2026 UK/EU Investment Management Regulatory Scanner

The 2026–2027 regulatory landscape for investment managers operating across the United Kingdom (UK) and the European Union (EU) is increasingly shaped by divergence between the two regimes. In the UK, reform is being driven by the government’s smarter regulatory framework, with a sustained focus on replacing onshored EU law with bespoke domestic regimes. This is most evident in proposals for a three-tier alternative investment fund manager framework, reforms to the Senior Managers and Certification Regime, and the shift to standalone UK regimes for short selling, transaction reporting and commodity derivatives. While many of these reforms are incremental when viewed in isolation, their cumulative volume and pace mean that multiple UK regimes require action or implementation during 2026.

At EU level, the revised Alternative Investment Fund Managers Directive (AIFMD2) is the most immediate and consequential development. With most requirements applying from 16 April 2026, AIFMD2 expands investor disclosure, strengthens delegation oversight and restricts access to national private placement regimes for funds and managers domiciled in jurisdictions on the EU’s anti-money laundering (AML) or tax non-cooperation lists. Alongside AIFMD2, the EU is recalibrating its sustainability and retail investment frameworks. The Omnibus package narrows the scope of the Corporate Sustainability Reporting Directive and Corporate Sustainability Due Diligence Directive, while proposed reforms to the Sustainable Finance Disclosure Regulation would shift it from a disclosure-based framework to a product categorisation regime, with direct implications for product naming, classification and marketing. 

In this update, we cover 16 key regulatory developments for investment managers to monitor, take action on or implement during 2026 and into 2027. A consolidated compliance calendar is also set out below, capturing the key implementation milestones across the UK and EU. 

1. EU AIFMD2

2. UK Alternative Investment Fund Managers Framework

3. UK MiFIR Transaction Reporting

4. UK Short Selling Regulation

5. UK Senior Managers and Certification Regime

6. UK Non-Financial Misconduct

7. UK Client Categorisation Regime

8. UK Consumer Composite Investment Regime

9. UK Investment Firms Prudential Regime

10. UK Commodity Derivatives Regime

11. UK Operational Incident and Third-Party Reporting

12. UK T+1 Settlement Transition

13. UK-Switzerland Berne Financial Services Agreement

14. EU Retail Investment Strategy

15. EU SFDR 2.0

16. EU CSRD and CS3D 

 

2026–27 Regulatory Compliance Calendar

Key Implementation Dates

Date	Initiative	Key Milestone
2026
1 Jan 2026	UK-Switzerland Berne Financial Services Agreement	Agreement enters into force
1 Apr 2026	UK IFPR	MIFIDPRU 3 amendments take effect
6 Apr 2026	UK Consumer Composite Investment (CCI)	CCI regime takes effect; optional early adoption begins (transitional period until 8 Jun 2027)
16 Apr 2026	EU AIFMD2	AIFMD2 transposition deadline; most requirements apply including expanded investor disclosures
H1 2026	UK Short Selling Regulation	Phase 1 changes take effect
Mid-2026	UK SMCR	Phase 1 changes take effect
6 Jul 2026	UK Commodity Derivatives Regime	New framework takes effect; position limits apply only to 14 critical contracts
1 Sep 2026	UK Non-Financial Misconduct (NFM)	New COCON rule 1.1.7FR takes effect
H2 2026	UK Short Selling Regulation	Phase 2: new reporting portal goes live
2027
1 Jan 2027	EU CSRD	Revised CSRD reporting begins for large EU companies (>1,000 employees, >€450m turnover)
16 Apr 2027	EU AIFMD2	Revised Annex IV regulatory reporting takes effect
8 Jun 2027	UK CCI	CCI regime becomes mandatory; PRIIPs KID and UCITS KIID repealed
H1 2027	FCA Operational Incident Reporting	New operational incident and third-party arrangement reporting framework expected
H2 2027	UK MiFIR Transaction Reporting	New transaction reporting regime expected (approx. 18 months post–Policy Statement)
11 Oct 2027	UK T+1 Settlement	UK mandates T+1 settlement cycle

Priority Classification

Immediate Action	Key compliance deadline within three months.
Action Required	Key compliance deadline within 3–12 months.
Monitor	Legislative negotiations or consultation process ongoing or implementation beyond 12 months.

 

 

1. EU AIFMD2 

IMMEDIATE ACTION

Key Date: 16 Apr 2026

What Is Changing 

Directive (EU) 2024/927 (AIFMD2) amends the European Union (EU) Alternative Investment Fund Managers Directive (AIFMD) in three core areas. First, it creates a harmonised EU framework for alternative investment funds (AIFs) that originate loans, including restrictions on certain related-party lending, a borrower concentration limit, and leverage caps for loan-originating AIFs. Second, it strengthens oversight of delegation arrangements, expanding the scope of activities subject to the delegation framework. Third, it broadens investor disclosure and regulatory reporting obligations, with a particular focus on enhanced transparency around fees, charges, and expenses borne by investors.

