Asset Management
Financial Services Horizon Scan 2026
AIFMD 2: New rules for open-ended funds and lending
Most provisions of AIFMD 2 are set to be applied by EU member states from 16 April 2026. AIFMD 2 introduces a number of changes to the EU AIFMD framework for non-UCITS funds, but most impactfully it:
- introduces new requirements for open-ended funds to use liquidity management tools from a defined regulatory list;
- restricts the structure of loan-originating funds (i.e. credit funds), so that they generally must be closed-ended unless they can meet specific liquidity risk management criteria, and limiting their use of leverage;
- introduces new rules for lending by funds generally, including requiring enhanced policies and procedures, requiring “risk retention” and preventing “originate to distribute” strategies, concentration limits, and restrictions on lending presenting conflicts of interest.
AIFMD Liberalisation in the UK
In 2025, HM Treasury and the FCA consulted on the replacement of the AIFMD derived regime in the UK with a new AIFM regime tailored to the UK market and regulatory drivers. The UK Government has indicated that draft legislation on the new UK AIFMD regime, alongside an FCA consultation, will be published in spring 2026.
The key takeaways from the consultations so far are:
- the government aims to streamline the regulatory framework for AIFMs to remove unnecessary regulation and foster growth;
- it is proposed that the regime will apply in tiers based on size – with less prescriptive/onerous rules applying to smaller AIFMs, and only larger AIFMs (with above £5bn in NAV) being subject to the full scope of prescriptive rules similar to the current AIFMD derived regime.
Replacement of PRIIPs with CCIs
The current regime for retail investment product disclosures (in particular the PRIIPs regime) has been widely criticised for its complexity, and disclosures that are not necessarily helpful to retail investors. The UK has therefore been working on replacing this regime with a new domestic regime for “consumer composite investments” (CCIs). Broadly, this aims to replace the PRIIPs regime with a less prescriptive, and more principles based disclosure regime.
HM Treasury and the FCA consulted on the new regime over the course of 2022-2025, with the regime now set to apply from 6 April 2026 (as the start of an optional transition period), and in full from 8 June 2027.
New advice option – Targeted support
The “advice gap” – where significant retail investors receive less financial advice than they need – has been noted as a longstanding problem. The cost of offering full, personalised “investment advice” can be prohibitive due to the significant regulatory burdens imposed. It may also not be practically deliverable for many retail investors.
As part of efforts to address this, in summer 2025, HM Treasury published draft legislation on the new regulated activity of “targeted support” and the FCA published its final regulatory rules in December 2025. This essentially aims to allow for advice to be given to “customer segments”, rather than on a truly personalised basis. For instance, a firm might suggest to a customer that people like them (based on age, income, investment horizon etc.) should invest in a particular product.
SFDR Overhaul
In November 2025, the EU Commission published its proposal to overhaul the Sustainable Finance Disclosure Regulation (SFDR). The proposal would effectively move SFDR from being a “disclosure regime” (i.e. if a firm makes sustainability claims about a financial product it must make disclosures to explain and substantiate these claims) to being more of a “labelling regime” (i.e. a financial product must meet specific criteria in order to obtain a particular sustainability “label”). The proposal makes some allowance for sustainability disclosures for products that do not fall within the prescribed “labels”, but such products would be subject to stringent marketing restrictions, and the sustainability aspects would need to be of an ancillary nature. This marks a major change from the current regime, and would result in many financial products that currently position themselves as “sustainable” being unable to do so.
ESG ratings regulation in the EU and UK
Both the EU and UK are moving towards regulating ESG ratings in line with other financial services (such as credit ratings). The EU ESG Ratings Regulation will start applying in the EU from 2 July 2026, and the UK has published its legislation and an FCA consultation on the rules, which are due to apply from 29 June 2028.
Whilst these pieces of legislation are primarily aimed at firms that actively position themselves as ESG ratings providers – the definition of what counts as an ESG rating is necessarily broad under both regimes. So other types of firms that may produce ESG scores, metrics or other analyses (including just on governance factors) may find themselves inadvertently caught by these regulations. Whilst potential exemptions can be used, they are not always available, and can come with additional compliance burdens. Both regulations can also apply to overseas ratings providers.
