HM Treasury proposes to take certain small, internally managed listed closed-ended investment companies outside the AIFM regime altogether. The proposed exemption would require listing on a recognised stock exchange and satisfaction of the relevant legacy threshold: £100 million for a leveraged vehicle, or £500 million for an unleveraged vehicle that does not offer redemption rights for five years. Larger vehicles and externally managed listed closed-ended funds — including investment trusts, REITs and VCTs — would remain within the framework, although the FCA proposes tailored treatment where listing-rule disclosures already achieve equivalent outcomes. Managers that also operate or advise listed vehicles should therefore test each structure separately rather than assuming that the private-funds analysis carries across.

A Clearer (and Potentially Wider) AIF Definition

HM Treasury proposes changes to the definition of an AIF to clarify that capital may have been raised in the past, may be raised now or may be raised in the future, and that an AIF’s defined investment policy may be express or implicit rather than formally documented. The clarification is intended to reduce uncertainty at the edge of the perimeter, but it may also bring some arrangements more clearly within the AIF definition. Private fund sponsors should revisit structures such as co-investment SPVs, GP commitment vehicles, carried-interest arrangements and joint ventures where the existing analysis has relied on the timing of capital raising or the absence of a written investment policy.

NPPR Remains, but Processes and Reporting Change

The Government proposes to preserve the UK NPPR with procedural changes. The draft package would remove the current 20-day prior notice period, simplify suspension and revocation mechanics, allow authorised UK AIFMs to notify rather than seek permission to market a UK AIF, and permit the FCA to maintain public registers. Third-country managers should nevertheless expect FRAME and the revised disclosure requirements to change the practical requirements associated with marketing in the UK.

For US and Other Non-UK Sponsors

The headline is continuity of market access, not continuity of process. Sponsors should map each UK-marketed fund against the proposed reporting threshold, strategy-specific fields, filing timetable and any revised notification or disclosure requirements.

The Principal Operating Model Changes

Valuation: Baseline Standards for Every Authorised UK AIFM

The FCA proposes to apply valuation rules to all authorised UK AIFMs. Assets and liabilities would need to be valued properly and in good faith, impartially and with due skill, care and diligence. Firms would need to have in place robust governance, effective conflict management, records of valuation decisions and a process for ad hoc valuations where market or asset-specific events indicate that the existing valuation no longer represents fair value.

The proposed rules would expressly use a fair-value standard aligned with IFRS and recent IOSCO work. Smaller and medium-sized managers would receive more organisational flexibility, but not a lower expectation of independent judgement or documented conflict management.

The linked legislative proposal would also remove the statutory concept of an external valuer and the associated statutory liability backstop. Third-party valuers would remain exposed under ordinary contractual and negligence principles, as well as applicable professional indemnity arrangements, and the FCA would regulate their expertise, resources and independence through Handbook rules. The change is particularly relevant for private equity, infrastructure and real-estate managers holding hard-to-value assets: it may improve the availability of specialist valuation providers, but it also requires firms to reconsider how responsibility, escalation and oversight are allocated once the statutory framework falls away.

Leverage, Risk and Liquidity: Less Formula, More Judgement

The mandatory gross and commitment leverage calculations would be removed. Managers would still need to describe and quantify leverage but could select a methodology that better reflects the fund’s strategy and risk profile, provided the resulting disclosure is clear, fair and not misleading. The FCA also proposes that leverage used solely for hedging by a closed-ended fund should not, by itself, cause the vehicle to be treated as leveraged for these purposes. This is likely to reduce formulaic reporting, but it shifts more responsibility to the manager: methodology selection, consistency over time, treatment of derivatives and the relationship between investor disclosure, risk limits and regulatory reporting will all need to be documented and defensible.

Risk-management obligations would be tailored by fund type — closed-ended unleveraged, closed-ended leveraged and open-ended — and then by manager size. All managers would be subject to investment due diligence and knowledge standards; managers of funds other than closed-ended unleveraged AIFs would generally need a risk-management function; and large firms would retain a more detailed controls package.

