UK/EU Investment Management Update (September 2026)

In this Sidley Update, we cover, on the UK side, the Financial Conduct Authority’s (FCA) first UK market-wide analysis of alternative investment funds, new UK rules on fund liquidity and non-financial misconduct (NFM), FCA guidance on frontier artificial intelligence (AI) use and recent enforcement and financial crime developments.

On the European Union (EU) side, we cover the statement from the European Supervisory Authorities (ESAs) on AI, the request from the European Commission (Commission) for advice from the European Securities and Markets Authority (ESMA) on the Retail Investment Strategy, and revisions to the EU derivatives frameworks.

1. UK – Asset Management
2. UK – Non-Financial Misconduct
3. UK – Enforcement
4. UK – Financial Crime and Market Abuse
5. UK – Artificial Intelligence
6. UK – FCA (General)
7. EU – Artifical Intelligence
8. EU – Retail Investment Strategy
9. EU – Derivatives
10. EU – Capital Requirements Directive

 

1. UK – Asset Management

FCA publishes research note on UK alternatives market using regulatory reporting data

On 3 September 2026, the FCA published its first market-wide analysis of the UK alternative investment fund (AIF) sector using regulatory data reported under Alternative Investment Fund Managers Directive (AIFMD) framework (as implemented in UK law through the UK Alternative Investment Fund Managers Regulations 2013). The analysis covers data on AIFs available to UK investors between 2021 and 2025 and, for UK-managed AIFs, data extending back to 2016.

The research finds that:

• Market growth. The value of AIFs managed in the UK reached £1.8 trillion in 2025. Growth in funds marketed in the UK was broadly distributed across a range of strategies, with private credit among the fastest-growing segments.
• Investor base. Professional investors continue to account for the majority of the UK AIF investor base.
• Risk concentration. The FCA’s data suggest that leverage and liquidity risks are concentrated in particular strategies and funds rather than spread uniformly across the sector.
• Market structure. The sector comprises a large number of specialist firms, with a small subset of firms managing very substantial pools of alternative assets.

The FCA notes that the research has informed the FCA’s current proposals to modernise the UK alternative investment fund manager (AIFM) regime and provides a pre-reform baseline against which the FCA can evaluate the effects of regulatory change. For further background on the FCA’s July 2026 AIFM, remuneration, and Fund Reporting for Asset Management Entities (FRAME) consultations, see our August 2026 Update.

The data also provide additional context on where growth and potential vulnerabilities are concentrated, and where the FCA may focus its future supervisory work. Private credit assets more than doubled between 2021 and 2025 to approximately £335 billion, although private credit remains only one part of the wider alternatives market. Hedge funds account for a disproportionate share of sector leverage, much of which reflects derivatives use rather than outright borrowing, while the FCA identifies potential liquidity mismatches in a comparatively limited subset of funds. The FCA’s findings that risks are concentrated within particular strategies supports its proposals to apply a more differentiated approach to supervision and reporting across AIFMs and AIFs in the new AIFM and FRAME regimes, rather than treating the alternatives sector as homogeneous.

FCA publishes policy statement on enhancing fund liquidity risk management

On 13 August 2026, the FCA published Policy Statement PS26/17, finalising changes to liquidity risk management requirements for authorised fund managers (AFMs) of UK Undertakings for Collective Investment in Transferable Securities schemes (UCITS) and non-UCITS retail schemes (NURS).

Among other changes, AFMs must maintain appropriate anti-dilution arrangements where dilution poses a material risk, review their operations at least annually and take account of both explicit and implicit transaction costs when calibrating those arrangements. The final package also clarifies expectations for assessing asset liquidity and introduces guidance on new stress testing.

The final rules and guidance take effect on 1 February 2027, with transitional provisions for certain requirements applying until 1 August 2027. The FCA has also provided transitional treatment for existing stress-testing requirements for regulated money market funds, and these requirements will cease to apply once the Money Market Funds Regulation is revoked, avoiding duplication between the Collective Investment Schemes sourcebook and the Money Market Funds sourcebook.

The FCA also intends to consult separately on wider liquidity reforms for authorised retail funds investing in inherently illiquid assets. Those proposals are expected to address, among other matters, expansion of the range of liquidity management tools available to AFMs of NURS and amendments to the Long Term Asset Fund (LTAF) regime. For background on the consultation that preceded PS26/17, please see our January 2026 Update. 

