UK EU Investment Management Update April 2026

In this Sidley Update, we cover, on the UK side, the new operational incident and third-party reporting regime, the Financial Conduct Authority (FCA) new sector priorities reports, recent FCA enforcement actions, the Supreme Court’s judgment on principal liability for appointed representatives, and the Bank of England (BoE) assessment of financial stability risks from agentic AI.

On the EU side, we cover the final European Securities and Markets Authority (ESMA) guidelines on liquidity management tools for Undertakings for Collective Investment in Transferable Securities (UCITS) and open-ended alternative investment funds (AIFs), and a European Court of Justice judgment on when insider-list communications may constitute inside information under the Market Abuse Regulation (MAR).

1. UK — FCA Sector Priorities

2. UK — FCA Perimeter Report (AI and Prediction Markets)

3. UK — Enforcement

4. UK — Appointed Representatives Regime

5. UK — Operational Resilience

6. UK — Anti-Money Laundering

7. UK — AI

8. EU — AIFMD

9. EU — Market Abuse Regulation

1. UK — FCA Sector Priorities

FCA publishes 2026 regulatory priorities for wholesale buy-side and wholesale markets

On 19 March 2026, the FCA published its first annual Regulatory Priorities reports for the wholesale buy-side and wholesale markets sectors, replacing its previous portfolio letter approach with consolidated sector-specific guidance. Together, the two reports set out FCA supervisory focus areas and key regulatory deliverables for 2026 across the asset management and wholesale markets.

The buy-side report identifies four priority areas for 2026, three of which are of particular relevance to investment managers:

• Evolving regulation to foster growth and innovation. Within this priority, the FCA plans to consult on a more proportionate regime for alternative investment fund managers (AIFMs), transform the regulatory data model for asset managers and funds to remove unnecessary reporting, and continue supporting work on tokenisation and digital market infrastructure. The FCA also noted that where data gaps persist, particularly regarding concentration and leverage, it may require more data to monitor risks to market integrity or financial stability.
• Reinforcing consistent, high standards across private market investing. The FCA will continue examining firms’ approaches to valuations and conflicts of interest, support the BoE’s private markets system-wide exploratory scenario, and contribute to international work on private credit, data gaps, and valuation practices.
• Preserving market integrity and resilience to disruption. The FCA will continue data-led supervisory work to identify outlier firms and funds using high leverage, illiquid, or concentrated investment strategies. The FCA will also collect information from a cross-section of firms to assess the maturity of their insider risk management practices.

Additionally, the FCA confirmed it will review the prudential requirements for AIFMs as part of its broader UK Alternative Investment Fund Managers Directive (AIFMD) consultation in the third quarter of 2026 and will separately engage with firms during the same period to review the effectiveness of its remuneration rules for solo-regulated investment firms.

The wholesale markets report, published concurrently, signals a broader pivot toward a more outcomes-focused and agile supervisory model, under which wholesale market participants will be afforded greater flexibility to take risk-based decisions while the FCA calibrates its supervisory intensity in line with its own assessment of risk.

Regarding specific regulatory deliverables relevant to how buy-side firms interact with wholesale markets, the FCA confirmed it will publish final rules for the revised UK securitisation framework, issue a policy statement on the new UK short selling regime, and publish final rules on client categorisation. The wholesale markets report also outlines further supervisory work covering conflicts and conduct in the trading and origination activities of wholesale banks, reviews of controls relating to non-financial misconduct and pre-hedging, assessments of major principal trading firms’ financial resilience using their Internal Capital Adequacy and Risk Assessment processes, and a post-implementation review of the Investment Firms Prudential Regime.

