FCA asset management reforms: the £128m question
- TEBI
- 49 minutes ago
- 8 min read
The FCA has proposed the biggest overhaul of UK asset management regulation since the rulebook was inherited from the EU. The industry welcomed the plans within hours of publication. The debate about what the FCA asset management reforms mean for ordinary investors has barely begun.
The Financial Conduct Authority has attached a figure to what its proposed reforms will save the UK's asset managers: £128 million a year. It has not attached a figure to what investors will gain. The proposals arrived on 14 July 2026 in three consultation papers, published alongside a parallel consultation from HM Treasury on the underlying legislation, and together they would change how the UK's £16.5 trillion asset management sector is regulated — requirements tailored to the size of the firm, lower costs for the industry and better data for supervision.
The organising idea is proportionality: the smaller the firm, the lighter the touch. 'With a sharp focus on proportionality,' said Simon Walls, the FCA's executive director for markets, 'we can particularly boost freedom for smaller firms to find new ways to achieve the same high standards.'
What the FCA asset management reforms propose
The FCA asset management reforms come in three parts: a new framework for managers of alternative and unauthorised funds, whose portfolios run from property to private capital (CP26/28); rewritten pay rules for the firms the FCA regulates on its own (CP26/27); and a replacement for fund reporting, a system called FRAME (CP26/26).
Much of the framework being rewritten derives from EU law, chiefly the Alternative Investment Fund Managers Directive of 2013. The Treasury's parallel consultation would move the rule-making powers to the FCA, including the power to set the size thresholds and categories that decide which firms face which requirements. In future, most of the regime will sit in the FCA's rulebook rather than in legislation.
The timetable is long. The FCA plans to publish final policy statements and Handbook rules in 2027, in step with the Treasury's finalised legislation, with implementation intended for 2028. The reforms sit within the FCA's secondary objective to support the international competitiveness and growth of the UK economy, and follow the direction of the Government's wider deregulation programme.
What changes on pay and incentives
The centre of the package, and the part with the clearest bearing on how investors are looked after, is the remuneration paper, CP26/27. It would replace the three remuneration codes that currently apply to fund managers with a single code, remove the requirement for firms to maintain a remuneration committee, and drop the mandatory annual independent review of pay practices. Malus and clawback, the tools that let a firm reclaim a bonus when things later go wrong, would become mechanisms a firm 'must consider' rather than apply. Fixed rules on deferring bonuses would give way to a principles-based approach. The MIF008 remuneration report would be scrapped, and the definition of a 'material risk taker' narrowed, with the effect that some individuals fall out of annual certification under the Senior Managers and Certification Regime.
The paper is clear about why remuneration is regulated at all. 'Remuneration drives individual behaviour and influences firms' cultures,' it states in its opening paragraph. 'Poorly designed remuneration can reward short-term performance without sufficient regard to later risks, contributing to poor client outcomes, conflicts of interest, misconduct and market integrity concerns.'
The FCA is just as clear about why it wants change. The current requirements, it notes, derive from banking regulation and the EU reforms that followed the 2008 financial crisis, applied to firms whose business models and risks differ from a bank's. Firms report duplication, and the difficulty of navigating several overlapping regimes at once. The approach, the paper adds, 'is unusual internationally', with other major jurisdictions relying more on principles than on prescription.
The FCA's own cost benefit analysis names the problems the rules were designed to address: principal-agent problems, moral hazard and externalities. 'Clients often cannot observe or respond to these incentives,' it reads, 'so market discipline alone may not address the problem.' The same analysis acknowledges that 'removing prescriptive requirements may increase the risk of weaker alignment between short-term incentives and longer term outcomes in some firms'. It judges that risk manageable, citing the high-level requirements that remain, the Senior Managers and Certification Regime, the Conduct Rules, the Consumer Duty and supervisory oversight.
Measuring what happens next is where the paper is at its most striking in what it declines to do. The FCA does not propose a formal evaluation of the reforms' impact, and will not collect new data to monitor how pay practices change, on the ground that routine new data collection 'would be inconsistent with the objectives of the reforms'. Monitoring will instead be 'predominantly supervisory-led'. Responses to CP26/27 are due by 16 September 2026, with a policy statement expected in the first quarter of 2027.
What FRAME changes about fund reporting
The reporting paper, CP26/26, proposes to replace the current patchwork of fund reporting with a single framework, calibrated to a fund's type, size and activity and built around three principles: simplicity, proportionality and international alignment. The FCA estimates it would cut the reporting burden across the population of fund managers by 75 per cent.
The reduction comes with something new in the other direction. For the first time, the FCA proposes to collect data on the holdings of certain UK authorised funds, a direct view of what a portfolio actually contains, along with quarterly data from overseas funds sold to UK retail investors under the Overseas Funds Regime.
The regulator is specific about what the data is for. Better fund reporting, it says, 'can help identify inaccurate asset valuations, poor value products, liquidity issues, and retail clients wrongly being categorised as professional clients'.
Whether better data leads to earlier intervention is a separate question, and one the paper does not settle.
