UK: FCA consults on fund asset registration in CP26/16

Why should I read this?

On 21 May 2026, the FCA published Consultation Paper CP26/16, “Registration of authorised fund assets”. The consultation proposes rule changes in response to concerns that depositaries may cease offering services to authorised AIFs investing in certain private market assets. 

At a glance

• Depositaries of authorised AIFs are increasingly unwilling to hold legal title to real estate and certain partnership interests because of ancillary liability risks, particularly under the Building Safety Act (BSA)

• The FCA is concerned that, without reform, access to certain private market assets through authorised AIFs may become more limited

• The FCA proposes permitting depositaries to delegate the registration of title function to AIFM affiliates in certain circumstances

• Depositaries would remain responsible for safekeeping and oversight

• The proposal is particularly relevant for real estate funds and long-term asset funds (LTAFs)

• The consultation closes on 9 July 2026

Under current rules, depositaries of authorised AIFs managed by full-scope UK AIFMs must hold legal title to certain fund assets (those in registered form), including private markets assets such as real estate and partnerships. Dependent on the asset, this can expose depositaries to criminal, legal and financial liabilities associated with legal ownership, including (for certain properties in real estate funds) under building safety laws (most notably the BSA), despite having no role in selecting, managing or operating the underlying assets.

Depositaries are increasingly unwilling to carry these risks. The industry has warned the FCA that some depositaries may withdraw depositary services for authorised AIFs investing in certain private markets assets. The FCA believes the issue is also limiting the uptake of h as they can invest into more complex, illiquid assets which require the depositary to enter into contractual obligations which again expose them to potential legal and financial risk. 

What do I need to know about fund asset registration?

Background

Private markets, including real estate, infrastructure, private credit and private equity, are vital to UK economic growth and the UK financial sector. Authorised AIFs provide retail and professional investors, including UK pension schemes, with exposure to these asset types via UK regulated products. In the UK, 18 AIFMs manage a total of 30 authorised AIFs that invest in real estate. Eight depositaries currently provide services to these funds. The 19 LTAFs in existence at the time of the cost-benefit analysis have reported issues when investing in limited partnerships, in some cases preventing investment from being made.

The problem with legal title to real property

The registration of title rules as they currently stand mean that depositaries have to become the freeholder or leaseholder of properties in property funds. Owners of the legal title (or in some cases those holding the repair obligation) in respect of certain real estate assets face significant safety and environmental duties and potential liabilities resulting from those duties. They also face licensing duties, such as for alcohol and public entertainment. Of particular concern is criminal liability in the BSA which can lead to fines or up to 2 years imprisonment for failure to comply with the requirements. These punishments apply not only at corporate entity level but also could apply to individual directors of such entities if they are found to have consented to or connived in the offence or it is attributable to their negligence. However, depositaries do not directly control the buildings or make the decision to invest in them and are several steps removed from implementing the BSA requirements which is typically carried out by the property manager or their sub-contractors. 

The problem with legal title to limited partnerships

Depositaries also face potential liabilities as a limited partner in a partnership on behalf of a fund. For example, if a dispute arises or a general partner calls for money and the fund cannot pay, the depositary may have to cover the shortfall. Depositaries may also be required to make various representations and warranties that are not within their knowledge.

FCA proposals for real estate and certain limited partnerships

For assets including real estate and partnerships that are not CIS, the depositary would be able to delegate the COLL registration function only to “affiliates” of the AIFM. These assets are referred to in the CP as assets which are not AIF Custodial Assets or Safe Custody Assets (see the table below for definitions). An “affiliate” is defined as a person in the same group as the AIFM, using the existing FCA Handbook definition. The affiliate would not need to be directly controlled by the AIFM. This delegation mechanism would be subject to the additional protections described below. For UK immovables, the affiliate must be a UK company registered under the Companies Act 2006 (CA 2006).[1] This safeguards Parliament's policy intentions regarding UK building safety. The FCA expects that asset management groups will usually prefer to use special purpose vehicles (SPVs) as delegates, following real estate industry practice. Such entities would not need FCA authorisation for this activity. The depositary will remain liable for the registration of assets function notwithstanding the delegation.