2. UK — FCA Perimeter Report (AI and Prediction Markets)

FCA publishes latest perimeter report

On 26 March 2026, the FCA published its latest perimeter report, setting out current issues at the boundary of its regulatory remit and identifying areas where legislative reform is needed. The report contains 29 entries and specifically calls on the government to act on 15 areas where changes to the perimeter are required. Notable new issues raised in this year's report:

• General-purpose large language models (LLMs). The FCA notes that consumers are increasingly using general-purpose LLM platforms, such as ChatGPT or Claude, to inform their financial decision-making. The FCA position is that these tools fall outside the regulatory perimeter: Consumers using them are not receiving regulated advice and do not benefit from Financial Ombudsman Service or Financial Services Compensation Scheme protections. Conversely, an LLM deployed specifically to provide financial advice would, in the FCA’s view, likely fall within the perimeter. The FCA observes that as AI adoption grows, the boundaries of the perimeter are becoming increasingly complex.
• Prediction market products (PMPs). PMPs allow market participants to take binary positions on the outcome of future events. The FCA notes that PMPs linked to non-financial events, such as sporting or political outcomes, fall within the Gambling Commission’s remit, whereas those referencing financial or certain climatic events fall within the FCA’s perimeter. The FCA’s current view is that the financial PMPs it has seen are binary options and therefore remain subject to the permanent ban on the sale of binary options to retail consumers. The FCA will consider whether to undertake further work on access to these products or to clarify the perimeter.

The report also carries forward several outstanding items from previous editions that remain unresolved. These include the FCA’s call for government action regarding the Financial Promotion Order exemptions, specifically advocating for the removal of self-certification and the introduction of higher thresholds for high-net-worth and sophisticated investors to close consumer protection gaps.

3. UK — Enforcement

FCA fines Dinosaur Merchant Bank Limited for market abuse surveillance failures

On 27 March 2026, the FCA announced that it had fined Dinosaur Merchant Bank Limited (DMBL) £338,000 for failing to establish effective systems and controls to detect and report suspicious trading in its contracts for difference (CFD) business. The FCA found that DMBL breached Article 16(2) of the UK MAR, alongside SYSC 6.1.1R and Principle 3 of the FCA Principles for Businesses.

The surveillance failures primarily stemmed from DMBL’s introduction of a new direct market access order execution platform in June 2024. DMBL failed to undertake a risk assessment prior to the platform’s implementation, and consequently, trading data from the new platform was not ingested into its automated surveillance system for several months. The issue came to light only in September 2024 after the FCA itself identified potentially suspicious client trading and contacted DMBL to ascertain why no Suspicious Transaction and Order Reports (STORs) had been submitted.

The failings affected 2,194 trades with a notional value of approximately US$3.05 billion. A subsequent review generated 2,916 surveillance alerts, of which 2,723 related to insider dealing, resulting in multiple STORs being submitted to the FCA.

The FCA also identified broader weaknesses in DMBL governance and control framework, including the absence of formal written procedures for alert review and escalation, weak alert calibration, deficiencies in management information provided to the Board, and the absence of a change control process to ensure that market abuse risks were properly considered when the new platform was introduced. 

FCA bans Kasim Garipoglu from UK financial services

On 13 March 2026, the FCA issued a final notice prohibiting Kasim Garipoglu from performing any function in relation to regulated activities in the UK. The FCA concluded that Garipoglu, the former chief executive and ultimate beneficial owner of an online spot foreign exchange and CFD trading firm, lacked honesty and integrity, rendering him not a fit and proper person to work in the UK financial services industry.

The Final Notice details a prolonged pattern of poor conduct in which Garipoglu systematically disregarded anti-money laundering (AML) obligations and broader regulatory requirements. The FCA found that he repeatedly overruled and undermined senior AML and compliance personnel, positively encouraged excessive risk-taking, and instructed staff to prioritise profitability at the expense of regulatory compliance. Furthermore, he demonstrated a willingness to run a serious risk of breaching regulatory requirements, or actually breach them, to secure a commercial advantage, treating potential financial penalties merely as a calculated cost of doing business.

Alongside these governance failings, Garipoglu repeatedly and deliberately sought to mislead the FCA and other regulatory bodies over nearly a decade by providing false and misleading information. This included falsely claiming to have completed mandatory AML training, arranging for a forged utility bill to evidence an employee’s UK residency, submitting a doctored university degree certificate to an overseas regulator, and giving knowingly false answers on a change in control application form regarding ongoing regulatory and criminal investigations.