2. UK – Non-Financial Misconduct

New FCA rules on non-financial misconduct (NFM) enter into force

On 1 September 2026, the FCA’s new rules and guidance on NFM came into force.
For non-banking firms, new rule COCON 1.1.7FR in the FCA Handbook extends the scope of the FCA’s Code of Conduct to certain serious work-related bullying, harassment and violence against colleagues where there is a sufficient work-related link. The rule captures unwanted conduct towards a member of the workforce that: violates dignity, creates an intimidating, hostile, degrading, humiliating or offensive environment, or is violent in nature.

Separately, the FCA has updated its Fit and Proper test for Employees and Senior Personnel (FIT) guidance to clarify how firms may take a broader range of NFM into account when assessing fitness and propriety.

Serious breaches must be reported to the FCA and may result in enforcement action against firms and/or FIT implications for individuals.

For further information on the NFM regime, see our Sidley Update UK FCA Finalises Non-Financial Misconduct Framework – What Firms Need to Do Now.

3. UK – Enforcement

Senior managers banned from UK financial services industry after making false and misleading statements

On 14 August 2026, the FCA announced that it had fined two individuals at Blue Horizon Asset Management (BHAM) and banned them from working in financial services following findings concerning false and misleading statements.

BHAM’s former CEO was fined £489,000 after the FCA found that, in connection with attempted acquisitions of a UK bank and a UK football club, he falsely claimed ownership of a bond portfolio worth approximately €200 million. The FCA also fined a former managing director £121,200, finding that she knowingly assisted with misleading statements and falsified documentation relating to the proposed bank acquisition. Both individuals settled the matter and qualified for a 30% discount under the FCA settlement procedures.

The FCA banned both individuals from performing functions related to regulated activities, having concluded that they acted dishonestly over an extended period and breached Individual Conduct Rule 1 (the requirement to act with integrity).

FCA bans senior manager following honesty and integrity failings

On 18 August 2026, the FCA published a Final Notice banning a senior manager at debt management firm Beauforce Corporation Limited (Beauforce) from working in financial services, after concluding that he lacked honesty and integrity.

The action followed a High Court decision disqualifying the senior manager from acting as a company director for 10 years. The High Court found that he had failed to maintain adequate records while a director of an unrelated company and had repeatedly relied on fabricated evidence, including a false claim that a fictitious individual was responsible for running the business. The senior manager also failed to disclose his director disqualification to the FCA.

The FCA had previously restricted Beauforce in November 2025 from carrying on regulated activities, including providing regulated debt advice or debt management services.

FCA fines and bans former CEO for improper management

On 19 August 2026, the FCA announced that it had banned the former director and CEO of SVS Securities Plc (SVS), from holding senior management positions in financial services and fined him £56,400.

The FCA found that the former CEO failed to properly manage the firm and protect customers. Key failings included investing customers’ money, including pension savings, in high-risk products while SVS received significant payments from the issuers, and failing to challenge a decision that imposed a 10% reduction on the value of customers’ bond investments upon sale. That reduction generated £359,800 for SVS at customers’ expense, and customers were not clearly informed about it.

The penalties followed the former CEO settling his case with the FCA and withdrawing his referral to the Upper Tribunal.

FCA bans individuals behind £35.5m scheme designed to bypass visa rules

On 26 August 2026, the FCA announced that it had banned three former senior figures at Dolfin Financial (UK) Limited (Dolfin) from working in financial services, after finding that they operated a scheme designed to help clients circumvent UK investor visa requirements. The scheme enabled clients to pay around £400,000 rather than invest £2 million of their own funds in UK companies.

The former chief executive was fined £324,800 and the former finance director was fined £122,000; both were banned from working in financial services. In addition, a Dolfin co-founder faces a ban for allegedly helping to create and operate the scheme, concealing his involvement, acting as an unapproved shadow director, and failing to disclose his control of the firm.

Between 2016 and 2019, the scheme enabled at least 99 individuals to obtain investor visas and generated at least £35.5 million in fees for Dolfin-connected businesses and introducing immigration agents. The FCA found that the arrangements created a false impression that visa investment requirements had been satisfied and that aspects of the scheme were concealed from the FCA and the Home Office.

The Dolfin co-founder has referred his Decision Notice to the Upper Tribunal. The findings concerning him are therefore provisional.

4. UK – Financial Crime and Market Abuse

FCA applying increased scrutiny to Annex 1 firms

On 7 August 2026, the FCA published a statement setting out concerns about financial crime risks associated with so-called “Annex 1 firms,” which are firms that are not otherwise FCA-authorised but must register with the FCA for anti-money laundering purposes. The population includes unregulated lenders, safe custody providers, money brokers and financial leasing companies.