To mitigate residual risks to funds, the FCA proposes additional protections for delegation of COLL registration functions for non-custodial assets to an AIFM's affiliate. The depositary must ensure that:

• the affiliate holds the assets on trust for the depositary and cannot sub-delegate the registration function;

• the affiliate keeps up-to-date and detailed records of all scheme property held;

• legal title to fund assets must not be transferable without the depositary’s consent;

• direct control of the affiliate must not be transferable without the depositary’s consent; and

• the depositary must be satisfied, on the basis of external legal advice, that the arrangements meet these requirements.

The FCA proposes issuing guidance confirming that the COLL registration function rules do not prevent a depositary appointing a second trustee to achieve “overreaching”, which is a legal process required for many UK property transactions to ensure title passes free from third party interests.

There are a number of potential issues with this proposal. Most notably the new delegation route is optional and so depositaries will need to agree with their AIFM clients to adopt this approach and it is not clear that this will always be successful. There are also issues around how real estate will be transferred to the affiliate and how the costs of this will be met, although there are options to sell existing nominee structures to the AIFM group where these only relate to properties of a single fund or AIFM. Additionally, in respect to partnerships, the new rule only applies to partnerships which are not CIS. In our experience, most limited partnerships invested in by UK funds are CIS interests and therefore fall into the custody bucket rather than the new affiliate-delegation bucket.

Other related amendments

The FCA proposes amending FUND 3.11.26R so that the restriction on delegation can no longer be interpreted as preventing delegation of the COLL registration function for assets that are not safe custody investments and not AIF custodial assets

For assets that are safe custody investments but fall outside the definition of AIF custodial assets (for example, certain partnerships that are a CIS), the FCA will clarify that a depositary may hold assets in their own name or delegate custody to a regulated third party under the existing CASS 6.3 framework for depositing assets with third parties. The usual CASS 6.3 requirements for a regulated custodian apply, meaning that the custodian doesn’t need to be located in the UK. This provides a broader pool of potential delegates than is available for non-custodial assets.

The FCA proposes aligning the COLL registration function rules for depositaries of authorised AIFs managed by "small" AIFMs with those for full-scope authorised AIFs. This would limit the persons to whom the depositary can delegate the COLL registration function to only the AIFM's affiliates. The proposed additional protections would also apply. The FCA proposes removing the reduced-liability derogation that currently applies to depositaries of qualified investor schemes (QIS) managed by small AIFMs. The aim of this alignment is to avoid a problematic “break point” when a small AIFM’s business grows and it becomes a full-scope AIFM, which could force costly re-registration of legal title for regulatory reasons alone.

CASS 6 clarifications

The consultation sets out how the CASS 6 custody rules apply to depositaries of all authorised funds and unauthorised AIFs. The FCA proposes clarifying that depositaries can delegate custody to third parties under CASS 6.3 if AIFMD/UCITS provisions do not apply. The FCA also proposes confirming that a UCITS ManCo cannot act as delegate for the depositary.

Replacement of Modification by Consent

The FCA proposes replacing the widely used Modification by Consent for COLL 5.6.22R (relating to guarantees and indemnities given on behalf of the fund when acquiring immovable property) with a permanent rule change. The new rules would allow a NURS ICVC or its depositary to provide guarantees and indemnities backed by scheme property to third parties, subject to conditions. The FCA does not expect this to cause material incremental costs, as firms already operate under Modification by Consent.

What should I do?

Fund managers and depositaries of authorised AIFs should consider taking the following steps:

• Review CP26/16

Assess how the proposals affect your fund range, particularly any funds that invest in directly held real estate or partnership vehicles.

• Review your depositary arrangements

Identify funds for which the depositary or its nominee currently holds legal title to immovables or is a partner in a partnership vehicle. Consider whether delegation to an AIFM affiliate would be appropriate.

