FCA wholesale buy-side regulatory priorities

The FCA published its first Regulatory Priorities report for the wholesale buy-side - part of a new annual reporting model that replaces more than 40 sector-specific portfolio letters. 

The wholesale buy-side edition lands at a moment of profound tension in asset management: a sector generating enormous value for the UK economy, yet under pressure from compressed margins, geopolitical volatility, and a regulator that is simultaneously pro-growth in ambition and unambiguous in its enforcement expectations.

The UK is the largest asset management centre in Europe and the second largest globally, with UK investment managers' export earnings accounting for approximately 4.9% of the UK's total services net exports in 2024. Boards and Chief Executives are expected to read this report carefully, review the priorities within it, and act where they need to. The message is direct: firms doing the right thing can expect a lighter touch; those causing harm will face stronger, faster action.

This briefing examines each of the FCA's four headline priorities, highlights what is genuinely new in the regulator's approach, and sets out the practical steps wholesale buy-side firms should be taking now.

Priority 1: Evolving regulation to foster growth, innovation, and changing consumer needs

Applies to: Asset managers, alternative asset managers, custody banks, fund services providers.

The FCA wants to be a smarter regulator and to support growth of the UK economy, with its policy initiatives designed to foster growth and innovation and to support the UK's status as an international investment hub. The FCA wants the UK to be a centre of excellence on tokenisation and distributed ledger technology ('DLT') adoption, and there is an opportunity for firms to experiment and innovate using FCA sandboxes, such as the Digital Securities Sandbox, to trial new technologies in a controlled environment and share learning and best practices.

The FCA also intends to transform the regulatory data model for asset managers and funds to make the regime more proportionate, remove unnecessary reporting, and incorporate global data standards, complementing its proposed transaction reporting reforms.

What is new

The shift in register from the FCA's previous portfolio letters is marked. Whereas earlier supervisory communications to asset managers focused primarily on conduct standards, governance, and protecting existing investors, this report opens with an unequivocal commitment to regulatory reform as a vehicle for economic growth. 

The FCA has already issued a call for input on changing the regulatory framework for alternative investment fund managers ('AIFMs') to make it easier for firms to grow, compete, innovate, and enter the market. It has also proposed new rules for fund tokenisation and direct-to-fund dealing, a central aspect of its ambition to support innovation in UK asset management while protecting consumers.

The FCA will also work to digitise and simplify its fund authorisation process for a more efficient gateway experience for firms. The explicit commitment to a proportionate AIFM regime and a reformed regulatory data model – both of which were absent from earlier portfolio communications – signals a genuinely different kind of engagement.

Practical steps for firms

• Implement robust governance for emerging technologies, establishing clear accountability, risk management, and oversight for the use of AI, DLT, and other new technologies.
• Engage with the FCA's tokenisation workstream, including Project Guardian, and explore the Digital Securities Sandbox – available alongside the Bank of England – to trial DLT in a controlled environment; firms developing tokenised products should proactively discuss barriers to UK leadership with the FCA.
• Engage with the forthcoming consultation on an effective, predictable, and proportionate regulatory regime for AIFMs.
• Monitor the FCA's planned consultation on streamlining product-level TCFD reporting requirements as part of its broader effort to simplify the sustainability reporting framework for asset managers and FCA-regulated asset owners.
• Experiment with AI using the FCA's sandbox services and Innovation Pathways, including its Supercharged Sandbox for smaller market participants.

Priority 2: Delivering good outcomes to consumers

Applies to: Asset managers, alternative asset managers, fund services providers.

A healthy investment culture and improved access to appropriate support and products will benefit consumers and provide capital to boost economic growth. Under the Consumer Duty, firms must act to deliver good outcomes for retail consumers, ensuring that products' features and risks are clearly communicated to prospective investors so they can make informed investment decisions.

The FCA has seen examples of firms implementing and embedding the Duty, but has also found some smaller firms offering high-risk investments which lacked sufficient processes for the types of investor assessments they needed to undertake, or which misunderstood the differences and applicability of those assessments; some firms did not recognise how the Duty applied to their business model and had not fully adjusted their processes.

What is new

Two distinct shifts stand out. First, the FCA has listened to feedback about the application of the Duty for firms engaged in wholesale activity and plans to amend the Duty's rules to remove disproportionate burdens from wholesale firms – an explicit concession absent from any prior supervisory communication to this sector. A consultation on clarifying the application of the Duty across the distribution chain and to wholesale firms is expected mid-year. 