AIFMD2 also restricts access to national private placement regimes (NPPRs). Marketing under NPPRs is prohibited where either the AIF or the alternative investment fund manager (AIFM) is established in a jurisdiction on the EU’s (i) anti‑money-laundering (AML) or (ii) tax non‑cooperation lists. Notably, AIFMD2 does not provide for any clear transitional or grace period for marketing pursuant to NPPRs, meaning that loss of market access could occur immediately if a relevant jurisdiction is listed.

For further details, see our Updates “A U.S. Fund Sponsor’s Perspective on AIFMD 2.0” and “EU AIFMD2 — Implications of the Final Text.”

Who Is Affected 

EU AIFMs and non-EU fund managers that market AIFs in the EU and/or act as delegates to EU AIFMs.

Why This Matters

For non-EU sponsors, the ability to market funds in the EU will increasingly depend on the domicile of both the fund and the manager and their compliance with EU AML and tax cooperation standards. The recent inclusion of the British Virgin Islands on the EU AML high-risk list highlights the risk; from 16 April 2026, BVI-domiciled funds and BVI AIFMs will not be eligible for marketing in the EU.

Separately, enhanced delegation requirements and expanded regulatory reporting will increase scrutiny of portfolio managers and other delegates of EU AIFMs. In practice, this is likely to result in more onerous contractual terms, broader audit and information rights, and increased data flows to EU AIFMs and regulators.

What Comes Next

16 April 2026: AIFMD2 transposition deadline; most requirements apply.
16 April 2027: Revised Annex IV reporting takes effect.
16 April 2029: Transitional period ends for certain legacy loan-originating AIFs.

ACTION POINTS

1. For funds open to subscription, conduct a gap analysis of existing Article 23 AIFMD disclosures against AIFMD2 requirements and implement required updates by 16 April 2026.

2. For managers from the BVI or with BVI funds, redomicile the fund or restructure the offering to try to address the issue, or prepare to cease marketing from 16 April 2026.

3. Portfolio managers and other delegates of EU AIFMs should expect amendments to their investment management agreements to reflect the revised AIFMD delegation framework.

 

2. UK Alternative Investment Fund Managers Framework 

MONITOR

Key Date: Q2 2026

What Is Changing 

In April 2025, HM Treasury and the Financial Conduct Authority (FCA) published a consultation paper and a Call for Input, respectively, which included suggestions to replace the onshored EU AIFMD, including a possible three-tier UK AIFM regime calibrated by net asset value (NAV): 

• Large AIFMs (NAV >= £5 billion) would remain subject to a streamlined full-scope regime with reduced disclosure and investor reporting; 

• Midsized AIFMs (NAV £100 million to £5 billion) would comply with core AIFM standards, without the prescriptive AIFMD Level 2 framework; and 

• Small AIFMs (NAV < £100 million) would be subject to proportionate baseline requirements.

The suggested new framework would also remove or substantially revise a number of requirements that are considered to be poorly calibrated. These include portfolio company notifications, the statutory liability regime for external valuers, and the AIFM “business restriction.” Further consultations are expected on remuneration, prudential and reporting requirements and, per the FCA’s work with the International Organization of Securities Commissions on non-bank financial intermediation, are expected to include reforms to the AIFMD leverage and liquidity frameworks. For further details, see our article, “How UK Proposals Would Simplify Fund Manager Regime.”

Who Is Affected

Current and prospective UK AIFMs, including Collective Portfolio Management Investment (CPMI) firms.

Why This Matters

HM Treasury and the FCA are clearly looking for a shift away from the onshored EU AIFMD towards a more proportionate, UK-focused regime. The FCA estimates that approximately 100 current full-scope AIFMs would be reclassified as midsized AIFMs, with a corresponding reduction in procedural requirements, regulatory reporting, and compliance costs.

The suggested removal of the AIFM business restriction is particularly significant; it would permit firms to manage AIFs and carry on MiFID investment services within a single legal entity, reducing the need for additional top-up permissions or separate regulated entities. CPMI firms are currently required to comply with both the prudential regime for AIFMs and investment firms, as set out in Chapter 11 of the Interim Prudential sourcebook for Investment Businesses (IPRU-INV) and the Prudential sourcebook for MiFID investment firms (MIFIDPRU) in the FCA Handbook. The removal of the business restriction, and with it the need for the CPMI regime, should therefore materially reduce the burden of operating under dual prudential regimes.

