The FCA’s latest consultation, CP26/16, may appear highly technical, but its implications for Authorised Fund Managers (AFMs), depositaries and firms operating in the private markets space are significant. At its core, the consultation seeks to address a growing market issue: depositaries are increasingly reluctant to provide services to authorised funds investing in private market assets where current registration requirements expose them to legal ownership risks and liabilities that extend beyond their traditional oversight role. As private equity, private credit, infrastructure and real estate continue to attract investor demand, the FCA is proposing changes designed to remove unnecessary operational barriers while maintaining investor protections. The proposals should therefore be viewed not simply as a technical rule amendment, but as part of a broader regulatory effort to facilitate greater participation in private markets through authorised fund structures.
Background
The FCA has identified a practical issue arising from the interaction between existing UK rules derived from the Alternative Investment Fund Managers Directive (AIFMD) and the registration requirements contained within the Collective Investment Schemes Sourcebook (COLL). Under the current framework, depositaries of authorised AIFs managed by full-scope AIFMs are often unable to delegate certain registration and safekeeping responsibilities for non-custodial private market assets. As a result, depositaries or their nominees may be required to hold legal title to assets such as real estate or certain partnership interests. This arrangement has become increasingly problematic as legal ownership can expose depositaries to ancillary liabilities that are unrelated to their traditional oversight role. The FCA notes that some depositaries have reduced or withdrawn services for funds investing in these asset classes, potentially limiting investor access to private markets.
Key Proposals
- Delegation of Registration Functions for Certain Private Market Assets
The FCA proposes amendments that would enable depositaries of authorised AIFs managed by full-scope AIFMs to delegate aspects of their registration function to third parties for certain private market assets. The intention is to remove unnecessary operational barriers while maintaining appropriate oversight arrangements.
- Use of AFM Affiliates for Non-Custodial Assets
For non-custodial assets, including directly held real estate and certain partnership interests, the FCA proposes allowing depositaries to delegate the relevant registration function to affiliates of the AFM, subject to additional safeguards designed to mitigate conflicts of interest and protect investors. This is a significant development, as existing rules have effectively prevented such delegation arrangements.
- Clarification of Registration Requirements
The consultation also seeks to clarify how authorised fund registration requirements should operate in practice. Greater certainty in this area should help firms implement more consistent operational models and reduce interpretive ambiguity.
- Clarification of CASS 6 Custody Requirements
The FCA is proposing amendments to clarify how the Client Assets Sourcebook (CASS 6) custody rules apply to depositaries of authorised funds and unauthorised AIFs. These changes are intended to provide greater regulatory certainty regarding the treatment and safeguarding of fund assets.
- Permanent Rule Change on Guarantees and Indemnities
CP26/16 also proposes replacing an existing Modification by Consent relating to COLL 5.6.22R and COLL 5.5.9R with a permanent rule change. This aims to provide a more stable and predictable regulatory framework for authorised funds relying on these provisions.
What AFMs Should Be Doing Now
Although the consultation remains open, AFMs should begin considering the practical implications for their businesses.
Key actions include:
- Review Existing Structures: Firms with authorised funds investing in private market assets should identify where current registration arrangements create operational challenges or unnecessary costs. This review may reveal opportunities to simplify structures if the proposals are implemented.
- Assess Growth Opportunities: For some firms, the proposals may make authorised fund structures more attractive for future private market products. Senior management should consider whether previously rejected strategies could become more viable under the revised framework.
- Engage With Depositaries: AFMs should discuss the consultation with their depositaries at an early stage. Different depositaries may take different approaches to implementation, delegation and oversight expectations. Understanding those approaches now will help avoid surprises later.
What Depositaries Should Be Doing Now
Depositaries should focus on understanding where the proposed changes could affect existing operating models. Particular attention should be given to:
- Liability exposure;
- Delegation arrangements;
- Oversight obligations;
- Conflicts management frameworks; and
- Contractual documentation.
Firms may also wish to assess whether the proposals create opportunities to support a broader range of private market strategies that have historically been difficult to accommodate.
How Complyport Can Help?
- Regulatory Advisory and Implementation Support:The proposals set out in CP26/16 may require AFMs and depositaries to reassess existing asset registration arrangements, delegationmodels and governance frameworks. Complyport can assist firms in evaluating the impact of the proposed changes, identifying potential regulatory risks and developing implementation plans ahead of the FCA’s final rules. Our consultants provide practical advice on depositary oversight obligations, conflicts of interest management, delegation arrangements and regulatory governance requirements.
- Governance, Oversight and Training:The FCA’s proposals place significant emphasis onmaintaining effective oversight where registration functions are delegated, particularly where affiliated entities are involved. Complyport delivers tailored training for Boards, Senior Managers, Compliance teams and Fund Governance Committees on regulatory expectations relating to delegated arrangements, conflicts management, operational resilience and governance oversight. This helps firms demonstrate robust challenge, effective decision-making and appropriate regulatory accountability.
- Policies, Procedures and Framework Reviews:Should the proposals be implemented, firms may need to update existing policies,procedures and governance documentation to reflect new registration and oversight arrangements. Complyport assists with reviewing and enhancing delegation frameworks, conflicts of interest policies, due diligence procedures, oversight programmes, operational resilience documentation and governance records to ensure they remain aligned with FCA expectations and industry best practice.
Contact Us
To discuss how the FCA’s evolving reporting requirements may impact your business, speak to one of our experts.
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