Private Funds View - October 2026

Welcome to the October 2026 edition of Private Funds View, summarising key UK and EU regulatory developments for private fund sponsors.

We hope you find it a useful tool to keep on top of key private fund regulatory topics and updates. These are high-level summaries – for further information, follow the embedded links or reach out to one of the team.

Topics in this edition:

UK

1. FCA consults on fair redemption terms for authorised funds investing in illiquid assets

2. FCA publishes a feedback statement on expanding consumer access to investments

3. FCA speech on market integrity in a digital age

4. FCA and PRA consult on Phase 2 of SM&CR reforms

5. FCA restricts six Annex I firms over anti-money laundering concerns

6. FCA consults on updates to the Financial Crime Guide

7. FCA publishes findings on conflicts of interest and fair customer treatment in private markets

8. FCA and BoE publish findings from their fourth survey on AI and machine learning in UK financial services

EU

1. Council Presidency publishes a note and compromise texts for the Market Integration and Supervision Package

2. EIOPA sets supervisory expectations for insurers owned by private equity firms

3. Council of the EU publishes comparison table for EU institutions' trilogue negotiating positions on SFDR 2.0

4. ESMA publishes thematic notes on impact and climate transition sustainability claims

5. ESMA submits final technical advice on simplifying EU Taxonomy reporting

Best of the rest – FCA moves fund authorisation applications and notifications online | FCA Handbook Notice 145 | FPC remit and recommendations for 2026/27 | ESMA simplifies Q&As on MiFID II, MAR and SSR | AMF publishes recommendations on SFDR reform

Main Topics

UK

1. FCA consults on fair redemption terms for authorised funds investing in illiquid assets

8 October 2026. The FCA published CP26/35, proposing changes to non-UCITS retail scheme (NURS) fund rules so that a NURS fund's redemption terms better reflect the time it typically takes to sell illiquid assets such as real estate. The proposals, which revisit paused 2020 proposals with a wider scope covering all inherently illiquid assets, would limit dealing days, introduce a minimum 90-day notice period for redemptions from funds holding illiquid assets, and align minimum redemption terms with the long-term asset fund (LTAF) regime; the FCA also proposes to allow LTAF investors to revoke redemption requests.

The consultation closes on 11 December 2026, with final rules expected in H1 2027 and a two-year implementation period for existing funds. The FCA also intends to consider redemption terms for qualified investor schemes (QIS) as part of its second AIFM regime reform consultation, so private fund sponsors running QIS or illiquid-asset retail vehicles should track both workstreams together.

See our article for further analysis here.

2. FCA publishes a feedback statement on expanding consumer access to investments

16 October 2026. The FCA published FS26/3, its response to feedback on the December 2025 discussion paper (DP25/3) on supporting a stronger investment culture for consumers who invest without an adviser. The FCA plans to review the consistency of its financial promotion rules for high-risk investments and how appropriateness assessments work in practice, and to consult further on risk information in financial promotions for mainstream investments in H1 2027.

The FCA has also begun a multi-firm review of how model portfolio service providers deliver good outcomes for consumers, with findings expected by Q1 2027. Private fund sponsors with retail-facing or model-portfolio-distributed products should follow both the financial promotion review and the model portfolio review, as either could affect how fund products are marketed to a wider retail base.

3. FCA speech on market integrity in a digital age

22 October 2026. FCA Chief Executive Nikhil Rathi delivered a speech at Mansion House on market integrity in a digital age. Mr Rathi observed that the UK may be past peak rule making but is not past the need for close supervisory engagement, cautioned against assuming technology alone will solve market integrity challenges, and called for the FCA to rethink how it uses its existing powers. Mr Rathi also noted that the FCA will remain open to new ideas on how it supervises digital and data-driven markets.

While high-level, the speech signals the direction of the FCA's supervisory posture as markets become more digitised and data-driven, including private markets' increasing use of AI and digital infrastructure; sponsors should expect this framing to inform the FCA's approach to future private markets supervision.

4. FCA and PRA consult on Phase 2 of SM&CR reforms

22 October 2026. The FCA and PRA published consultation papers on Phase 2 of the Senior Managers and Certification Regime (SM&CR) reforms (FCA CP26/37 and PRA CP14/26), building on the Phase 1 reforms. The Phase 2 proposals are a more significant structural change, removing granular SM&CR requirements from the Financial Services and Markets Act 2000 and giving the FCA and PRA greater flexibility to design a more proportionate regime.