What Comes Next

Q2 2026: HM Treasury and FCA expected to consult on a revised framework

ACTION POINTS

1. Monitor HM Treasury and FCA consultations in 2026.

2. If implemented, map the proposed NAV tiers to your firm and products and assess implications for your firm’s permissions, governance, and reporting requirements.

 

3. UK MiFIR Transaction Reporting 

MONITOR

Key Date: H2 2027

What Is Changing 

The FCA is consulting on replacing the current UK Markets in Financial Instruments Regulation (MiFIR) transaction reporting regime with a new framework in the Market Conduct Sourcebook (MAR). 

Buy-side portfolio management firms have been advocating for the FCA to move to single-sided reporting, so that only sell-side firms would need to report, but the FCA has decided not to do so and instead created a new “conditional single-sided reporting” regime. The FCA is also consulting on narrowing the scope of transaction reporting to instruments admitted to trading or traded on UK trading venues; removing FX derivatives from scope entirely; and reducing mandatory reporting fields from 65 to 52. For further details, see our December 2025 Update.

Who Is Affected

UK MiFID investment firms, UK branches of non-UK investment firms, UK trading venue operators, and relevant service providers.

Why This Matters

Buy-side portfolio management firms will be disappointed by the FCA’s rejection of the move entirely to a single-side reporting regime. Conditional single-sided reporting is unlikely to be a panacea given it is available only when facing UK MiFID firms. In addition, it is unclear whether all UK sell-side firms would offer conditional single-sided reporting solutions and what costs (if any) would arise. Accordingly, most buy-side firms would likely continue to have to maintain their existing systems in full for transaction reporting as a result.

That said, the removal of FX derivatives and instruments traded solely on EU trading venues from UK transaction reporting should materially reduce reporting burden for UK investment firms. The FCA’s rationale for removing FX derivatives is also pragmatic. Although FX derivatives represented only 3.8% of transaction reports received by the FCA in 2024, they accounted for 8% of all reported errors and omissions, indicating that this asset class is disproportionately difficult and costly to report accurately.

What Comes Next

20 February 2026: Consultation closes.
H2 2026: FCA Policy Statement and final rules expected.
H2 2027/H1 2028: Implementation expected approximately 18 months after Policy Statement.

ACTION POINTS

Once final rules are published, map instruments and data fields that will fall out of scope, consider engaging with sell-side brokers to enter into conditional single-sided reporting agreements, and engage early with Approved Reporting Mechanism (ARM) and vendors on required system changes.

 

4. UK Short Selling Regulation 

ACTION REQUIRED

Key Date: H1 2026

What Is Changing 

The FCA proposes to replace the EU-derived UK Short Selling Regulation with a standalone UK regime, to be implemented through a new Short Selling Sourcebook in the FCA Handbook.

Under the proposals, the deadline for notifying net short positions would move from 15:30 to 23:59 on T+1, and the requirement for public disclosure of individual net short positions (at or above 0.5%) would be removed. Instead, the FCA would publish anonymised, aggregated net short position data by issuer on T+2. The FCA would also introduce a machine-readable reportable shares list (RSL), identifying shares subject to reporting and covering obligations, updated monthly and fully reviewed every two years.

Implementation would occur in two phases. Phase 1, expected in mid-2026, would bring the substantive requirements of the new Short Selling Sourcebook into force, including reporting and covering obligations, with firms continuing to use existing reporting infrastructure. Phase 2, expected in late 2026, would migrate reporting to a new FCA online portal. For further details, see our November 2025 Update.

Who Is Affected

Any person, regardless of domicile, that holds or trades net short positions in shares listed on the FCA’s RSL.

Why This Matters

The asset management industry has long supported these reforms, particularly the move to aggregated public disclosure, which should reduce the risk of short squeezes and mitigate the signalling effects associated with public disclosure of firm-specific positions.

However, the changes apply only in the UK. The EU has shown no appetite to adopt a similar approach, meaning firms active in both markets will need to manage parallel short selling regimes with different thresholds (UK 0.2% vs EU 0.1% initial notification thresholds), divergent deadlines (UK 23:59 vs EU 15:30), and different disclosure models (anonymous aggregate vs named individual).

What Comes Next

Q2 2026: FCA Policy Statement, final rules, and draft RSL expected.
H1 2026: Phase 1 changes take effect.
H2 2026: Phase 2 new reporting portal goes live.

ACTION POINTS

1. Update internal processes to meet the 23:59 T+1 reporting deadline once rules are final.

2. Prepare to ingest and map the draft RSL when issued (expected approximately two months before commencement) and align internal instrument coverage and controls accordingly.

 

5. UK Senior Managers and Certification Regime 

ACTION REQUIRED

Key Date: Mid-2026

What Is Changing 

The Senior Managers and Certification Regime (SMCR) is set for its most significant reform since introduction, to be delivered in two phases.