• Consider the structural requirements

The AIFM’s affiliate must hold assets on trust for the depositary. Legal title must not be transferable without depositary consent. Control of the affiliate must not be transferable without depositary consent. For UK immovables, the affiliate must be a company subject to the CA 2006. The depositary must obtain external legal advice on the arrangements.

• Plan for the timing of the reforms

The FCA seems willing to proceed at the earliest opportunity, before any wider depositary rule changes are made as part of the AIFMD repeal and replace process. However, it is asking whether firms would prefer to wait until late 2027 so that all changes can come in together. On balance, the industry is likely to prefer speed, given the urgency of the building safety risks. However, firms should consider whether simultaneous implementation with the broader AIFMD repeal and replace changes would be more efficient.

• Engage with legal advisers

Engage with legal advisers to agree how the proposals can be implemented.

Our view

There are several practical issues that will need careful attention during the consultation and implementation phases to ensure the final rules are as effective as industry needs them to be.

AIFMs wishing to invest in UK real estate and partnership assets through authorised AIFs have faced resistance from depositaries that are unwilling to take on the ancillary liabilities associated with holding legal title to such assets. The proposed reforms raise several practical issues that firms will need to work through:

Corporate structuring. AIFMs will need to consider corporate structuring implications, including whether there is a preference for all associates/delegates to be companies registered under the CA 2006 for ease, notwithstanding the different requirements for different asset classes. Making a distinction between entities for real estate and entities for other assets is likely to add unnecessary complexity.

Re-registration costs and tax. Re-registrations of real estate assets into the names of new delegates will give rise to costs. The FCA estimates re-registration costs for UK commercial real estate at 0.5–1.5% of the asset’s value. It should be possible to transfer existing nominee structures to AIFMs where those nominees only hold properties relating to a specific fund or AIFM which is often the case.

Transfer of liability. The reforms will move potential liabilities under the Building Safety Act and other legislation from depositaries to AIFM affiliates and their directors. The FCA assumes that directors of AIFM affiliates will accept potential criminal liability without extra remuneration because they will have direct control over building management. That assumption may not hold in practice and we expect this element of the proposals to be the subject of significant feedback in the consultation.

Depositary oversight. Even after delegation, depositaries will retain responsibility and will need to develop oversight frameworks for monitoring the new delegates and how to continue to manage the operational and regulatory risk. 

Next steps

The consultation closes on 9 July 2026. The FCA will consider all feedback before publishing a policy statement with final rules.

We will be responding to the consultation and are also able to assist with your response. If you would prefer for us to include your response with ours, we can do so on an attributed or anonymous basis.

The FCA is also separately working with HM Treasury to develop a revised regulatory framework for UK AIFMs under the AIFMD ‘repeal and replace’ exercise. A first consultation is expected shortly, which will contain further proposals for the AIF regime aimed at giving more options to firms. A second paper with detailed rules for depositaries will probably follow in early 2027, with final rules expected later in 2027.

How Eversheds Sutherland can help

Eversheds Sutherland is a leading legal adviser to the investment funds sector in the UK, Luxembourg and Ireland. Our funds team works with managers and depositaries on the full range of UK authorised funds, including UCITS, NURS, QIS and LTAF structures. We can help you assess how CP26/16 affects your fund range, advise on depositary delegation arrangements and structural requirements, prepare your consultation response, and plan for the transition to new rules.

[1] Note that companies registered under the CA 2006 include companies registered under previous Companies Acts (including Companies Act 1985 and Companies Act 1948).

Types of companies which are not registered under CA 2006 include:

• Companies formed under private Acts of Parliament;

• Companies formed by Royal Charter;

• Corporations created by statute: e.g. local authorities; building societies; co-operative or community benefit societies;

• Bodies created by Royal Charter: e.g. universities; learned societies; and professional associations;

• Overseas companies; and

• Charitable incorporated organisations (CIOs); open-ended investment companies (OEICs); investment companies with variable capital (ICVCs); friendly societies; European Economic Interest Groupings (EEIGs); and UK Economic Interest Groupings (UKEIGs).