The FCA proposals include raising the Enhanced firm thresholds; removing the requirement to submit revised Statements of Responsibilities (SoRs) while retaining the requirement to keep internal SoRs up to date; and removing nine Prescribed Responsibilities. Certain supporting documents would no longer be required for SMF applications. For temporary SMF cover, the period for submitting an application or notification would increase from 12 to 18 weeks, with “reasonable use” replacing the “reasonably unforeseen” test.

For the Enhanced regime, the FCA would reduce SMF approvals by making SMF5 and SMF10–15 notified roles, removing SMF18 and SMF22 and reallocating their responsibilities to other SMFs, and clarifying and narrowing SMF7 for solo-regulated firms.

The Certification Regime would be removed, relying instead on other rules such as the competent employee rule rather than annual certification; regulatory reference requirements for previously certified persons would be removed; and the Directory would be retired, together with its reporting and attestation requirements.

Conduct Rules training requirements would be replaced by an obligation to notify staff of the applicable rules and the consequences of a breach.

Both consultations close on 22 January 2027. The FCA expects to publish its Phase 2 policy statement in H1 2027, with implementation anticipated in H2 2027, and final reforms remain subject to the Financial Services Bill. Private fund managers with dual-regulated or solo-regulated entities in scope of SM&CR should start considering how the proposed reforms could reshape their governance arrangements over the medium term.

See our article for further analysis here.

5. FCA restricts six Annex I firms over anti-money laundering concerns

23 October 2026. The FCA imposed restrictions on six unregulated lenders (Annex I firms) over concerns about their anti-money laundering controls, as part of the FCA's increased supervisory focus on the sector.

Private fund sponsors with Annex I-registered lending entities, or portfolio companies operating consumer or commercial lending businesses, should treat this as a signal of closer FCA scrutiny of AML controls across the unregulated lending population and review their own frameworks accordingly.

6. FCA consults on updates to the Financial Crime Guide

23 October 2026. The FCA published CP26/38, proposing updates to its Financial Crime Guide (FCG) covering fraud, cryptoassets, financial and trade sanctions and proliferation financing, money laundering and terrorist financing, and financial crime systems, controls and data security. The updates reflect insights from the FCA's supervisory work and are intended to help firms assess and strengthen their financial crime frameworks.

The consultation closes on 24 December 2026. Fund managers and their compliance teams should review the proposed FCG updates against their existing financial crime policies, particularly on sanctions and cryptoasset exposure where portfolio companies are active in digital assets.

7. FCA publishes findings on conflicts of interest and fair customer treatment in private markets

23 October 2026. The FCA published findings from its multi-firm review of conflicts of interest and fair customer treatment in private markets, covering firms managing funds or providing related services to private market clients. The FCA found that conflicts oversight and frameworks have not always evolved in line with firms' increasing complexity, product offerings and ownership structures, and flags three recurring weakness areas: cross-fund transfers and continuation transactions (weaker frameworks relied more heavily on disclosure or investor consent, with limited independent challenge), gifts and entertainment (weaker practice relied on policy thresholds and generic approvals, with limited monitoring), and information barriers (weaker controls relied more heavily on staff training and judgement, with limited monitoring). Only 52% of firms in Phase 1 said internal audit had a role in reviewing the conflicts framework.

This is one of the most directly relevant findings of the month for private fund sponsors. The FCA flags particular concern around UK operations structured as "advisory-only", expecting conflicts frameworks to reflect the substance of UK activity in the investment lifecycle rather than merely its legal form, and states that disclosure should be treated as a supplementary control, not a substitute for identifying, avoiding, mitigating and managing conflicts. No new rules are proposed at this stage, but sponsors should use the findings now to reassess whether their conflict frameworks and internal audit functions have kept pace with increases in complexity of their businesses and still provide fit-for-purpose oversight of cross-fund transfer and continuation transaction governance, gifts and entertainment controls, information barriers, particularly where UK investment advisory entities sit alongside offshore decision-making structures.