The FCA highlighted two themes in particular: over-reliance by some firms on group or parent company financial crime controls that are not tailored to the relevant Annex 1 firm, and risks arising from unregulated lending undertaken through complex structures, including special purpose vehicles. The FCA has also reminded regulated firms dealing with Annex 1 firms that they should conduct appropriate due diligence on those Annex 1 firms, including verifying registration status.

The FCA noted it is applying closer scrutiny to new Annex 1 registration applications and has sent information requests to around 900 registered firms to improve its understanding of their activities, business models and risks. The FCA intends to use the resulting data to identify and disrupt financial crime risks in the sector.

JMLSG finalises revisions to Part I guidance

On 3 September 2026, the Joint Money Laundering Steering Group (JMLSG) published the final version of its revised Part I guidance on anti-money laundering (AML) and counter-terrorist financing (CTF) for the financial sector, which reflects amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (UK MLRs).

The revisions include amendments to guidance on firms’ policies, controls and procedures relating to AML and CTF, and guidance on customer due diligence (CDD) regarding verification of the identity of persons acting on behalf of a customer.

The revised guidance has been submitted to HM Treasury for ministerial approval.

FCA publishes Primary Market Bulletin 65

On 28 August 2026, the FCA published Primary Market Bulletin 65. Among the topics covered, its review of delayed disclosure of inside information under the UK Market Abuse Regulation (UK MAR) is a particularly relevant topic for asset managers (and listed issuers).

On delayed disclosure of inside information, the FCA found no widespread or systemic failures. Issuers generally understood that disclosure may be delayed under Article 17(4) only where immediate disclosure would prejudice legitimate interests, delay would not mislead the public, and confidentiality can be maintained; most also had processes for reassessing these conditions during the delay.

However, the FCA identified inconsistent practices that sometimes resulted in extended or unusual delays:

Misunderstanding of what constitutes inside information and blanket classification of inside information.

• Some issuers automatically classified advanced financial reporting information as inside information until publication, instead of assessing on a case-by-case basis whether it was sufficiently precise and price sensitive.
• Some failed to reassess whether information remained inside information as circumstances and market expectations developed or its price sensitivity diminished.
• One issuer incorrectly treated the existence of a closed period as evidence that inside information existed.

Errors in policies and processes.

• Smaller issuers sometimes relied heavily on advisers or outsourced company secretary functions to fulfil the issuers’ regulatory obligations, but the FCA stressed that issuers must retain sufficient internal understanding to exercise informed judgement under UK MAR.
• Automated systems sometimes created insider lists and filed delayed disclosure notifications based on an initial misclassification, without providing time for human reassessment.
• Where an issuer needs a short period to clarify an unexpected event before it can make a complete announcement, the FCA noted this may fall within the obligation to disclose “as soon as possible” under Article 17(1) UK MAR, instead of constituting a formal delay requiring notification under Article 17(4) UK MAR, as one issuer had assessed.

The FCA also noted that many larger Main Market issuers had not submitted delayed disclosure notifications for extended periods. It found no evidence that this reflected neglect of the notification requirements. Instead, explanations included the relative scale of those issuers reduced the price sensitivity of individual developments, and the issuers had mature disclosure governance arrangements.

5. UK – Artificial Intelligence

FCA publishes multi-firm review on frontier AI and cyber resilience

On 2 September 2026, the FCA published findings from a multi-firm review examining how financial services firms are using, testing, and preparing for frontier AI models with cybersecurity capabilities. The FCA noted that such models can accelerate the identification and analysis of vulnerabilities, but may also increase the scale and speed of cyber threats if used maliciously. The publication sets out supervisory observations only and does not introduce new rules, guidance or regulatory expectations.

The review finds that:

• Organisational readiness. Frontier AI is accelerating vulnerability discovery, but this can create bottlenecks in firms’ validation, prioritisation, and remediation processes, including their engineering capacity, patch-testing, and change management processes.
• Deployment environment. The utility of a frontier AI model depends heavily on the governance, tooling, controls, operating context, and human expertise surrounding it – what the FCA describes as the model’s “harness.”
• Risk prioritisation. Conventional risk severity scores may not capture the risk created when AI identifies combinations of lower-rated weaknesses that can be “chained” together. Firms should therefore consider exploitability, business service impact, preconditions to exploitation, compensating controls, and dependencies.
• Governance and oversight. Firms should maintain clear ownership and escalation routes for AI use, and retain specialist human judgement to validate model outputs, distinguish genuinely exploitable vulnerabilities from theoretical findings and determine proportionate remediation.
• Operational resilience. Frontier AI may reveal weaknesses in asset and dependency mapping, access controls, remediation capacity, and vulnerability management processes. It also increases the importance of understanding supplier dependencies, including firms’ engagement with critical third parties.

