In this article, we turn specifically to the regulatory and supervisory agenda impacting the AWM sector. This year feels pivotal, with long-standing initiatives reaching fruition. But equally new regulatory issues are both under consultation, and new embryonic ideas are emerging too.
The supervisory agenda looks likely to challenge firms, with tensions between the FCA's approach and the Government-led focus on growth. And divergence, in both the EU and wider geopolitical tensions will further play out.
You could be forgiven for finding it all a bit too much. But with change, and strong political tailwinds, the opportunities for growth are there to be taken.
A need to implement
While 2025 saw the “post-Edinburgh Reforms bedding-in phase”, 2026 offers a clearer direction of travel for a number of long-awaited regulatory priorities. Firms now have key elements of the reform agenda - from the launch of targeted support services and the rollout of the FCA’s ‘smarter regulator’ approach, to other major regulatory regimes landing, including the UK’s digital assets framework and consumer composite investment (CCI) disclosure rules.
But while this is a year in which the evolving regulatory agenda becomes more tangible, new complexities are emerging: the FCA’s market risk engagement paper in December 2025 offered a welcome opportunity to consider the relative approaches to prudential regulation in the UK; a discussion paper on longer-term expanded access to retail investments; deepening scrutiny of private credit markets, including the SWES exercise; and wide-ranging consumer-focused reforms.
A shifting supervisory approach
The FCA’s 2025–2030 strategy outlined a new supervisory approach, which firms are likely to see take shape in 2026. As part of its drive to be a “more efficient and effective regulator”, the FCA will take a less intensive supervisory approach for firms “demonstrably seeking to do the right thing”, and provide more firms with a direct FCA contact. The regulator also plans to "streamline” its supervisory priorities, and replace Dear CEO portfolio letters with annual market reports, which may land later in Q1 2026.
Larger AWM firms, despite their absolute size, often remained in the FCA’s flexible portfolio. It is likely that the FCA’s revised supervisory approach will reshape how many of the larger AWM firms interact with the FCA. The FCA’s ambition to provide significant participants with greater FCA contact is likely to see the largest existing ‘flexible portfolio’ firms face greater scrutiny. We also expect this population to be more fluid: if your firm is particularly heavily exposed to regulatory issues du jour (for example private markets) we would expect greater scrutiny in this cycle, but with the potential to drop down the priority order in subsequent years.
Firms seeking to minimise this new supervisory impact will benefit from being able to show they are “doing the right thing” in practice, while many smaller but significant firms will encounter a new level of direct supervisory engagement. With this increased scrutiny likely to surface more issues, firms should take a more strategic approach to how they organise, prepare for and respond to regulatory interactions.
Judgement led
More broadly, many AWM firms found themselves at the forefront of ‘judgement led, outcomes focused regulation’ in 2025. While an onus on firms to do the right thing and deliver good outcomes is obviously welcome, some firms experienced more challenging scenarios of supervisors utilising greater flexibility and judgment. Changing expectations, against static rules, presented obstacles in the consolidation space during 2025, but potentially are illustrative of the consequences of fewer rules, but more empowered supervisors.
The evolving retail investment landscape
2026 is a pivotal year for retail participation in capital markets and this will be led by the AWM sector. December 2025 saw the publication of near-final rules to establish a new targeted support regime. This new service for pre-defined segments of similar consumers has the potential to improve outcomes for those who don’t feel able to self-serve, but can't afford full advice. Accompanying this is a retail investment advertising campaign, led by the Investment Association as Government and industry work together to improve the UK’s investment culture. Linked to this will be further reform of the FOS, which as reflected in the FOS and FCA’s joint statement on targeted support, is necessary to ensure the promised greater clarity and predictability of the future redress framework should ultimately help firms innovate.
Alongside the new regime, this year will see further FCA consultation to clarify the boundaries and scope of simplified advice, in addition to broader work on client categorisation for HNW individuals. Firms will also need to engage with the new CCI disclosure regime, with final rules confirmed in late 2025 and an implementation date of mid-2027.
Together, these changes stand to significantly alter the ‘advice’ landscape. While holistic advice firms may not choose to engage with targeted support, the broader landscape of platforms, technology-enabled new entrants, retail banking businesses and those with substantial legacy back books are all engaging with the new regimes and embracing flexibility in how they engage with customers. With the FCA’s open discussion paper on Expanding Access to Consumer Investments, further change is on the horizon, including potential reforms to fractional investments, the treatment of managed portfolio services, and a broader rebalancing of risk.
Private credit: sharper scrutiny
The rapid expansion of private credit has been one of the defining financial trends of recent years, and its growing scale and interconnectedness mean regulatory scrutiny will intensify in 2026.
The Bank of England’s (BoE) 2023 System-Wide Exploratory Scenario (SWES) highlighted vulnerabilities within the private credit ecosystem, such as leverage build-up, valuation opacity, and funding linkages with banks and insurers. Building on this, the BoE will run a focused SWES exercise in 2026 covering private credit, private equity and related markets. This will require richer data on exposures and liquidity and is likely to drive more intrusive supervision, particularly around risk management, valuation practices and stress testing.