8. FCA and BoE publish findings from their fourth survey on AI and machine learning in UK financial services

26 October 2026. The Bank of England and the FCA published a report on the findings from their fourth survey on AI and machine learning (ML) in UK financial services. Key findings include widespread adoption of AI agents, significant reliance on third-party AI systems and providers, firms' evolving views on the benefits and risks of AI deployment, and continuing work on governance and accountability frameworks for AI use. On 19 October 2026, the FCA separately published good and poor practice findings on firms' use of AI, covering Consumer Duty, governance and accountability, and operational resilience. The findings create no new rules, but confirm that existing requirements (PRIN, Threshold Conditions, SYSC, operational resilience and outsourcing rules, Consumer Duty, vulnerable customer guidance, SM&CR and DISP) apply to AI use.

The FCA criticises informal or retrospective governance bolted on after AI is built, human oversight used as a "rubber stamp" rather than substantive challenge, and overreliance on untested AI vendor assurances without exit or contingency plans, while confirming smaller firms can adopt scaled, risk-tiered governance rather than large-firm infrastructure. In a related speech, the FCA's Chief Data, Information and Innovation Officer Jessica Rusu set out the FCA's own ambition to become an "agentic regulator", deploying AI tools including for oversight of the roughly 60,000 AML-regulated firms due to come into the FCA's remit in 2028 and a "market first responder agent" for small wholesale markets transaction reporting firms.

Private fund managers and portfolio companies that use or rely on third-party AI tools, including in investment decision-making, client service or back-office functions, should benchmark their own governance and accountability arrangements against the survey's findings and the FCA's good/poor practice criteria, particularly on named senior manager ownership of AI risk, substantive (not box-ticking) human oversight, and vendor concentration risk, given the regulators' sustained focus on AI governance and third-party dependency.

See our article for further analysis on the good and poor practice findings here.

EU

1. Council Presidency publishes a note and compromise texts for the Market Integration and Supervision Package

5 October 2026. The Council of the EU published a note from the Presidency to COREPER on the Market Integration and Supervision Package (MISP), together with compromise texts of its three legislative proposals: a Regulation on settlement finality, a Directive amending the UCITS Directive, AIFMD and MiFID II, and a Regulation amending a range of existing EU financial services legislation. On the AIFMD-related provisions, the compromise facilitates the use of staff, systems and expertise within EU asset management groups, introduces more consistent information requirements and authorisation procedures, mandates coordination colleges for large asset management groups, improves the management passport, and allows Member States to permit funds to appoint eligible depositaries in other Member States subject to supervisory safeguards.

This is directly relevant to EU AIFMs and cross-border fund groups. The proposed changes to intra-group delegation, the management passport and cross-border depositary appointments could materially affect how sponsors structure EU fund platforms and delegate portfolio and risk management functions, potentially supporting more efficient EU fund platforms and cross-border arrangements. ECOFIN reached political agreement on key elements of the Council's negotiating position on 9 October 2026, with trilogues expected to begin once the European Parliament adopts its own position.

2. EIOPA sets supervisory expectations for insurers owned by private equity firms

6 October 2026. EIOPA published a supervisory statement on the authorisation and ongoing supervision of insurance and reinsurance undertakings owned by private equity firms. EIOPA notes that private equity firms have become important owners of insurers and reinsurers in the EU and often take an active role in setting their strategy, and the statement sets out supervisory expectations addressing changes in business model following acquisition, potential mismatches between investment horizons, the transparency and simplicity of acquisition structures, maintaining a sound system of governance, and managing governance issues and conflicts of interest.

This is directly relevant to private equity sponsors that own, or are considering acquiring, EU (re)insurance undertakings as part of an insurance-linked or asset-intensive strategy. National supervisors are expected to apply this statement when assessing acquisitions and ongoing supervision, so sponsors should factor these expectations, particularly on governance and conflicts of interest, into deal structuring and post-acquisition governance arrangements.

3. Council of the EU publishes comparison table for EU institutions' trilogue negotiating positions on SFDR 2.0

12 October 2026. The Council of the EU published a note with a three-column comparison table setting out, side by side, the European Commission's, European Parliament's and Council's negotiating positions on the SFDR 2.0 proposal (covering both the SFDR review and the related PRIIPs Regulation changes), published ahead of the trilogue phase that began in October following the Parliament's and Council's respective mandates.