The FCA’s practical message is that frontier AI use is increasingly a test of firms’ existing organisational, cyber, and operational resilience, rather than a new standalone technology tool. Firms with strong cyber resilience foundations, clear accountability and effective oversight and sufficient capacity to respond to increased vulnerability discovery are likely to be better placed to manage associated risks.

6. UK – FCA (General)

FCA publishes findings from review of early and high growth oversight pilot

On 10 August 2026, the FCA published its review of good and poor practice identified through its Early and High Growth Oversight pilot involving 15 firms across the asset management, wealth management and payments sector. Its principal finding is that governance, risk management and control frameworks need to develop in tandem with rapid business growth.

Stronger firms generally:

• Maintained clear board and committee structures, effective oversight and produced high quality management information.
• Used mature risk frameworks, defined risk appetites and key risk indicators and had clear escalation processes.
• Continually invested in staff, training, technology and regulatory readiness as their businesses developed.
• Adopted proactive cyber, operational resilience and third-party risk controls, including governance over AI.
• Monitored liquidity and counterparty risks, with some using stress testing to assess resilience, viability and their ability to continue meeting regulatory capital requirements.

Poorer practices included ineffective governance, limited independent challenge, overreliance on key individuals, inadequate succession planning, outdated or insufficient policies and management information, weak conflicts controls, insufficient financial resilience planning and wind-down plans that were not current, practical, or proportionate.

The FCA’s central message is that growing firms should regularly reassess whether their governance, resources, systems, controls and financial resilience remain appropriate for their increasing size, complexity and risk profile, and address any gaps promptly.

FCA announces new attachés in India and the United Arab Emirates

On 17 August 2026, the FCA announced Sabina Saini and Darine Obeid as its financial services attachés for India and the United Arab Emirates (UAE) respectively, expanding the FCA’s international network.

The FCA stated that the appointments are intended to support international co-operation, UK financial services exports, and inward investment. The FCA expects the expanded presence to support closer engagement with overseas counterparts and advance UK interests in international financial services policy.

7. EU – Artificial Intelligence

ESAs publish joint statement on mitigating ICT risks from frontier AI models

On 31 July 2026, the European Supervisory Authorities (the European Banking Authority (EBA), European Insurance and Occupational Pensions Authority (EIOPA) and European Securities and Markets Authority (ESMA), together the ESAs) published a joint statement (JC 2026 25) calling for a consistent, risk-based approach to information and communication technology (ICT) risks arising from frontier AI models.

The statement is intended to complement the existing EU framework, including the Digital Operational Resilience Act (DORA) and the EU Artificial Intelligence Act (EU AI Act) and follows related work by the Commission and the European Systemic Risk Board (ESRB) on cybersecurity and systemic risks associated by frontier/advanced AI models.

In the statement, the ESAs encourage financial entities to recalibrate their ICT risk management processes, procedures and controls to reflect frontier AI-related threats, and set out risk mitigation strategies across three areas:

• Prevention. Firms should maintain complete IT asset inventories, embed built-in safeguards to systems and run proactive patching programmes.
• Detection. Firms should ensure continuous monitoring of frontier AI models to shorten detection and response times.
• Risk management and operational resilience. Strengthening resilience testing, disaster recovery and data backup arrangements, and updating risk frameworks, testing methodologies and governance, is critical to minimising risk.

The ESAs note that firms are expected to put in place governance and accountability structures that enable effective oversight and close monitoring of frontier AI risks, prepare timely response plans and dedicate sufficient internal investment to cyber resilience. The ESAs have also asked national competent authorities to satisfy themselves that firms’ management bodies are fully engaged in mitigating AI-driven cyber risk.

8. EU – Retail Investment Strategy

European Commission issues call to ESMA for advice on the Retail Investment Strategy

On 24 August 2026, the Commission published a Call for Advice dated 30 July 2026 to ESMA, requesting technical input on Level 2 measures to implement key parts of the Retail Investment Strategy (RIS) package. The mandate concerns amendments to the Markets in Financial Instruments Directive (MiFID II), the UCITS Directive and AIFMD.