Who counts as small under the new regime
Much of the AIFM paper, CP26/28, turns on a single number: the size below which a firm counts as small and faces the lightest requirements. The FCA proposes to set it at £750 million in net asset value, a significant increase on the £100 million threshold it had originally proposed. Firms managing between £750 million and £5 billion would be medium-sized; those above £5 billion, large. Requirements on valuation, risk management and reporting step down through the tiers.
For an investor, the classification is not an abstraction. A fund whose manager sits in the small tier would face lighter valuation and risk management requirements — small AIFMs would need only to maintain and regularly review their valuation policies — and its investors would receive a simplified annual summary, which need not be audited, in place of a full annual report.
Not every proposal loosens the rules, though. The registration regime that currently covers most small AIFMs is being removed, so firms that are only registered, among them some managers of unauthorised property funds, will need full FCA authorisation, with no grandfathering of their existing status. Operators of what the FCA calls 'residual' collective investment schemes will report to the regulator for the first time. Where unauthorised funds are marketed to retail investors, prescriptive disclosure requirements are kept in place, covering liquidity, leverage, valuation, conflicts of interest, investor rights and complaints.
The FCA states an aim of reducing the mis-selling of complex products to retail investors.
A second consultation, still to come, will cover the authorised retail fund regimes — the categories known as NURS, LTAF and QIS — which is the part of the project that reaches retail investors most directly.
The response so far
The industry's response arrived quickly. The Association of Investment Companies, which represents investment trusts, welcomed CP26/28Â on the day it was published. Its public affairs director, Guy Rainbird, called the proposals 'wide-ranging and complex, but there is a lot to be positive about', and said the changes 'would make the rules more proportionate and reduce unnecessary compliance burdens'. The higher threshold and the tailored treatment of investment companies, the AIC said, would cut duplication where the AIFM rules overlap with standards the sector already meets.
At the time of writing, none of the UK's established consumer finance organisations — Fairer Finance, the Transparency Task Force, the Financial Inclusion and Markets Centre or Which? — had published a response to the package. The three consultation papers and their accompanying draft rules are long and technical; the deadlines fall between mid-September and mid-October; and a considered response to a proposal of this size takes time to prepare.
For now, though, the early public debate over the FCA asset management reforms has been shaped largely by the industry's own reading of them.
The £128 million question
The FCA is careful about who benefits from the savings. Reducing the cost of reporting, the FRAME paper says, lowers the burden on managers and operators of smaller funds, 'which can be passed on to consumers or reinvested in the firm'.
The savings themselves are itemised with some precision. The reporting reforms alone are estimated to save alternative fund managers around £147.8 million a year, against roughly £19.6 million a year in new reporting costs for UCITS funds and one-off implementation costs across the industry of about £139.8 million. What happens to the money afterwards is not: passing it on to investors is one of two destinations the FCA names, and reinvesting it in the firm is the other.
The regulator has examined this territory before. Its asset management market study — interim findings in November 2016, confirmed in the final report of June 2017 — found that 'price competition is weak in a number of areas of the industry'. Investors in actively managed funds, it found, often paid high charges that were not, on average, justified by higher returns, while the sector enjoyed sustained, high profits over a number of years. Whether this £128 million reaches investors is a question the coming years' fund fee data will answer, not one today's announcement settles.
Have your say
What the autumn will show is whether the scrutiny still to come, from consumer organisations and anyone else who responds, changes any of the proposals before the FCA finalises them in 2027. All three consultations are open now. Responses to the remuneration paper, CP26/27, are due by 16 September; to the reporting paper, CP26/26, by 22 September; and to the AIFM paper, CP26/28, by 14 October. Feedback on the discussion chapters in the AIFM paper is invited by 18 September. Anyone can respond, individual investors included, through the forms on the FCA's website.
The rules governing how £16.5 trillion is managed are being rewritten now. The record of who spoke, and whose arguments carried, is being written at the same time.
Resources
Financial Conduct Authority. (2017). Asset management market study: Final report (MS15/2.3). Financial Conduct Authority.
Financial Conduct Authority. (2026a). Fund reporting for asset management entities (FRAME)Â (Consultation Paper CP26/26). Financial Conduct Authority.
Financial Conduct Authority. (2026b). Remuneration: Solo-regulated firms' rules reform (Consultation Paper CP26/27). Financial Conduct Authority.
Financial Conduct Authority. (2026c). The UK AIFM regime (Consultation Paper CP26/28). Financial Conduct Authority.
Financial Conduct Authority. (2026d). Streamlined rulebook to save asset managers £128m a year [Press release]. Financial Conduct Authority.
Finding an adviser who watches the costs
Costs are one of the few things in investing that can be controlled, and this article is a reminder that nobody else will control them on an investor's behalf automatically. For readers who want help with that, TEBI's Find an Adviser directory lists advisers who have publicly committed to evidence-based investing: low-cost, globally diversified and transparent about what they charge.
For readers who would rather get to grips with the approach themselves first, How to Fund the Life You Want by TEBI editor Robin Powell and Jonathan Hollow sets it out at book length. Bloomsbury published the second edition, written for UK readers. It is available on Amazon.