FCA consults on a three-tier overhaul of the UK alternative investment fund manager regime, diverging materially from EU rules and raising authorisation obligations for hundreds of smaller managers
On 14 July 2026, the Financial Conduct Authority (FCA) and HM Treasury published detailed reform proposals for the UK regime governing alternative investment fund managers (AIFMs), the firms that manage hedge funds, private equity vehicles, real estate funds and other alternative investment funds (AIFs). The FCA published Consultation Paper CP26/28, while HM Treasury published a draft Statutory Instrument (SI) and accompanying Policy Note. The centrepiece of the reform is a move from the existing framework, derived from the EU's Alternative Investment Fund Managers Directive (AIFMD) and implemented in the UK through The Alternative Investment Fund Managers Regulations 2013, to a three-tier proportionate system based on net asset value (NAV). Under the proposed thresholds, AIFMs with NAV below £750 million would be classified as small, those between £750 million and £5 billion as medium, and those above £5 billion as large. Regulatory obligations would scale proportionately across tiers. A critical structural change is the removal of the existing registration regime, which allowed some smaller AIFMs to avoid full FCA authorisation. Under the SI, these firms, including unauthorised property collective investment schemes and internally managed closed-ended funds above the small AIFM threshold, will need to become fully FCA-authorised. No grandfathering provisions are proposed, though implementation is expected by 2028. The FCA will also house most requirements in a new consolidated sourcebook called ALTS (Alternative Investment Funds sourcebook), replacing the current patchwork of rules. Importantly, the UK reforms do not replicate amendments to the EU's AIFMD made since Brexit, meaning the two regimes will diverge materially when the new UK framework takes effect. Alongside CP26/28, the FCA is also consulting on remuneration reforms under CP26/27 and a new asset manager reporting regime under CP26/26.
Why this matters
This is one of the most significant overhauls of UK asset management regulation since Brexit, and its effects will be felt across the full spectrum of alternative fund managers from small venture capital vehicles to large multi-strategy hedge funds. The removal of the registration regime and the absence of grandfathering means that a meaningful cohort of currently unregulated or lightly regulated managers will face the cost and time burden of full FCA authorisation by 2028. The deliberate divergence from post-Brexit EU AIFMD amendments creates a genuinely bifurcated legal environment: managers operating on both sides of the Channel will need to comply with materially different frameworks, raising structural costs and operational complexity for dual-regulated firms. The shift to NAV-based thresholds rather than the current leveraged-AUM basis will also require managers to reclassify themselves, with some moving into a higher regulatory tier.
On the Ground
The reforms activate financial regulation, funds and investment management, and corporate structuring practices across City firms. The most immediate work is advising fund managers on which tier they fall into under the new NAV thresholds and whether they need to apply for FCA authorisation before 2028. Firms will also need to advise on the new ALTS sourcebook requirements covering valuation, leverage, risk management and disclosure. Latham and Watkins and Womble Bond Dickinson are cited in the sources as having published analysis on the reforms. A trainee working on a regulatory matter of this type would be drafting regulatory notification letters, summarising licence condition implications for individual fund structures, and assisting with FCA authorisation application forms and compliance gap analysis memos for fund manager clients.
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