Phase 1 addresses operational issues. Firms would have up to 12 weeks to submit, rather than obtain, approval for temporary Senior Manager appointments. Criminal record checks would remain valid for six months instead of three and would no longer be required for internal group transfers where the individual already holds senior manager approval.

Phase 2, which requires primary legislation, is more structural. HM Treasury has proposed removing the Certification Regime from statute to allow the FCA and Prudential Regulation Authority (PRA) to design a more flexible replacement. Separately, for the Senior Managers Regime, HM Treasury proposes a new framework under which the FCA and PRA can determine which senior management roles require regulatory pre-approval, which require only notification, and which require no regulatory process. For further details, see our August 2025 Update.

Who Is Affected

All firms authorised under the Financial Services and Markets Act 2000 (FSMA).

Why This Matters

The reforms support the government’s growth agenda and its stated objective of reducing SMCR compliance burden by 50%. The Phase 1 changes are relatively modest and, in isolation, unlikely to materially reduce the overall compliance burden. More substantive compliance relief is expected to depend on Phase 2, which could significantly reshape the SMCR, depending on how regulatory discretion is exercised.

What Comes Next

Q1 2026: Phase 1 final rules expected.
Mid - 2026: Phase 1 changes take effect.
TBD: Phase 2 progress subject to parliamentary timetable.

ACTION POINTS

Monitor HM Treasury and FCA publications in 2026 and assess implications for governance, senior management structures, and internal processes.

 

6. UK Non-Financial Misconduct

ACTION REQUIRED

Key Date: 1 Sep 2026

What Is Changing 

From 1 September 2026, the FCA will extend the Code of Conduct sourcebook (COCON) to cover serious work-related non-financial misconduct (NFM) in non-bank SMCR firms. This aligns the treatment of banks and non-banks and brings a wider range of misconduct within regulatory scope.

Work-related NFM will fall within COCON where either the individual responsible or the individual affected works in the firm’s financial services business. Conduct unrelated to a firm’s financial services activities, and conduct in an individual’s private life, will remain outside COCON, although such conduct may be relevant to fitness and propriety assessments where it presents a material regulatory risk.

Managers, including Senior Managers, may breach COCON where they fail to take reasonable steps to protect staff or to maintain effective systems and controls to identify and address non-financial misconduct. They will not, however, be accountable for matters they could not reasonably have known about or were not empowered to address. For further details, see our Sidley Update “UK Financial Conduct Authority Finalises Non-Financial Misconduct Framework: What Firms Need to Do Now.”

Who Is Affected

All FCA-authorised firms subject to the SMCR, and individuals subject to COCON and fitness and propriety requirements.

Why This Matters

NFM is now a regulatory risk rather than solely an HR issue. Serious cases may give rise to conduct rule breaches, enforcement action, individual sanctions, and adverse regulatory references, with no time limit on the disclosure of serious misconduct.

The FCA continues to prioritise standards of conduct and behaviour within authorised firms, as reflected in its current supervisory and enforcement activity, including 76 open supervisory cases and one enforcement case relating to non-financial misconduct. Against that backdrop, firms with weak governance, poor escalation, inadequate investigations, or deficient record-keeping face heightened supervisory and enforcement risk.

What Comes Next

1 September 2026: New COCON rule 1.1.7FR and related guidance take effect.

ACTION POINTS

1. Update conduct, disciplinary, and investigation policies to reflect revised COCON and fitness and propriety standards.

2. Review and update regulatory reference and record-keeping processes.

3. Train managers on identifying, escalating, and handling NFM.

 

7. UK Client Categorisation Regime

MONITOR

Key Date: Q2 2026

What Is Changing

The FCA is consulting on reforms to the client categorisation regime in Chapter 3 of the Conduct of Business Sourcebook (COBS). It proposes to replace the COBS 3.5.3R(2) “quantitative test” with an enhanced qualitative assessment, requiring firms to assess a client’s expertise, experience, and knowledge holistically and to exercise and document reasoned judgement.

In parallel, the FCA proposes a separate wealth-based opt-up route, under which individuals with at least £10 million in investable assets, comprising designated investments and/or cash, could elect professional client status without a qualitative assessment, subject to informed consent and clear risk warnings. Firms would be required to reassess all existing elective, and certain per se, professional clients within 12 months of the new rules taking effect. For further details, see our January 2026 Update.

Who Is Affected

FCA-authorised firms applying COBS client categorisation, including UK MiFID investment firms and UK AIFMs.

Why This Matters

The asset management industry would welcome the removal of the COBS 3.5.3R(2) quantitative test, which has long been criticised for excluding genuinely sophisticated investors, including those pursuing buy-and-hold or illiquid strategies or trading infrequently by design. This is particularly important given the role of COBS 3 opt-ups in AIFMD marketing, where rigid quantitative thresholds can restrict access for employees, senior staff, and certain family investment vehicles despite their sophistication.