4. UK — Appointed Representatives Regime

Supreme Court clarifies the scope of principal responsibility under Section 39 FSMAOn 1 April 2026, the Supreme Court delivered a unanimous judgment in Kession Capital Ltd (in Liquidation) v KVB Consultants Ltd and others [2026] UKSC 11, allowing Kession’s appeal regarding the scope of a principal firm’s liability for its appointed representative (AR) under section 39 of the Financial Services and Markets Act 2000 (FSMA). The appeal concerned whether Kession, as the principal, was legally responsible under Section 39(3) of FSMA for the activities of its AR, JHM, in dealing with retail clients, despite the fact that Kession’s own Part 4A permission restricted it from dealing with retail clients and the Appointed Representative Agreement (ARA) expressly prohibited JHM from conducting business with them.

The Court outlined the three critical steps required by Section 39(1) of FSMA. First, there must be a contract permitting or requiring the AR to carry on a prescribed business; second, the authorised principal firm must accept responsibility in writing for the whole or a “part” of that business; and third, if those requirements are met, the AR is exempt from the general prohibition only regarding the specific business or part for which the principal has accepted responsibility.

The Court held that dealing with a particular category of clients, such as retail clients, constitutes a “part” of the relevant business for these purposes. However, because the ARA expressly prohibited JHM from advising on or arranging deals for retail clients, Kession had not accepted responsibility for that part of the business. Kession was therefore not liable under Section 39(3) FSMA for JHM’s activities in relation to retail clients. As such, JHM was not exempt in respect of those activities and remained subject to the general prohibition in Section 19 FSMA.

The decision is important for principal firms because it confirms that responsibility under Section 39 FSMA is confined to the scope of the business the principal has permitted or required the AR to carry on and for which it has accepted responsibility in writing. It therefore underscores the importance of defining and enforcing those boundaries with precision.

5. UK — Operational Resilience

BoE, PRA, and FCA finalise operational incident and third-party reporting regime

On 18 March 2026, the FCA, the Prudential Regulation Authority (PRA), and the BoE published final policy statements and supervisory guidance establishing a new, standardised framework for reporting operational incidents and material third-party arrangements.

Across the final policy statements, the regulators have significantly streamlined their original consultation proposals by adopting a single framework for operational incident reporting with common definitions and a common reporting template, together with a single submission route via FCA Connect and RegData.

Key elements of the new framework:

ESMA publishes final guidelines on liquidity management tools for UCITS and open-ended AIFs

On 12 March 2026, ESMA published final guidelines on the selection, activation, and calibration of liquidity management tools (LMTs) by UCITS managers and managers of open-ended AIFs. The guidelines were issued pursuant to the mandates in Article 18a(4) of the UCITS Directive and Article 16(2h) of the AIFMD, as amended by Directive (EU) 2024/927. They incorporate targeted amendments made in December 2025 to align the guidelines with the regulatory technical standards (RTS) on LMTs adopted by the European Commission on 17 November 2025, in particular in relation to investor-level redemption gates for open-ended AIFs and the treatment of implicit transaction costs in anti-dilution tools.

The guidelines confirm that primary responsibility for liquidity risk management remains with fund managers. When selecting LMTs, managers must assess the suitability of available tools against factors including the fund’s legal structure, strategy, dealing terms, liquidity profile, stress testing results, investor base, and operational constraints. While the UCITS Directive and AIFMD require managers to select at least two appropriate LMTs, ESMA notes that managers may select more than two tools and may also use additional liquidity measures.

Key expectations in the guidelines:

• At least one quantitative-based LMT and at least one anti-dilution tool. Managers should, where appropriate, consider selecting at least one quantitative-based LMT, such as redemption gates or extensions of notice periods, and at least one anti-dilution tool, such as redemption fees, swing pricing, dual pricing, or an anti-dilution levy.
• Exceptional use of suspensions and side pockets. Suspensions and side pockets should generally be reserved for exceptional circumstances.
• Calibration of anti-dilution tools. Anti-dilution tools should be calibrated and used under both normal and stressed market conditions so that estimated liquidity costs are borne by subscribing and redeeming investors rather than remaining investors.
• Supervisory evidencing. Managers should be able to demonstrate to their competent authority that the activation and calibration of selected LMTs are appropriate and in investors’ best interests.

The guidelines will apply from the date of application of the related RTS on 16 April 2026. Funds in existence before that date will benefit from a 12-month transitional period, with compliance required by 16 April 2027.