Second, the FCA has proposed reforms to client categorisation rules, aiming to strengthen investor protection while unlocking greater investment opportunities for those that do not need retail protection – a more nuanced calibration than the blanket emphasis on retail protection that characterised earlier portfolio letters. The multi-firm review of model portfolio services ('MPS'), assessing whether investors in MPS are receiving good outcomes, is also an entirely new supervisory initiative, with findings expected in Q1 2027.

Practical steps for firms

• Embed the Consumer Duty for retail business, take an outcomes-based approach, and apply a consumer lens to products and services, including model portfolio services and retirement solutions.
• Provide clear communications to investors to enable informed investment decisions; principal firms should maintain strong oversight of appointed representatives to ensure Duty expectations are met.
• Focus particular attention on product and service design – the FCA will target outlier firms that design products and services that do not consider consumers' best interests, and will take action, including enforcement, where it finds significant consumer harm.
• Engage with the FCA if you are developing retail private markets or retirement income products, given the FCA's specific focus on responsible access for retail investors.
• Advance implementation of the Sustainability Disclosure Requirements and labelling regime, and follow closely the FCA's forthcoming policy statement on client categorisation and conflicts of interest, as both will have direct implications for distribution strategy.

Priority 3: Reinforcing consistent, high standards across private market investing

Applies to: Asset managers, alternative asset managers, custody and fund services providers.

Private markets play an important role in the UK financial system, diversifying the sources of finance available and backing investment with long-term capital that can support companies and sectors driving UK productivity and growth. They form a meaningful and growing part of individual and institutional portfolios, including pension schemes and insurance assets.

The FCA is assessing standards in key areas where investors rely on asset managers to navigate the specific challenges of investing in private markets, having recently focused on how managers approach valuation of private assets, and now turning to how managers identify and manage conflicts in their business models to ensure alignment with investors' interests.

What is new

Previous FCA portfolio letters referenced private market governance in general terms. This year, the FCA will publish findings from its multi-firm review of conflicts of interest in private markets firms, communicating good practice to the market and setting out what matters most for achieving good outcomes for investors and market integrity. That is a step change in specificity and accountability.

Equally significant is the FCA's explicit warning about retail access: firms must not design or structure products in ways that prioritise ease of distribution over the characteristics of the underlying assets, and where investors are unable or unwilling to accept the illiquidity inherent in private assets, those assets are unlikely to be appropriate for them. This is a materially firmer statement than anything in prior supervisory communications to the sector.

Practical steps for firms

• Review and update governance and processes for valuations, and ensure robust processes are in place for the identification, management, and mitigation of conflicts of interest.
• Align product development frameworks for retail products and retirement solutions with Consumer Duty expectations, including fair treatment of investors, particularly where private and public assets are blended within a single vehicle.
• Engage proactively with the FCA's ongoing private markets discussions on valuation practices, conflicts of interest, risk management, and plans to broaden retail access responsibly.
• Prepare for focused supervisory work on firms' approaches to risk management in private markets, and ensure internal risk frameworks are sufficiently robust to withstand scrutiny.
• Monitor the Bank of England's new private markets system-wide exploratory scenario closely, as the FCA is actively supporting that work and will use it to identify and address potential vulnerabilities.

Priority 4: Preserving market integrity and resilience to disruption

Applies to: Asset managers, alternative asset managers, custody and fund services providers.

Buy-side firms, through their investment and trading activities across a wide range of financial instruments, can have a major influence on the functioning of markets. Custody and fund services firms provide essential services such as safeguarding, securities servicing, and settlement, and when these activities are disrupted, the functioning and integrity of markets can be undermined, causing significant harm to investors.

Disruption can come from multiple sources, including firms' own internal actions, external shocks, or system-wide vulnerabilities, and the underlying risk remains high, particularly in relation to third-party outages, cyber, and operational disruptions.

What is new

The scale of the cyber threat is now explicitly quantified. 204 nationally significant cyber-attacks were handled by the National Cyber Security Centre in the year to September 2025, up from 89 in the previous twelve months. 

Earlier portfolio letters acknowledged cyber risk in passing; this report treats it as a defining supervisory concern, with the FCA having issued a supervisory survey to understand firms' cyber security and resilience capabilities, noting weaknesses in several areas, including governance and leadership, recovery plans, resourcing, data protection, and stakeholder engagement on response planning.