At the same time, the proposed regime places greater reliance on judgement, particularly where clients are opted up through the enhanced qualitative assessment. This increases legal and supervisory risk, as such assessments are harder to demonstrate, more open to challenge, and more likely to attract scrutiny through complaints and supervisory review.

The proposals also widen UK-EU divergence. The UK would move away from an EU-style quantitative test, while the EU Retail Investment Strategy is expected to retain a revised quantitative framework with an additional education or training limb. As a result, the same client may be categorised differently across jurisdictions, with direct implications for disclosures and product access.

What Comes Next 

16 February 2026: Consultation closes.
Q2 2026: Policy Statement and final rules expected.

ACTION POINTS

1. Monitor the FCA Policy Statement for final rules and timing.

2. If implemented, update client categorisation policies, governance, and documentation, and plan the 12-month reassessment of existing elective professional clients.

 

8. UK Consumer Composite Investment Regime 

ACTION REQUIRED

Key Date: 8 June 2027

What Is Changing 

From 6 April 2026, the FCA will replace the onshored Packaged Retail and Insurance-based Investment Products (PRIIPs) regime and the Undertakings for Collective Investment in Transferable Securities (UCITS) disclosure requirements with a new disclosure regime for Consumer Composite Investments (CCIs).

CCIs broadly mirror the scope of PRIIPs and cover packaged investments offered to UK retail investors, including investment funds, structured products, and insurance-based investments. Closed-ended investment funds will remain in scope, notwithstanding industry calls for their exclusion.

Under the new regime, manufacturers must produce a short, clear product summary setting out standardised information on costs, risk, return, and past performance. Distributors must provide the product summary to retail investors unamended in a durable medium at the point of sale, or shortly after, and must take reasonable steps before sale to promote engagement with key information.

A transitional period will apply until June 2027, during which firms may continue to comply with the existing PRIIPs and UCITS disclosure requirements rather than adopting the CCI regime immediately. For further details, see our January 2026 Update.

Who Is Affected

Any firm, including unregulated or overseas fund managers, that manufactures or distributes CCIs to UK retail investors.

Why This Matters

The CCI regime represents a clear point of divergence from the EU PRIIPs framework, including differences in risk indicators, cost calculations, and presentation. Firms marketing the same products in the UK and EU will therefore (in due course) need to maintain parallel disclosure documents using different methodologies, increasing operational complexity.

What Comes Next

6 April 2026: CCI regime takes effect; optional early adoption begins.
April 2026 - June 2027: Transitional period; firms may comply with either regime.
8 June 2027: CCI regime becomes mandatory; PRIIPs key information document and UCITS key investor information document repealed.

ACTION POINTS

1. Identify all CCIs manufactured or distributed to UK retail investors and confirm the firm’s role for each product (manufacturer, co-manufacturer, distributor).

2. Assess whether systems, data, and governance can support mandated CCI disclosures.

3. Update distributor agreements to require (or, if a distributor, negotiate) delivery of the product summary unamended and the promotion of engagement with key information before sale.

 

9. UK Investment Firms Prudential Regime 

IMMEDIATE ACTION

Key Date: 1 Apr 2026

What Is Changing 

The FCA will introduce standalone definitions of regulatory capital (own funds) for firms subject to the UK Investment Firms Prudential Regime (IFPR), removing references to the UK Capital Requirements Regulation (UK CRR). From 1 April 2026, firms will rely solely on MIFIDPRU 3 to determine the eligibility and classification of own funds. 

The changes include a number of targeted clarifications. Interim profits may be recognised as Common Equity Tier 1 (CET1) capital immediately following notification to the FCA, rather than requiring prior approval, provided they are independently verified and adjusted for foreseeable dividends and charges. For partnerships, including LLPs, profits will qualify as CET1 only where the partnership has an unconditional and indefinite right to refuse distributions. Shares must be fully paid up to qualify as CET1, but their status will not be affected by subsequent arm’s-length intra-group transactions or treasury arrangements, including intercompany lending arrangements. For further details, see our November 2025 Update. 

Who Is Affected

FCA-authorised investment firms, CPMI firms, and UK parent undertakings subject to IFPR prudential consolidation or Group Capital Test.

Why This Matters

The changes are intended to simplify the application of the IFPR and improve consistency in the recognition of regulatory capital. They also sit within a broader FCA strategy to streamline prudential regulation by consolidating core concepts into a single Core Prudential Sourcebook, applying common baseline requirements to FCA solo-regulated firms with sector-specific modules layered on top.

