Examining the regulatory dimensions of Separately Managed Account structures
16 Apr 2026 • Financial Services • ICARA and wind-down processes • Insight • Preparation of Disclosures • Prudential Reporting and Advisory • Regulatory Reporting • Thresholds, indicators and OFAR monitoring • Transparency Reporting
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As Separately Managed Accounts (SMAs) continue to gain traction among sophisticated allocators, regulatory considerations for UK-based investment managers are becoming central to both commercial strategy and operating models. Questions around MiFID “top-up” permissions, capital and liquidity impacts, and valuation frameworks are now integral to structuring decisions.
This insight examines the regulatory dimensions that shape how SMAs are established, governed, and maintained, and the pressures these structures impose as supervisory expectations evolve.
Understanding permissions and regulated status
For UK firms authorised by the Financial Conduct Authority (FCA), the starting point is confirming that existing permissions adequately cover discretionary portfolio management in an SMA context.
Firms must consider:
Whether their permissions extend to managing segregated mandates with bespoke constraints
Whether “top-up” permissions are required under the Markets in Financial Instruments Directive II (MiFID II) framework, and
How ancillary activities (e.g. advisory, dealing, or arranging) are captured
In parallel the Senior Managers and Certification Regime (SMCR), continues to evolve and emphasises clarity in accountability. Recent reform proposals suggest a shift toward streamlining requirements while maintaining robust individual responsibility, particularly relevant where SMA oversight introduces bespoke governance arrangements.
Evaluating whether an SMA constitutes an Alternative Investment Fund (AIF)
A key technical consideration is whether an SMA could fall within the definition of an Alternative Investment Fund under the Alternative Investment Fund Managers Directive (AIFMD).
Although SMAs are typically structured to avoid AIF classification, risk arises where features resemble collective investment arrangements. Indicators may include:
Pooled decision-making characteristics
Limitations on investor control
Governance structures that mirror fund vehicles
The consequences of misclassification are material, potentially triggering:
Full AIFMD compliance obligations
Additional capital requirements
Extensive reporting and disclosure duties
Careful drafting of investment management agreements and governance frameworks is critical to preserving the intended regulatory perimeter.
Cross-border licensing and international client considerations
SMAs with non-UK clients have an additional layer of complexity. Unlike co-mingled funds, which often rely on established distribution frameworks, SMAs may create a direct regulatory obligation in the client’s jurisdiction. For example, discretionary management for clients outside the UK may lead to licensing requirements under the regulators in those jurisdictions.
The key takeaway is that SMAs frequently reshape a firm’s regulatory footprint, requiring:
Jurisdiction-specific licensing analysis
Reverse solicitation assessments (where applicable), and
Careful pre-contract structuring
Operational governance and transparency expectations
Regulators increasingly view SMAs through the lens of governance and transparency rather than structural form alone.
Compared to fund structures, SMAs typically require higher reporting frequency, involve bespoke valuation methodologies, and face greater scrutiny over fee and expense allocation.
In particular, valuation governance has become a focal point. Firms are expected to demonstrate:
Clearly documented valuation policies
Consistency in methodology application
Robust oversight mechanisms, including independent verification where appropriate
What may begin as operational and commercial decisions often crystallise into regulatory obligations once embedded in contractual arrangements.
Recent signals from the FCA and the Prudential Regulation Authority (PRA) suggest a continued recalibration of governance frameworks. Proposed SMCR reforms such as refining senior manager roles and reducing certification burdens are intended to simplify compliance while preserving accountability.
For SMA managers, these developments have practical implications for; allocation of oversight responsibilities, documentation of SMA-specific risks within compliance frameworks, and management of supervisory engagement where operational models diverge from traditional fund structures.
Due diligence and documentation
Documentation in SMA structures is inherently more bespoke than in fund vehicles. This reflects the fact that regulatory, operational, and fiduciary obligations are concentrated on a single investor mandate rather than diversified across a pooled structure.
Key areas of focus include:
Investment management agreements
Valuation policies and side letters
AML/KYC and investor classification processes
Third-party arrangements (e.g. administrators, custodians, lenders)
Regulatory due diligence must therefore be embedded early in the structuring process, rather than treated as a post hoc compliance exercise.
What does this mean in practice?
As SMAs become a mainstream vehicle for institutional capital deployment, regulatory considerations should no longer be a secondary consideration; they are critical.
The interaction between permissions, governance, cross-border licensing, and documentation quality now directly shapes; the viability of an SMA structure, it's scalability across jurisdictions, and it's resilience under supervisory scrutiny.
If you are concerned about regulatory structuring, or are looking for support in leading your business to long term success in the SMA market, we would be happy to open a discussion with you. Contact us to speak with a member of the team.
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