With the UK regulatory landscape evolving rapidly, investment firms are facing one of the most intensive periods of change in recent memory. A dense pipeline of FCA consultations and discussion papers, of which many are now moving decisively from policy design to implementation, is reshaping expectations across the sector. In this environment, simply staying informed is no longer sufficient. The real challenge is knowing what to focus on, and when.

Our latest insight, regulatory watchlist, is designed to bring clarity at precisely this moment. It cuts through the volume of regulatory activity to highlight the developments likely to crystallise in 2026, offering asset managers and MIFIDPRU investment firms a clear, practical starting point for the year ahead. Rather than tracking everything, firms can plan their regulatory priorities early with greater confidence. From prudential reforms and liquidity risk management to cryptoasset regulation and AIFMD developments, the agenda for 2026 demands early engagement and informed decision-making.

Below we explore the key open regulations expected to shape the operating environment for most investment firms throughout 2026 and into the future.

1. UK AIFM reforms – A recap of the proposals

The UK is moving towards a single, post-Brexit regime for all asset managers which was initiated through the FCA’s discussion paper on ‘Improving the UK framework for Asset Managers’ in 2023 and further publications in April 2025 in conjunction with the HM Treasury’s consultation on Regulations for AIFMs and the FCA’s Call for Input will define a more flexible and proportionate regime going forward.

The biggest proposed change is over the re-categorisation and thresholds for AIFMs, a new tiered structure based on Net Asset Value (NAV), not gross Assets under Management (AuM). Large AIFMs with NAV over £5 billion will stay under robust standards, though some unnecessary rules may be removed. Small AIFMs with NAV up to £100 million will have a light-touch regime with only baseline requirements applying. Mid-sized firms, between £100 million and £5 billion, will benefit from more proportionate rules, though details are yet to be clarified.

Other expected changes include simpler transition through categories, this would only include notifications rather than formal applications, and the removal of certain reporting obligations such as control notifications for non-listed companies. The National Private Placement Regime (NPPR) is expected to remain unchanged.

The FCA is also reviewing prudential requirements, remuneration rules, and regulatory reporting to make them more efficient and less duplicative. Areas like disclosures, depositary roles, and interactions with MIFIDPRU will also be addressed in future consultations.

These reforms will create a modernised UK regime with further consultations expected to be published in H2, 2026.

2. AIFMD II: What UK firms need to know ahead of April 2026

The Alternative Investment Fund Managers Directive II (AIFMD II) is set to apply across EU member states from 16 April 2026, introducing changes that will impact firms operating cross-border or managing EU-domiciled funds. While the UK is pursuing its own reforms, the gap between EU and UK standards is widening, making early preparation critical for firms marketing into the EU. UK standards is widening, making early preparation critical for firms marketing into the EU.

Key changes under AIFMD II

• Delegation rules: Stricter requirements for delegation arrangements, including enhanced transparency and reporting to regulators.

• Liquidity risk management: Mandatory selection and implementation of liquidity management tools (LMTs) for open-ended AIFs.

• Loan origination framework: New rules governing loan origination activities, including leverage limits and risk controls.

• Marketing and disclosure: Tighter conditions for non-EU fund managers marketing within the EU, alongside enhanced investor disclosure obligations.

• Reporting enhancements: More granular supervisory reporting requirements, with The European Securities and Markets Authority (ESMA) expected to issue Regulatory Technical Standards (RTS) and guidelines in stages beyond 2026.

UK managers marketing into the EU or managing EU-domiciled funds will need to navigate these changes despite the UK’s separate regulatory trajectory.