In parallel, recent PRA and FCA remuneration reforms for dual-regulated firms signal a shift towards greater proportionality, flexibility, and alignment with international standards. This direction of travel may foreshadow further reforms to the FCA’s solo remuneration regimes, including under MIFIDPRU and the UK AIFM Remuneration Code, as the FCA continues its review of solo remuneration requirements.

What Comes Next

1 April 2026: MIFIDPRU 3 amendments take effect; no transitional relief.

ACTION POINTS

Partnerships, including limited liability partnerships (LLPs) should review constitutional documents and profit allocation arrangements to confirm that no enforceable withdrawal rights exist that would prevent profits from qualifying as CET1 and should document the analysis accordingly.

 

10. UK Commodity Derivatives Regime 

ACTION REQUIRED

Key Date: 6 Jul 2026

What Is Changing 

The FCA is replacing the onshored MiFID II commodity derivatives regime with a new UK framework.

From 6 July 2026, position limits will apply only to 14 designated “critical” commodity contracts traded on UK trading venues, together with defined related contracts linked to those instruments, such as options, minis, and spreads. Responsibility for setting position limits and accountability thresholds will shift from the FCA to trading venues, which will also publish the list of related contracts, subject to FCA review and non-objection.

The new regime also introduces exemptions for liquidity provision and pass-through hedging alongside a simplified hedging exemption. For further details, see our March 2025 Update.

Who Is Affected

Operators of UK trading venues and firms trading commodity derivatives on UK trading venues.

Why This Matters

Firms that do not trade the designated critical contracts should see a material reduction in compliance burden. The new framework is intended to support faster and more proportionate responses to market volatility, reflecting the FCA’s view that trading venues are best placed to calibrate controls for their markets, informed by recent stress events such as the suspension of London Metal Exchange nickel trading in 2022.

However, shifting responsibility from the FCA to trading venues introduces greater variability. Different venues may adopt different methodologies for position limits, accountability thresholds, and exemptions, increasing tracking and compliance complexity for firms active across multiple UK venues. Trading venues will also have broader powers to request over-the-counter position data and require look-through to ultimate position holders at any time, increasing reporting and transparency demands, particularly for firms trading indirectly through brokers or clearing members.

What Comes Next

6 July 2026: New rules take effect.

ACTION POINTS

1. Monitor venue guidance on position limits, accountability thresholds, and exemptions.

2. Ensure systems can identify and aggregate positions to end-client level, as venues or clearing members may require this information.

 

11. UK Operational Incident and Third-Party Reporting

MONITOR

Key Date: H1 2027

What Is Changing

The FCA proposes a new, standardised framework for reporting operational incidents and, for certain firms, material third-party arrangements. An “operational incident” would include any single event, or series of linked events, that disrupts operations, including service delivery or the availability, integrity, or confidentiality of data, where it creates actual or potential risk to consumers, market integrity, or a firm’s safety and soundness. 

Incidents would be reported through a staged process comprising (i) an initial notification when the reporting threshold is met, (ii) interim updates following material developments, and (iii) a final report within 30 working days of resolution, extendable to 60 working days where necessary.

In parallel, certain firms would be required to notify the FCA before entering into, or making significant changes to, a material third-party arrangement, including non-outsourcing arrangements such as data, software, or technology services. Those firms would also be required to maintain and submit an annual register of such arrangements.   

Who Is Affected

All FCA-regulated firms will be subject to operational incident reporting. A subset of firms, including enhanced-scope SMCR firms, will also be subject to material third-party arrangement reporting.  

Why This Matters

The proposals are intended to improve the FCA’s visibility of operational risk and third-party dependencies across the market, strengthening oversight of systemic resilience. They would replace what has often been an inconsistent, judgement-led process with a more standardised framework that requires firms to define, detect, and classify operational incidents consistently, and to maintain accurate records and registers of material third-party arrangements. 

If implemented, firms will need clear internal triggers and escalation processes to ensure timely notifications, ongoing updates, and robust root-cause reporting. 

What Comes Next

H1 2026: FCA Policy Statement and final rules expected.
H1 2027: Implementation occurs 12 months after final rules.

ACTION POINTS

1. Monitor the FCA Policy Statement for final rules, timing, and guidance.

2. Review and align internal incident thresholds, escalation pathways, and reporting processes with finalised rules.

 

12. UK T+1 Settlement Transition

MONITOR

Key Date: 11 Oct 2027

What Is Changing 

From 11 October 2027, the UK will move to a T+1 settlement cycle for transferable securities traded on UK trading venues, aligning with the EU and Switzerland, each of which will implement T+1 on the same date. HM Treasury has published a draft statutory instrument preserving exemptions for privately negotiated trades and introducing a new exemption for securities financing transactions. 

