Regulatory Roadmap 2026

Introduction

On 24 December 2024, Nikhil Rathi, the CEO of the UK Financial Conduct Authority, received a special communication from the Prime Minister. This was no festive greeting card, but a request for a concrete list of regulatory changes to support UK growth. The same letter was sent to 16 other UK regulators, including the Prudential Regulation Authority. This set the tone for UK regulatory policy making in 2025. Mr Rathi closed the year by reporting to the Prime Minister that the FCA had delivered the vast majority of nearly 50 "pro-growth" measures.

On closer inspection, observers might question some of these "pro-growth" claims. Has the FCA really "levelled the playing field with overseas markets, with more streamlined rules for fund managers" by publishing a discussion paper on potential reforms to UK AIFMR, but not yet having published draft new rules, let alone implemented them? Has the FCA "supported retail investment" by replacing the EU-originated retail fund PRIIPs disclosure regime with the very similar Consumer Composite Investments regime? Does the new "scale-up unit" "better support fast-growing, innovative firms" through allocating dedicated supervisors to them or does this additional scrutiny increase their cost base and slow them down?

Some FCA policymaking in 2025 appears more clearly to facilitate growth opportunities for UK businesses. The FCA and HM Treasury rules for PISCES will allow UK markets to run trading venues for shares in private companies along the lines of existing US trading venues such as the NASDAQ Private Market. The removal of some post-financial crisis bank bonus rules (which in practice had the effect of driving up fixed pay at investment banks) will give UK-based investment banks more flexibility to compete in the international talent market. The UK is moving closer to T+1 securities settlement and to a clearer framework for trading digital assets, including cryptoassets.

This has not stopped the UK from extending the scope of regulation in some areas. The FCA's new rules and guidance on non-financial misconduct and the UK proposals for ESG ratings don't feature in the letter to the Prime Minister, perhaps because they will expressly impose additional measures on firms. As some regulations fall away, innovation and technological development are driving the need for new rules in new areas, most notably in response to the cryptoasset revolution. During 2026, implementing a coherent framework for the regulation of cryptoassets and the supervision of firms providing crypto-asset related services is a key priority for the UK, although it is far from clear whether UK policymakers have yet struck the balance in the right place. Firms will have the opportunity to respond to a range of FCA consultations covering aspects of the UK cryptoassets framework in early 2026, following which they will need to begin planning for the new FCA supervisory regime thereafter.

UK policymakers and regulators continue to prioritise financial stability, market integrity and consumer protection above innovation. The UK Financial Conduct Authority has repeatedly made this point throughout 2025, seeking further guidance from the UK government on where to draw the line between the potential upsides of taking financial risk and the appropriate level of consumer protection. The UK's policy stance remains incremental change. The outcome of the UK AIFMR Review, expected in April 2026, will be a key milestone for UK alternative asset managers and will give a useful indication of how far the FCA is willing to use its newly acquired powers to diverge from the framework it inherited at Brexit. It will also be an indicator as to whether the UK's current policymaking can truly be described as "deregulatory".

The EU has a "competitiveness compass" directing its drive for simplification. This largely involves holding back on planned new laws or reducing their scope, rather than scrapping existing laws entirely. Although the EU's MiCA regime is already in place and is not due for substantive reform any time soon, other aspects of EU financial services regulation, such as the rules on settlement finality, are being reformed in the face of ongoing technological changes.

There are promising signs that the recently unveiled Market Integration Package proposals might reduce cross-border frictions for EU asset managers, helping to drive forward the development of a more cohesive Single Market, albeit through extensive new legislation. The European Commission recognises SFDR 2.0 will be costly to implement, as well as bringing potential improvements. The European Union's regulatory philosophy remains achieving growth through new regulation.

Whilst new policymaking has slowed, UK and EU supervision has increased, particularly for private capital managers. 2025 saw the outcome of the FCA's private markets valuation review, a further round of small firm questionnaires, a detailed anti-money laundering questionnaire and a conflicts review. The Bank of England is running its second system-wide stress scenario, this time focused on private capital. As that industry has grown, so has regulatory scrutiny. We expect this trend to continue in the UK and European Union in 2026.