To prepare for AIFMD II, firms should start by conducting a comprehensive gap assessment of fund documentation, including delegation arrangements, liquidity management tools, and disclosure frameworks, to ensure alignment with the new requirements. It is equally important to monitor Member State transposition timelines and variances through reliable regulatory trackers, as implementation may differ across jurisdictions. Firms should also stay alert to ESMA’s forthcoming RTS and guidelines, which could introduce additional obligations beyond April 2026. Marketing strategies must be updated to comply with revised rules for non-EU funds, particularly Cayman or UK Alternative Investment Funds (AIFs) targeting EU investors. Finally, early engagement with boards, compliance teams, and service providers is essential to communicate upcoming changes and avoid last-minute operational challenges.

3. Regulation of cryptoassets – FCA update

The FCA is advancing its regulatory framework for cryptoassets with the publication of three consultation papers in December 2025. The proposals introduce prudential standards under COREPRU and CRYPTOPRU, including own funds requirements as well as liquidity and concentration risk rules. These requirements would apply across a broad range of cryptoasset activities, including cryptoasset trading platforms (CATP), brokers, arrangers, staking services, principal dealing, and lending and borrowing products. Feedback on the proposals is due by 12 February 2026, with final rules expected later in 2026. In the meantime, firms should begin capital modelling and wind-down planning aligned with the proposed prudential constructs for crypto activities.

See our separate detailed insight on the subject.

4. Conflicts of interest and client categorisation rules

The FCA’s consultation paper CP25/36 introduces substantial revisions to client categorisation and conflicts of interest frameworks. A key proposal is the creation of a new “wealth only” elective professional route, which sets a £10 million threshold for eligibility. Alongside this, the FCA plans to strengthen qualitative assessments by requiring firms to consider factors such as client experience, investment history, and financial resilience. Notably, the mandatory quantitative test will be removed, shifting the emphasis towards informed consent and robust qualitative checks. These changes aim to ensure that professional client status is granted based on a more holistic understanding of client capability rather than rigid financial metrics alone.

On conflicts of interest, the FCA is seeking to streamline Senior Manager Arrangements, Systems and Controls – Chapter 10 (SYSC 10) requirements, reinforcing the principle that disclosure should remain a last resort rather than a default solution. Firms will need to revisit their governance arrangements and ensure that conflicts are managed proactively through structural and procedural safeguards. This includes refreshing policies on gifts, benefits, and inducements, and harmonising terminology across MiFID, AIF, and Undertakings for Collective Investment in Transferable Securities (UCITS) activities to maintain consistency. The regulator’s focus is on strengthening internal controls and reducing reliance on disclosure as a mitigation tool, signalling a shift toward more robust conflict management practices.

The consultation closes on 2 February 2026, with a policy statement expected mid-year and consequential rule changes across SYSC, COBS, and MIFIDPRU conduct standards. Firms should begin preparing now by reviewing their elective professional clients and planning for recertification within one year of implementation. In parallel, they should review and update conflicts policies, governance frameworks, and client classification procedures to align with the proposed standards. Supervisory scrutiny of governance arrangements, client categorisation, and conflicts management is expected to intensify, making early preparation critical for compliance and risk mitigation.

5. Enhancing fund liquidity risk management

The FCA’s CP25/38 proposes a significant strengthening of liquidity risk management requirements for UCITS and Non-UCITS Retail Schemes (NURS), drawing directly on lessons learned from recent episodes of market stress. Central to the proposals are enhanced governance expectations for authorised fund managers (AFMs), including clearer accountability at board and senior management level for liquidity risk oversight. The FCA also sets out more robust and standardised liquidity stress-testing frameworks, requiring firms to assess a wider range of severe but plausible scenarios and to better integrate stress-testing outcomes into day-to-day risk management and decision-making. Alongside this, the consultation introduces enhanced disclosure expectations, aimed at improving transparency for investors around a fund’s liquidity profile, risk management approach, and the circumstances in which liquidity management tools may be deployed.