Although not mandatory, industry bodies are recommending that fund subscription and redemption cycles move to T+2 by October 2027 to mitigate funding and liquidity mismatches created by the shortened settlement cycle. For further details, see our November 2025 Update.

Who Is Affected

All firms that trade transferable securities, such as shares, bonds, and ETFs, on UK trading venues.   

Why This Matters

T+1 settlement reduces counterparty and settlement risk but requires significant operational, systems, and process change. The FCA expects firms to have completed planning by the end of 2025, implement changes by the end of 2026, and participate in market-wide testing during 2027.  

The shortened settlement timeline creates practical challenges, particularly for FX transactions. Firms may need to pre-fund sterling positions or establish additional currency facilities and reassess FX processes and liquidity coverage for cross-border trades. These pressures are likely to be felt most acutely by smaller and mid-sized firms. 

Industry readiness remains uneven. Although most firms have begun preparatory work, a significant minority may struggle to meet key 2026 milestones. The FCA has also made clear that firms cannot rely on solutions developed for the U.S. transition, reflecting the greater complexity of UK post-trade infrastructure and the absence of the centralised affirmation processes that supported the U.S. move. 

What Comes Next

End 2026: Complete required operational and systems changes.
11 October 2027: T+1 settlement takes effect.

ACTION POINTS

1. Establish a dedicated T+1 programme with clear governance, funding, and senior management accountability.

2. Engage early with brokers, custodians, central counterparties, and technology providers to align timelines and dependencies.

 

13. UK-Switzerland Berne Financial Services Agreement

MONITOR

Key Date: In Force

What Is Changing 

The Berne Financial Services Agreement (BFSA) creates reciprocal market access between the UK and Switzerland for professional and institutional clients. Under the agreement, Swiss firms may provide specified investment services to UK professional and high-net-worth clients without FCA authorisation, while UK insurers and intermediaries may provide services to Swiss professional and institutional clients.

Access to the regime is obtained through a notification process, via the Swiss Financial Market Supervisory Authority (FINMA) platform for Swiss firms and FCA Connect for UK insurers, followed by inclusion on a public register. The BFSA does not affect fund marketing rules, which remain subject to national private placement regimes and UK financial promotion requirements. Nor does it displace existing exemptions, such as the overseas persons exclusion, unless a firm elects to rely on the BFSA for a particular service. For further details, see our January 2024 Update.

Who Is Affected

UK and Swiss investment firms providing cross-border services to professional and institutional clients. The regime excludes retail clients in both jurisdictions. 

Why This Matters

The BFSA delivers a clear and workable route to cross-border market access and provides a template for future bilateral agreements. It is likely to be most relevant for discretionary portfolio management, investment advice, and certain distribution-related services provided cross-border to professional clients. 

More broadly, the agreement demonstrates the viability of mutual recognition frameworks for cross-border financial services and signals the UK’s shift away from EU-style equivalence towards bespoke bilateral arrangements. The BFSA is designed to be dynamic and capable of expansion, and HM Treasury has indicated it may serve as a template for future negotiations with other financial centres.

What Comes Next

1 January 2026: Agreement entered into force.
Ongoing: FINMA and FCA process notifications and registrations.

ACTION POINTS

1. Decide whether to rely on the BFSA or continue to operate under existing exemptions, including the overseas persons exclusion.

2. Limit services provided under the BFSA to professional, institutional, or high-net-worth clients.

3. Identify and comply with applicable host-country conduct, disclosure, and reporting obligations.

 

14. EU Retail Investment Strategy

MONITOR

Key Date: H1 2026

What Is Changing

In December 2025, the Council of the European Union and the European Parliament reached a provisional political agreement on the EU Retail Investment Strategy (RIS). 

Among other changes, the RIS amends the elective professional client criteria under EU MiFID II by (i) lowering the portfolio threshold to €250,000 (from €500,000); (ii) expanding the transaction activity limb to include additional alternative criteria (such as 10 transactions over €30,000 in unlisted companies over the last five years); and (iii) broadening the experience limb to include relevant education or training.  

In announcing the agreement, the Council indicated that the revised framework is intended to allow a wider range of experienced investors to be treated as professional clients, including certain senior managers and directors of authorised firms and employees of AIFMs with relevant knowledge and experience. However, as of January 2026, the final legislative text has not yet been published, and it remains unclear whether the treatment of AIFM employees as professional clients will be reflected in the final amendments to MiFID II. For further details, see our January 2026 Update. 

Who Is Affected

EU-authorised firms applying MiFID II client categorisation, including EU MiFID investment firms and EU AIFMs, as well as non-EU AIFMs marketing AIFs in the EU. 

Why This Matters

The AIFMD defines a “professional investor” by reference to the MiFID professional client concept, meaning that changes to the elective professional client criteria have direct implications for fund marketing. The reduction in the portfolio threshold is therefore practically significant, as existing thresholds have long excluded genuinely sophisticated investors. 