Medium and large AIFMs would remain subject to comprehensive liquidity management requirements. Of particular relevance to fund-of-funds and secondaries strategies, the FCA proposes a look-through expectation requiring consideration of the liquidity of underlying assets, not merely the redemption terms of the underlying fund.

Depositaries: Tiering and a Possible Split Model

For unauthorised funds, medium and large AIFMs would continue to require a depositary, while small AIFMs would not be obliged to appoint one, although they could elect to do so. The FCA is considering a split model, under which a UK depositary retains overall oversight while other providers perform safekeeping functions, and is also questioning whether the depositary should continue to duplicate the AIFM’s cash-reconciliation work. These proposals raise practical questions of cost, provider capacity, contractual allocation and operational resilience. Small AIFMs should consider carefully whether dispensing with a depositary is appropriate for their investor base and governance model; firms of all sizes should assess whether a divided service model would produce efficiencies or introduce additional interfaces and oversight risk.

Delegation: Preserved, But With a More Defined Perimeter

The UK intends to remain delegation friendly. The core safeguards would remain, including the requirement that an AIFM retain sufficient substance and not become a letter-box entity, together with effective due diligence, oversight and periodic review. The current requirement for prior FCA approval before delegating portfolio or risk management to an unauthorised entity would be removed. In its place, the manager would notify the FCA as soon as practicable after the arrangement becomes effective and confirm relevant details through FRAME reporting. For private equity and private credit groups that routinely use overseas advisory or portfolio-management affiliates, this could remove a material source of timing friction during fundraising, restructuring and onboarding of new mandates.

The FCA also proposes a narrower category of “additional core AIFM functions” comprising third-party valuation, regulatory compliance monitoring and marketing of AIFs. Delegation of those activities, as well as portfolio and risk management, would attract enhanced controls. Firms should expect to evidence an objective rationale, use suitably detailed written agreements, preserve access and information rights, monitor performance and conflicts, control sub-delegation, and maintain workable termination and transition rights. Global groups should therefore use the consultation period to map which activities are genuinely delegated, which are advisory only and whether intra-group documentation reflects the operational reality.

Investor Disclosure and Annual Reporting

For professional investors, the FCA proposes a more principles-based disclosure regime, supported by an obligation to meet reasonable information demands. Medium and large AIFMs would continue to prepare audited fund financial statements, while remuneration disclosure would focus on material risk takers. Small AIFMs would provide an annual summary rather than a full formal annual report.

FRAME: A New Regulatory Data Architecture

FRAME would replace Annex IV and extend beyond UK AIFMs to a wider set of asset-management entities, including third-country AIFMs using the NPPR as well as certain UK MiFID portfolio managers and advisers. The regime would operate at fund level, so a single manager may have some funds subject only to essential reporting and others subject to enhanced reporting.

Fund Profile	Proposed Reporting	Key Private Funds Implications
NAV below £500 million	Essential reporting	A narrower core dataset, but still new definitions, mappings and controls.
NAV £500 million or more	Essential plus enhanced reporting	More granular exposure, sensitivity, concentration, counterparty and borrowing data.
Hedge funds	Quarterly; proposed 45-day lag	Enhanced data burden and event reporting if NAV falls by 10% or more over 10 consecutive business days.
Other unauthorised AIFs	Generally annual; proposed 120-day lag	Private equity, private credit and real-assets managers still face dedicated private-markets fields.
Loan origination funds	Strategy-specific module	A fund may be in scope where originated loans are the main strategy or at least 50% of NAV.

Enhanced reporting is expected to include deeper portfolio sensitivities, concentrations, private markets activity, exposures, counterparties and borrowing. Relevant funds may need to report their top 15 counterparties rather than the top five currently required by Annex IV. Private markets modules would cover matters such as continuation funds, valuation practices and the use of third-party valuers.