AWM firms may not be experienced in or regularly subjected to SWES exercises. Whether directly impacted, or needing to support and engage with other affected market participants such as banks and insurers, all participants should expect more rigorous, system-aligned stress testing and closer supervisory engagement.
Capital markets reform: Building a more competitive UK regime
The FCA’s work on wholesale market reforms was one of the early priorities in the drive to support growth. In 2026, we will see further reform of the UK AIFM rules, and embedding of the research rules and reporting simplification.
Several new initiatives will also come into force, including the UK public offers and admissions regime in January 2026, followed by the launch of the UK bond consolidated tape in June 2026. Meanwhile, firms will need to make significant progress on changes to policies and procedures in preparation for T+1 settlement (which goes live in October 2027) -which even if firms already trade US securities, will still be a focus of supervisors, as evidenced by the FCA's 'Dear Compliance Officer’ communication in October 2025.
Prudential reform: the big opportunity for 2026 and beyond?
While many firms may feel the existing regulatory agenda is sufficient, there is an increasing groundswell of opinion that the UK prudential regime for AMs is ripe for modernisation. UK firms often cite the disparity in capital requirements, compared to the EU, and more broadly with other jurisdictions such as the US. While the UK’s IFPR is based on existing onshored EU rules, the supervisory judgements too often seem to result in significant additional capital charges. The current regime also fails to acknowledge the practical nature of firm failure, focusing on winddown planning rather than the realities of M&A and disposal of underlying funds. Given the limitations these capital requirements place on growth, this would seem a prime opportunity to think again, and we already saw this in the FCA’s Engagement Paper on Market risk capital requirements for investment firms in late December.
Is this the first stages of much called for reforms to the broader investment prudential regime, and if so, how are regulatory affairs teams engaging on this key opportunity?
A divergent global stage
While the UK has been operating at pace in its quest for growth and its desire for regulatory efficiency, EU regulatory reform is often a slower process, necessitated by the political compromises and approach. But late 2025 saw several agreements reached, particularly around the RIS. Many of these changes - to client journeys, the assessment of value, disclosure and inducement rules - are directionally similar to the UK. But similar doesn't mean identical, and firms will need to keep one eye on EU rules when considering their UK equivalents.
Digital assets: landing the new regime
2026 is the year digital assets regulation stops circling and starts landing. By June 2026, the FCA is expected to publish the final cryptoasset rules which will define the UK regime, giving firms the final clarity to design products, controls and governance. The BoE will set out the framework for systemic sterling stablecoins and the PRA will confirm how standard prudential requirements apply across the ecosystem, from issuers and wallet providers to banks holding crypto exposures on balance sheet. Firms that adapt capital, liquidity, risk and booking models early will be positioned to operate confidently once the regime goes live from early 2027.
Meanwhile, tokenisation will move from pilot to scale as the digital securities sandbox matures, with the stablecoin sandbox running in parallel to test new settlement models. These frameworks give firms a path into regulated activity, but only those that industrialise workflows, strengthen custody and settlement resilience, and embed robust governance from day one will capture first-mover advantage.
Regulatory clarity is arriving fast. Firms that start aligning to the emerging framework now, rather than wait for complete certainty, will set the pace for the next phase of digital assets growth in the UK.
Open finance
As UK authorities move Open Banking from transitional arrangements onto a more long-term, legislated footing, for AWM firms the exciting prospect of the foundations for Open Finance emerge. With the FCA publishing an Open Finance roadmap by March 2026, these steps have the potential to reshape competition in the market, and create new opportunities for secure, consent-based innovation using customer data: taken with CCI flexibilities, targeted support offerings and simplified advice, many new entrants are circling existing players and the market with ambitious, which overtime may create entirely new, technology driven retail offerings.
Key takeaways for firms
- Turn clarity into action: With major reforms now landing, 2026 is partly about execution: firms should focus on delivery across targeted support, CCI disclosures, T+1 settlement, and digital assets. Often a combination of issues - such as CCIs, targeted support, technology, tokenisation and Open Finance have the potential to upend whole sections of the market when considered in aggregate.
- Look to and influence the future: Regulatory streamlining and growth-led market reforms are creating space to rethink our regulatory environment. This is the year to proactively consider the longer-term consumer access to investments, and to rethink the broad prudential regime. This will take data, thought and creativity - but this is the window to lay the foundations for the next decade.
- Modernise risk and compliance to keep pace: As regulation becomes more outcomes-focused and risk cycles accelerate, firms need risk and compliance functions that are agile, insight-led and digitally enabled. Digitisation, automation and AI - applied with robust governance - will be critical to strengthening resilience, improving productivity, supporting proactive supervisory engagement and earning regulatory trust in a more complex environment.
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