The potential inclusion of AIFM employees as professional clients is also notable. Employee participation in alternative funds is common and often encouraged to align interests but has frequently been constrained by rigid quantitative tests that do not reflect employees’ expertise, access to information, or ability to assess risk. Whether, and in what form, this category is ultimately reflected in the final legislative text will be an important issue to monitor. 

What Comes Next

December 2025: Political agreement reached.
H1 2026: Final legislative texts expected.

ACTION POINTS

Monitor legislative developments and assess the impact of revised elective professional client criteria on fund marketing strategies, investor access, and onboarding processes, including in relation to employees and related investment vehicles.

 

15. EU SFDR 2.0

MONITOR

Key Date: Late 2027/2028

What Is Changing 

The European Commission has proposed a fundamental redesign of the Sustainable Finance Disclosure Regulation (SFDR). 

Under the proposed SFDR 2.0, the current Articles 6, 8, and 9 framework would be removed and replaced with three voluntary product categories: ESG Basics (new Article 8), Transition (new Article 7), and Sustainable (new Article 9). Any fund using environmental, social, and governance (ESG) or sustainability-related terminology would be required to opt into one of these categories and meet defined minimum conditions, including a 70% asset alignment threshold and mandatory sector exclusions. 

SFDR 2.0 would also remove entity-level Principal Adverse Impact (PAI) statements and remuneration sustainability disclosures, cap product disclosures at two pages, and replace the current “do no significant harm” test with an exclusion-based approach. 

For further details, see our Sidley Update “SFDR 2.0: Five Key Takeaways From the European Commission’s Proposal for Revising the EU Sustainable Finance Disclosure Regulation.” 

Who Is Affected

EU AIFMs and UCITS management companies and non-EU AIFMs marketing AIFs in the EU. Financial advisers and discretionary portfolio managers are excluded from the scope of SFDR 2.0.

Why This Matters

SFDR 2.0 would shift decisively from a disclosure regime to a product categorisation regime. The broad and flexible Article 8 category would fall away, forcing funds either to meet prescriptive criteria or to remove ESG and sustainability language altogether. This significantly increases legal, regulatory, and reputational risk around product naming, classification, and marketing.

While the removal of entity-level PAIs would reduce some ongoing compliance burden, the proposed product-level requirements remain demanding, particularly for managers of private assets where data availability and methodological challenges persist.

What Comes Next

2026: EU legislative negotiations in Parliament and Council.
Late 2026: Final regulation expected.
Late 2027 or 2028: Application date, approximately 18 months after adoption.

ACTION POINTS

No immediate implementation steps while the proposals remain under negotiation. Monitor legislative progress.

 

16. EU CSRD and CS3D

MONITOR

Key Date: 1 Jan 2027

What Is Changing 

The EU has agreed on measures to simplify and narrow the scope of the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CS3D).

CSRD will apply only to companies with more than 1,000 employees and net turnover exceeding €450 million, assessed on a standalone or consolidated basis. For non-EU ultimate parent undertakings, CSRD will apply only where EU-generated turnover exceeds €450 million in each of the last two financial years and the group has an EU subsidiary or branch generating more than €200 million in turnover. Listed small and medium-sized enterprises (SMEs) are excluded from mandatory reporting.

CS3D will be limited to very large companies with more than 5,000 employees and net turnover exceeding €1.5 billion. For non-EU companies, the directive will apply only where EU net turnover exceeds €1.5 billion. For further details, see our Sidley Update “EU Omnibus Package: Key Changes Proposed by the Commission on ESG Reporting and Due Diligence.”

Who Is Affected

EU companies and non-EU issuers or ultimate parent undertakings that meet the revised CSRD or CS3D thresholds.

Why This Matters

The amendments represent a significant recalibration of the EU’s corporate sustainability framework, substantially reducing the number of companies directly subject to sustainability reporting and due diligence obligations compared with earlier proposals.

They also ease pressure on value chains and SMEs while addressing concerns around scope creep, proportionality, and greenwashing risk.

What Comes Next

Early 2026: Omnibus I amendments published in the Official Journal of the EU and enter into force
1 January 2027: Revised CSRD reporting obligations begin for large EU companies.
1 January 2028: Revised CSRD obligations begin for qualifying non-EU parent groups.
26 July 2028: Deadline for Member States to transpose CS3D into national law.
26 July 2029: CS3D due diligence obligations apply to in-scope companies.

ACTION POINTS

1. Assess whether your group or portfolio companies remain in scope under the revised CSRD and CS3D thresholds.

2. Revisit ESG reporting and due diligence roadmaps to reflect reduced scope, delayed timelines, and simplified requirements.