The UK and European Union approach stands in sharp contrast to the deregulatory and lighter touch supervision approach now being pursued at US federal level. Our briefing focuses on UK and EU rules but we follow US federal and state developments closely. Time will tell whether these jurisdictions continue to diverge.

Against this backdrop of continuing change and renewal, our 2026 Regulatory Roadmap is designed to highlight some of the key areas for asset managers, financial market infrastructures, and payments and fintech firms to watch in the coming year, with information about expected timings and associated action points.

We hope that you'll find this to be a useful companion as you begin planning for the next twelve months. If you would like any further information on any of the areas highlighted in the Roadmap, please do get in touch.

Tim Lewis
Head of Financial Services and Markets

1 EU AIFMD II

Key dates

• AIFMD II largely comes into force on 16 April 2026.
• New Annex IV reporting requirements will come into effect on 16 April 2027.
• Some grandfathering for existing funds is available, but it is complicated, limited and varies on a requirement-by-requirement basis. The ability to rely on transitional provisions should be flushed out during the initial scoping phase.

Action points

• EU AIFMs should carry out a scoping exercise to assess which changes will apply to them and prioritise implementation steps accordingly. Travers Smith has a number of materials to assist firms in scoping and planning their project.
• EU AIFMs managing AIFs which originate loans should consider whether any changes are needed to their existing and planned loans or their overall lending structures or strategy in light of the new loan origination requirements.
• EU AIFMs managing open-ended AIFs should consider whether any of their existing liquidity management tools meet the AIFMD II criteria and, if not, decide which new tools to adopt and effect relevant processes to implement these in fund documentation.
• EU AIFMs may also need to update their internal policies, processes and documentation to comply with the new EU AIFM-level requirements.
• All funds, both EU AIFM managed and non-EU funds marketed under EU national private placement regimes (NPPRs) will be subject to updated investor disclosure and regulatory reporting requirements.
• Non-EU funds will need to be aware of the new, more restrictive NPPR rules, which may prejudice the ability of certain funds from certain jurisdictions from marketing into certain EU jurisdictions.

It has felt like a very long time coming but AIFMD II, which amends certain parts of the EU Alternative Investment Fund Managers Directive (AIFMD), will finally start to come into force on 16 April 2026.

The changes will predominantly affect EU full-scope AIFMs and therefore we expect that AIFMD II is already firmly on most of their radars. EU full-scope AIFMs that manage AIFs which originate loans or which are open-ended will have the greatest amount of work to do but all EU full scope AIFMs will potentially have new obligations and will need to make some changes to their strategy, internal processes and/or documentation. Some of the changes, including those relating to reporting and disclosures, will also apply to non-EU AIFMs marketing into the EU under NPPRs.

We have published various briefings on this, most recently in our Financial Services – End of Summer 2025 Postcard, but please see below for a quick recap of the key changes.