The FCA's approach to AI in investment strategies is also new territory: where trading strategies and investment models are poorly risk-managed, particularly when combined with significant leverage or concentrated positions, the actions of one firm or a cluster of firms can impair market effectiveness and integrity. Notably, the FCA is now fast-tracking the authorisation of investment funds focused on the defence sector, reducing approval times to as little as one month versus the standard three months – an initiative entirely without precedent in previous buy-side supervisory communications.

Practical steps for firms

• Strengthen operational resilience and embed it into processes such as new product design and change management, and maintain robust incident response and recovery plans that are aware of and mitigate the risks the firm poses to other firms and their clients.
• Assess and manage dependencies on material third-party providers, ensuring robust due diligence and ongoing monitoring of resilience capabilities – bilateral communication with outsourcers on dependencies and vulnerabilities is a specific FCA expectation.
• Strengthen governance frameworks to manage your firm's impact on markets, with effective risk management of investment models and strategies employing leverage, concentrations, and newer technologies like AI; ensure strong systems and controls are in place to detect and prevent market abuse.
• Assess concentration risks within your own portfolios and those arising from counterparties, and stress-test your resilience to crowded markets, including where liquidity depends on a small number of market participants.
• Monitor the FCA's forthcoming policy statement on enhancing fund liquidity risk management for UCITS and non-UCITS retail schemes, and its forthcoming consultation on alternative investment funds under AIFMD.

Additional areas requiring attention

Beyond the four headline priorities, firms should note the following:

• AIFM prudential requirements: As part of its review of the AIFM regulatory framework, the FCA will review prudential requirements, with a discussion chapter expected in Q3 2026 and a standalone prudential consultation paper before end 2027. The FCA will also commence a post-implementation review of the Investment Firms Prudential Regime ('IFPR') to ensure it remains fit for purpose.

• Solo remuneration rules: The FCA is reviewing the operation and effectiveness of its remuneration rules for solo-regulated investment firms and will engage with firms in Q3 2026 to understand the value and costs of these rules and consider their future shape.

• ESG ratings: The FCA will finalise its regime for ESG rating providers, with a policy statement expected in Q4 2026 and rules effective from June 2028. Asset managers providing proprietary ESG ratings only as part of an existing regulated activity are not in scope.

• Financial crime: The FCA issued a financial crime survey to asset managers and alternative asset managers in Q4 2025 to understand firms' financial crime controls; findings will be published in Q3 2026. Firms should review controls now, before those findings are published.

• Cryptoassets: Final policy statements on the cryptoasset regime will be published in 2026. Firms intending to undertake regulated crypto activities should monitor the opening of the cryptoasset regime gateway and prepare accordingly.

• SMCR reform: Working with HM Treasury and the PRA, the FCA is reviewing the efficiency and effectiveness of the Senior Managers and Certification Regime with the aim of halving its regulatory burden.

Conclusion

The FCA's March 2026 regulatory priorities report for the wholesale buy side is not a document that compliance teams can file and forget – it demands a strategic response from Boards and Chief Executives. What distinguishes this report from the portfolio letters it replaces is its dual character: a regulator that is more explicitly pro-growth and commercially engaged than at any point in recent memory, and one whose supervisory and enforcement record in this sector is increasingly concrete.

The October 2025 Final Notice against BlueCrest Capital Management (UK) LLP and the August 2025 Decision Notices against Neil Woodford and Woodford Investment Management Limited are reminders that the FCA's stated willingness to act is not rhetorical.

Where the FCA sees significant consumer harm arising from products and services that do not consider consumers' best interests, it will take action to protect consumers – including, where appropriate, enforcement action. At the same time, the reforms on offer – a proportionate AIFM regime, tokenisation policy, Consumer Duty simplification for wholesale firms, client categorisation reform, and SMCR burden reduction – represent a genuine opportunity for firms to help shape the regulatory framework they will operate under for years to come.

The FCA is explicit that it welcomes engagement, industry feedback, and challenge to its thinking as it refines its new supervisory model. Firms that treat this report as an invitation to engage – with consultations, with supervisory reviews, and directly with the regulator – will help write the rules. Those that treat it as background reading will find themselves governed by a framework designed without them.

The FCA's goal is simple: less intensive attention on firms doing the right thing, and stronger, faster action where harm is greatest. The only remaining question is which category your firm intends to occupy.