This is a useful practical tool for sponsors tracking SFDR 2.0's progress and makes it easier to see where the three institutions already align (narrowing the issues trilogues will need to resolve) and where material gaps remain on points such as fossil fuel exposures, Taxonomy-alignment thresholds and the treatment of AIFs marketed to professional investors.

4. ESMA publishes thematic notes on impact and climate transition sustainability claims

13 October 2026. ESMA published two thematic notes giving guidance on sustainability-related impact claims and climate transition claims, building on the overarching principles under the Guidelines on funds' names using ESG or sustainability-related terms. On impact claims, ESMA expects claims of positive real-world impact to be supported by evidence of intentionality, additionality and measurability, and has flagged confusion between impact investing and simply holding sustainable assets. On transition claims, ESMA sets out expectations for how funds should substantiate claims that an investment strategy supports the transition to a more sustainable economy.

This is directly relevant to sponsors marketing impact or transition-labelled strategies into the EU. Fund documentation, marketing materials and website claims referencing "impact" or "transition" should be reviewed against ESMA's evidentiary expectations now, given the direct read-across to greenwashing risk under the fund naming guidelines and SFDR-related disclosures.

5. ESMA submits final report on simplifying EU Taxonomy reporting

29 October 2026. ESMA, together with the EBA and EIOPA, submitted final reports containing technical advice to the European Commission proposing simpler EU Taxonomy reporting. The proposals include narrowing the mandatory operating expenditure (OpEx) KPI to focus on non-capitalised research and development expenditure and simplifying group-level Taxonomy reporting, including by removing the requirement to calculate a weighted-average KPI. The EBA and EIOPA have also proposed targeted simplifications, including removing the fees and commissions KPI and trading book KPI from the Taxonomy disclosure requirements (EBA), and removing the breakdown of gas and nuclear activities from reporting templates (EIOPA).

Sponsors and portfolio companies that report, or voluntarily disclose, Taxonomy alignment should watch this closely. A narrower OpEx KPI and simplified group reporting would reduce the data private equity-owned groups need to collect from portfolio companies for Taxonomy purposes, feeding into the Commission's wider sustainability reporting simplification agenda alongside the Omnibus and CSRD/CSDDD changes already under way.

For more information, see our article here.

Best of the Rest

FCA moves fund authorisation applications and notifications online

6 October 2026. The FCA published a new webpage setting out how fund authorisation applications and notifications will move from email submission to the FCA's online Connect system over the next two to three years. From 2 November 2026, firms will need to submit certain applications and notifications, with supporting documents, through Connect, with further applications and scheme document filings moving online during December 2026 and early 2027.

The FCA does not expect the content requirements for these applications to change significantly, but fund sponsors and their advisers should ensure relevant staff and third parties have Connect access ahead of the 2 November 2026 start date, and continue to monitor FCA guidance on which forms have moved online before switching away from the current process.

See our article for further analysis here.

FCA Handbook Notice 145

23 October 2026. The FCA published Handbook Notice 145, setting out changes to the FCA Handbook made by the FCA board on 24 September and 22 October 2026, including instruments relating to the UK Listing Rules (Sustainability Reporting Standards), UK CRR references, and fund reporting for asset management entities. The next scheduled FCA board meeting is on 19 November 2026.

FPC remit and recommendations for 2026/27

28 October 2026. HM Treasury published a letter setting out the FPC’s remit and recommendations for 2026/27, highlighting the Committee’s role in supporting the Government’s financial services growth and competitiveness agenda alongside its primary financial stability objective. The letter also highlights continued focus on risks arising from geopolitical developments and AI, and welcomes the FPC’s review of bank capital requirements.

ESMA simplifies Q&As on MiFID II, MAR and SSR

23 October 2026. ESMA announced that it has streamlined its Q&As on market structure under MiFID II, the Market Abuse Regulation and the Short Selling Regulation as part of its ongoing simplification work, withdrawing or amending several Q&As to remove outdated or duplicative guidance.

AMF publishes recommendations on SFDR reform

1 October 2026. France's AMF published a report with 14 recommendations on operational issues in the SFDR review, focused on making "credible" transition plans more operational through common, verifiable minimum criteria, and on the use of principal adverse impact (PAI) indicators and minimum exclusionary safeguards for "Sustainable" and "Transition" product categories. Sponsors preparing for SFDR 2.0's new product categories should note the AMF's direction of travel on evidencing transition credibility and PAI use.