• There is a lot of focus in AIFMD II on funds which originate loans – i.e. funds which are involved in the granting of loans, either directly or indirectly. AIFs which originate loans (and which are managed by EU full-scope AIFMs) will be subject to new requirements intended to improve investor protection and protect financial stability. These include concentration limits, prohibitions on certain types of loans and risk retention requirements. Stricter requirements will apply to AIFs which originate loans on a material basis (Loan-Originating AIFs) including leverage limits of 175% for open-ended AIFs and 300% for closed-ended AIFs. Such Loan-Originating AIFs must also be closed-ended unless they have appropriate liquidity risk management, but the Regulatory Technical Standards (RTS) with the criteria for what this means have been delayed and may possibly not be issued at all. There will also be some (limited) grandfathering provisions for certain pre-existing AIFs and loans – there will be a material benefit to firms who are able to identify these early as part of scoping. We can give more guidance here if helpful.
• Open-ended AIFs managed by EU full-scope AIFMs will need to comply with new rules on liquidity management. These include a requirement to select two liquidity management tools (LMT) from a specified list and to adopt policies and procedures for their use. The final RTS with more detail on the characteristics of those LMTs have also been issued (subject to approval from the EU legislators) with the accompanying Guidelines expected to follow shortly.
• For both EU full-scope AIFM managed funds and funds marketed into the EU under NPPRs, there will also be enhanced investor disclosure and regulatory reporting requirements, including enhanced Annex IV reporting obligations and new investor Article 23 pre-contractual and periodic disclosure requirements. The new Annex IV reporting requirements (which apply from the later date of 16 April 2027) will include the provision of complete data on portfolio composition as well as information on leverage, delegation arrangements and marketing and there will be implementing measures with further details of how this new Annex IV reporting will need to be done.
• Other changes under AIFMD II include updated rules on delegation by EU full-scope AIFMs and additional eligibility criteria for non-EU AIFMs and non-EU AIFs seeking to make use of national private placement regimes. Separately, the agreed text of the EU's Retail Investment Strategy is expected to be published shortly, which may result in further changes to EU AIFMD. That legislation is expected to involve some additional rules on costs and providing value for money. There are also additional changes expected, particularly in respect of marketing, under the proposed EU Market Integration Package. We discuss these proposals in further detail later in this briefing.

2 UK AIFMD REVIEW

Key dates

• HM Treasury is expected to consult on draft legislation to reform the UK AIFMD framework in or around April 2026.
• The FCA is expected to consult on changes to its rules for AIFMs in April 2026 alongside the consultation from HM Treasury.
• A further FCA consultation is expected in H2 2026 on further aspects of the AIFMD regime, which may include areas like reporting and liquidity management.

Action points

• Watch for the draft legislation and FCA consultation expected in April 2026 and consider engaging with industry associations to provide feedback on the proposals.
• Watch for a further consultation in H2 2026 on further aspects of the reformed UK AIFMD regime.

The introduction of the EU AIFMD regime in 2013 prompted widespread criticism about its "one-size-fits-all" approach to the regulation of EU alternative asset managers (including, at that time, UK fund managers), with some suggestions that the new framework was a solution in search of a problem. Although the industry largely learned to live with the AIFMD requirements over the following decade, both the EU and (following Brexit) the UK have each decided that their respective AIFMD rules merit an update. While the EU's AIFMD II legislation will introduce changes from April 2026 which primarily focus on loan origination and liquidity management, the UK is considering far more fundamental reforms to its onshored AIFMD rulebook as part of its "Smarter Regulatory Framework".

To that end, in April 2025, HM Treasury published a consultation paper on the future of UK AIFMD, which gave an initial insight into the UK government's potential direction of travel. Very broadly, this proposed:

• Removing the existing thresholds for sub-threshold and above-threshold AIFMs in UK legislation and transferring power to the FCA to formulate new categorisation thresholds;
• Potentially removing the current business restrictions on full-scope AIFMs, which would allow them to perform activities that go beyond the current permitted "top-up" activities;
• Removing the current marketing notification obligations for UK AIFMs marketing UK or Gibraltar AIFs in the UK, thereby avoiding the current 20 working day delay to marketing;
• Maintaining the current approach to marketing by non-UK AIFMs under the UK national private placement regime;
• Reviewing whether notifications by AIFs acquiring control of non-listed companies continue to be necessary and, if so, whether they should be sent to another recipient (e.g. the Department of Business and Trade) rather than the FCA;
• Removing the current regulatory liability for external valuers;
• Requiring small registered AIFMs to obtain full FCA authorisation; and
• Keeping listed closed-ended investment companies within the UK AIFMD framework.