A particular focus of the consultation paper is the effective and timely use of anti-dilution tools and other liquidity management mechanisms to protect remaining investors from the costs associated with large-scale subscriptions and redemptions. The FCA expects AFMs to have well-defined policies governing the selection, calibration, and activation of these tools, supported by appropriate governance and depositary oversight. The consultation, which closes on 23 February 2026, also signals the FCA’s intention to review liquidity arrangements for authorised AIFs, including property funds, later in 2026. Collectively, these proposals will have significant operational and compliance implications for AFMs and depositaries, necessitating updates to liquidity risk policies, oversight processes, and investor communications in advance of final rules expected later in the year.

6. Market risk capital requirements – FCA engagement paper

In December 2025, the FCA published an engagement paper on market risk capital requirements for solo-regulated investment firms with trading permissions. The paper forms part of the FCA’s post-Investment firm prudential regime (IFPR) review of the prudential framework for trading book exposures and signals a potential recalibration of market risk calculations under MIFIDPRU. Stakeholder responses are due by 10 February 2026, with the FCA indicating that a formal consultation is likely to follow later in 2026.

The FCA’s focus is on whether current market risk capital requirements appropriately reflect the harm posed by investment firm trading activities. In particular, the regulator is considering whether existing measures may overstate risk, constrain liquidity provision or create unnecessary barriers to entry or expansion. Areas of interest include a possible realignment of K-NPR (Net Position Risk) and K-CMG (Clearing Margin Given), with a view to better aligning capital outcomes with investment firm business models rather than bank-style risk assumptions.

The engagement paper seeks evidence on the calibration and design of market risk requirements, including the impact of margin-based approaches compared with internally modelled methodologies, and the effectiveness of current trading book definitions. The FCA is also interested in understanding whether the existing framework adequately captures investment firm-specific risks and whether certain assumptions drive disproportionate capital outcomes.

Firms are encouraged to engage at this early stage by submitting evidence-based responses by the February deadline. This includes providing data, examples or case studies demonstrating the impact of the current methods on the capital requirements, liquidity provision or trading behaviour. The FCA is also hosting a roundtable discussion in January 2026, offering firms an additional opportunity to contribute to the policy development process.

Overall, this initiative represents a significant opportunity for investment firms to influence the future and help shape market risk capital requirements under MIFIDPRU. Early and constructive engagement is likely to play an important role in shaping the FCA’s formal consultation proposals later in 2026.

7. FCA consultation: transaction & data reporting reforms

The FCA’s consultation (CP25/32) proposes significant changes to MiFID transaction and instrument reference data reporting. Key reforms include expanding conditional singlesided reporting across all trading capacities, reducing mandatory transaction fields from 65 to 52, and limiting the scope to instruments traded on UK venues. FX derivatives would be removed from MiFIR reporting to avoid duplication with EMIR, and the backreporting window would shorten from five to three years.

For MIFIDPRU firms, these changes will require system interface updates and control enhancements. Expanded singlesided reporting alters data exchange obligations between transmitting and executing firms, demanding revised broker agreements and validation logic. Field reductions and scope adjustments will impact schema mapping, reconciliation processes, and instrument eligibility rules. Firms should also prepare for tighter remediation cycles under the new error correction timeframe.

The consultation closes 20 February 2026, with a policy statement expected in H2 2026 and an indicative implementation period thereafter. Immediate priorities include conducting a gap analysis against CP25/32 proposals, reviewing conditional reporting arrangements, and assessing dependencies across MiFIR, EMIR, and SFTR regimes. Early engagement will help firms influence final rules and mitigate operational risk during transition.

Closing thoughts

The regulatory landscape continues to evolve, and as the saying goes, the devil is in the detail. We hope these insights have given you a moment to pause and reflect on the changes most likely to affect your firm over the coming year.

There will undoubtedly be further announcements and guidance throughout the year. Our focus remains on staying ahead of developments, translating what they mean in practice, and supporting our clients with clear, practical impact assessments.

We’ll continue to share updates as the picture develops. In the meantime, if you’d like to discuss what these changes could mean for your business, please don’t hesitate to get in touch; we’re always happy to help.