The RIS was first proposed by the Commission in May 2023 to encourage greater retail investor participation in EU capital markets while strengthening investor protection. Its principal themes include value for money, modernised disclosures, suitability and appropriateness, marketing communications, conflicts of interest, inducements and financial literacy.

The European Parliament and Council reached a provisional political agreement on the RIS in December 2025. Final adoption is expected later in 2026, with publication of the final package of legislation expected in early 2027 and application of most provisions expected around mid-2029. ESMA has been asked to deliver its technical advice by 1 October 2027.

To streamline the Level 2 process, the Commission has asked ESMA to group the relevant mandates two delegated acts and to prepare the following:

• Value for money. Criteria for composing peer groups, assessing whether products offer value for money, comparing costs/charges/performance against peers and identifying outliers that are significantly detrimental to retail clients.
• Inducements. Criteria for assessing compliance with best interest obligations, whether an inducement provides a tangible client benefit and whether it is proportionate to the value of the instrument and services provided.
• Simplification and burden reduction. Identifying concrete measures to reduce unnecessary complexity and administrative burdens throughout the retail investor journey.
• Suitability, appropriateness and simple advice. Streamlining information collection for suitability and appropriateness assessments and defining criteria for a new “simple advice” regime limited to well-diversified, non-complex and cost-efficient instruments.
• Marketing communication. Specifying essential characteristics to be disclosed in marketing targeting retail clients and clarity on conditions for communications to be fair, clear and not misleading, including rules for “finfluencers” and third-party promoters.
• Undue costs. Minimum requirements for UCITS management companies and AIFMs to prevent undue costs being charged to funds and investors, including cost identification, eligible cost lists, conflict of interest mitigation and compensation procedures.

For more information on the RIS proposal, see our June 2023 Update. 

9. EU – Derivatives

ESAs publish final report on amending RTS on initial margin requirements under EMIR

On 3 August 2026, the ESAs published a joint final report (ESA 2026 07) containing draft regulatory technical standards (RTS) amending Commission Delegated Regulation (EU) 2016/2251, the RTS on risk mitigation techniques for over-the-counter (OTC) derivative contracts not cleared by a central counterparty under the European Market Infrastructure Regulation (EMIR). The Delegated Regulation sets out, among other matters, bilateral collateral requirements for uncleared OTC derivatives.

Under Article 28(1) of the Delegated Regulation, counterparties may provide in their risk management procedures that initial margin need not be collected on new OTC derivative contracts entered into during a calendar year where one of the counterparty’s aggregate month-end average notional amount of uncleared OTC derivatives is below €8 billion, measured over March, April, and May of the preceding year. The draft RTS extends that treatment to legacy contracts between the counterparties once one counterparty drops below the threshold.

The proposed amendment therefore removes the current distinction between new and legacy trades when a counterparty falls below the €8 billion threshold. The draft RTS also removes obsolete transitional provisions for single stock equity options and equity index options.

The ESAs have submitted the final report and draft RTS to the Commission for endorsement.

ESMA confirms plans to launch weekly commodity derivatives reporting

On 14 August 2026, ESMA confirmed that the revised weekly commodity derivatives position reporting framework under MiFID II will go live on 3 September 2026.

From that date, market operators and investment firms operating relevant trading venues must submit weekly position reports in accordance with ESMA’s updated requirements, technical specifications and validation rules under XML schema version 2.0. The rollout had previously been scheduled to apply from 1 April 2026 but was postponed following issues identified during the final testing phase.

ESMA has published updated reporting instructions and the XML schema to support implementation of the revised framework.

10. EU – Capital Requirements Directive

EBA consults on reclassification of investment firms as credit institutions under the Capital Requirements Directive

On 25 August 2026, the EBA launched a consultation on three draft RTS governing the reclassification of investment firms as credit institutions where they exceed the €30 billion total-assets threshold under the Capital Requirements Directive (CRD). The revised standards reflect amendments made to the CRD in 2024. under the “CRD IV” framework.

The proposed standards cover:

• Threshold calculation methodology. The €30 billion group threshold would be calculated by reference to relevant EU-domiciled entities, reflecting a narrower scope than the earlier EBA proposals.
• Threshold monitoring and reporting. Investment firms with consolidated average assets of at least €5 billion would report monthly total assets on a quarterly basis using a prescribed template and instructions.
• Waiver criteria. Competent authorities would assess waiver requests by reference to factors including the nature, scale and complexity of the firm’s activities, the systemic and counterparty risks it creates and its group structure.

Responses to the consultation are due by 25 November 2026.