Pressure Point: Data Provenance and Ownership

Managers should identify where each proposed field will come from, who owns it, how it will be validated, whether it is available at the required frequency, and whether administrators, prime brokers, valuation providers and portfolio companies are contractually required to provide it.

Remuneration: Simpler Rules, Greater Need to Evidence Judgement

CP26/27 would replace the AIFM, UCITS and MIFIDPRU remuneration codes with a single proposed SYSC 19AA code for in-scope FCA solo-regulated firms. The model is more principles-based and less structurally prescriptive, but the practical consequence is likely to be more firm-specific judgement and a greater premium on contemporaneous documentation. The changes include:

• A narrower, outcomes-focused definition of material risk taker.
• Removal of mandatory remuneration committees and annual independent reviews.
• Revocation of the MIF008 remuneration report.
• Greater flexibility in the use of instruments, malus and clawback.
• A preferred principles-based approach to whether deferral should apply to material risk takers.

For AIFMs, sequencing will matter: the FCA proposes initial application to current full-scope UK AIFMs, followed by medium and large AIFMs when the broader regime takes effect. Firms operating in both the UK and the EU should compare the UK proposals with continuing EU remuneration requirements before simplifying global remuneration policies.

We recently publish a separate article covering the remuneration code changes here.

UK/EU Divergence: The Strategic Issue Behind the Detail

The proposals are a domestic UK reform programme, not a UK implementation of EU AIFMD II. The likely result is “clear water” between the two regimes from 2028 onward. For firms operating both UK- and EU-regulated managers, the assumption that a single AIFMD compliance framework can continue to serve both jurisdictions should now be reconsidered.

Workstream	Potential Divergence	Likely Response
Regulatory reporting	FRAME versus Annex IV/EU reporting	Parallel data dictionaries, filing calendars and controls.
Leverage	UK strategy-relevant methodology versus EU prescribed calculations	Separate methodologies and investor disclosures.
Remuneration	UK principles-based code versus applicable EU codes	Jurisdiction-specific policy annexes and MRT assessments.
Governance and manuals	Tiered ALTS rules versus EU AIFMD framework	Separate manuals or clearly segmented jurisdictional modules.
Delegation and disclosures	Different notification and rule architecture	UK/EU delegation matrices and document updates.

Next Steps

The proposals create a number of points at which legal classification and operating model decisions will drive implementation. The most immediate pressure points are:

• Perimeter and classification: determining entity status, aggregate NAV, fund type, authorisation needs and available exemptions.
• UK/EU divergence mapping: identifying where a group can retain common global standards and where UK and EU specific policies, manuals, disclosures or controls are required.
• FRAME scoping and implementation: mapping funds to essential or enhanced reporting, interpreting strategy-specific modules, designing data ownership and testing filing readiness.
• Governance redesign: updating valuation, risk, liquidity, delegation and remuneration governance so that proportionality judgements are documented and defensible.
• Documentation and repapering: revising compliance manuals, committee terms, delegation agreements, investor disclosures, annual report processes, remuneration policies and NPPR procedures.
• Consultation strategy: developing evidence-led responses on thresholds, perimeter outcomes, depositary models, delegation mechanics, data feasibility, reporting deadlines and unintended consequences before the applicable September and October deadlines. We can assist with a firm-specific response or incorporate client observations into our submission on an attributed or anonymous basis.

How We Can Help

We can assist with classification and perimeter assessments; analysis of co-investment, GP commitment, carry and joint venture structures; UK/EU gap analyses; FRAME data and reporting readiness; valuation and external-valuer governance; leverage methodology and disclosures; depositary-model reviews; liquidity and delegation assessments; remuneration policy redesign; updates to compliance manuals and fund disclosures; NPPR and cross-border marketing analysis; authorisation strategy; and responses to HM Treasury and FCA consultations. We can also include client comments in our consultation response, with attribution or anonymously as appropriate.

This publication is for general information only and does not constitute legal advice. The proposals remain subject to consultation and may change.