At the same time, the FCA also published a call for input which contained some initial views on changes that the regulator could introduce to the UK AIFMD framework with the new-found flexibility it expected to be granted by HM Treasury. These were not formal proposals, but were designed to elicit further ideas from the industry about what the new UK rules could look like. The possibilities put forward by the FCA included:

• New AIFM classification thresholds set by reference to the total net asset value of the AIFs being managed (rather than the current gross AUM approach). The FCA put forward possible categorisations of small firms (with a total NAV of up to £100 million), mid-sized firms (with a total NAV between £100 million and £5 billion) and large firms (with a total NAV of £5 billion or more), with the applicable regulatory requirements increasing between the categories;
• More bespoke rules for specific types of fund managers, such as private equity or real estate managers;
• Bespoke rules for listed investment companies;
• Revisions to the AIFMD leverage requirements, although the FCA indicated that it was still concerned about monitoring and managing the risks of high levels of leverage within AIFs; and
• A restructured AIFMD rulebook (which would presumably involve substantial amendments to FUND and potentially some other sourcebooks containing AIFMD derived obligations, such as SYSC and COBS) so that rules are structured more intuitively according to the lifecycle of a fund.

There were a range of other AIFMD components, such as remuneration rules, prudential requirements and regulatory reporting which the FCA acknowledged could also be amended, but which were not the immediate focus of the April 2025 feedback exercise.

In April 2026, we are expecting to see the first concrete output of HM Treasury and the FCA's deliberations, with draft amending legislation and an initial set of draft FCA rule amendments. Since the original call for input, there have also been suggestions that the FCA may look to develop a new "start-up" regime for newly established fund managers, which could involve a lighter-touch regulatory framework while the business scales up. This would be consistent with the FCA's broader focus on growth and innovation.

The industry is likely to have a particular eye on where the FCA lands in relation to AIFM classification thresholds, as the call for input discussion sparked some concern that large UK asset managers may not benefit significantly from any revised regime. This is because the £5 billion NAV threshold which was floated as a possible approach is relatively low compared to the size of many larger asset managers. Assuming that the "large firms" category remains subject to obligations which are broadly similar to the current AIFMD framework, there would appear to be limited potential upside for such firms, although this would also depend on whether the FCA undertakes more fundamental reform of the wider AIFMD-derived rules.

The industry will also be watching carefully for signs of the FCA's approach to leveraged funds. The treatment of leverage under the existing AIFMD framework has been a consistent source of criticism, largely as a result of the complex (and sometimes counter-intuitive) calculation requirements and a mismatch between industry conceptions of leverage and the approach adopted by regulatory rules. However, the FCA's proposals will be published against a broader backdrop of increasing concern by policymakers about the use of leverage by "non-bank financial intermediaries" (including investment funds) and the possible implications for systemic risk. It remains to be seen whether the FCA will adopt a proportionate and pragmatic approach in this area under the new regime.

UK AIFMs are likely to have to wait until the latter half of 2026 before they will see the FCA's proposed approach to other aspects of the regime, such as the prudential framework, remuneration and regulatory reporting. The signs in these areas are somewhat mixed. Given the recent deregulatory changes to remuneration rules for UK banks, the industry will be hoping for a similar approach to fund managers' remuneration requirements and will undoubtedly be pushing that case in the coming months. Similarly, there seems to be a favourable wind in relation to regulatory reporting, with the FCA taking steps to remove or pare down various reporting requirements over the last year, so firms will be hoping that this efficient approach to data collection is also carried into any review of UK Annex IV reporting for AIFMs. Initial signs in the prudential space are potentially less encouraging, given the emergence of the FCA's proposals for a "COREPRU" cross-cutting prudential sourcebook and the related possibility of extending to AIFMs requirements based on the Investment Firms Prudential Regime. Industry associations are likely to push back on any such suggestions if they do emerge later in the year.

The forthcoming UK AIFMD proposals are not expected to amend the current regimes for UK registered venture capital funds (RVECAs) and UK social entrepreneurship funds (SEFs), but HM Treasury has indicated that it may look to review those regimes at some point in the future. RVECA and SEF managers will therefore need to wait a little longer to discover whether they might benefit from the reformed rules, although the proposed approach to the wider AIFMD framework may give a strong hint about the FCA's thinking in this regard.

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