Regs Radar Q2 2026

Des Fullam Chief Regulatory and Solutions Officer

Robin Cotterill Chief Compliance Officer

Europe remains in a state of flux regarding regulatory iteration. Regulators are moving beyond technical compliance towards measuring real-world effectiveness and outcomes. Here’s your round-up of the quarter’s top regulatory moves and the broader industry themes.

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Regulatory change continues to shape the funds sector, with regulators placing greater emphasis on effective governance, resilience and risk management. This quarter, we explore evolving anti-financial crime priorities, developments in valuation governance and Luxembourg’s SPV formation changes. We also look at AIFMD II implementation, emerging approaches to digital assets and the growing focus on integrating geopolitical risk into firms’ regulatory frameworks.

Here’s our round-up of the biggest regulatory updates for the second quarter of 2026.

Evolving anti-financial crime priorities

May’s Association of Certified Anti-Money Laundering Specialists (ACAMS) Europe Assembly in Frankfurt put the spotlight on a clear shift in global anti-financial crime (AFC) priorities. Giles Thomson of HM Treasury, set to become President of the Financial Action Task Force (FATF) from July, outlined the UK and FATF focus on improving the impact of AML frameworks through better use of data, stronger intelligence sharing and greater focus on higher-value activity.

A notable theme was reducing unnecessary compliance burden while improving effectiveness, including changes to Suspicious Activity Report (SAR) reporting thresholds, which are expected to save around £100 million in compliance costs.

Alongside this, regulators are pushing for deeper collaboration between public and private sectors, including greater information sharing across institutions and jurisdictions. Regulatory oversight is likely to expand too, with Financial Conduct Authority (FCA) supervision extending further into non-bank sectors such as accounting and legal firms.

Meanwhile, sanctions remain a major area of focus, with increasing divergence across regimes and continued scrutiny of potential evasion mechanisms including crypto assets, ‘shadow fleets’ and complex cross-border structures. The UK Office of Financial Sanctions Implementation (OFSI) is evolving its approach through a new strategy built around promoting compliance and improving reporting, aiming to help to drive behavioural change in the industry.

Elsewhere, the US will also face increased scrutiny as FATF begins its fifth-round mutual evaluation in October 2026, particularly around areas where it has moved away from international AML expectations. Nonetheless, we believe we will begin to see more evidence of cooperation between international agencies on priorities and enforcement on AML and sanctions, with more joint guidance and enforcement activity involving organisations such as OFSI, the US Office of Foreign Assets Control (OFAC), the European Union and FATF.

Valuation governance developments

We were pleased to be invited to take part in Kroll’s flagship Alternatives and Asset Management Conference last month, joining the Valuation Infrastructure: Where People, Technology, Data and AI Converge panel.

The environment for valuation of private assets is evolving rapidly as the challenges of operating at scale increase. When we think about what scale means in this context it can be reduced down to the number of assets that require a valuation multiplied by the amount of times they need to be valued. It’s a numbers game, but one with consequences. The inexorable rise of private markets has driven up the number of assets that require valuation and the rise of semi-liquid funds has similarly increased the frequency of those valuations.

The old world, dominated by closed ended funds with relatively infrequent valuations and the comfort that investors would eventually realise the full value of each asset as the fund wound down has changed. Investors are now regularly trading on the Net Asset Values (NAVs) made up of the underlying asset valuations of illiquid assets. More valuations needed at a more regular cadence and in a compressed timeframe has put pressure on processes and people. This increases valuation risk and shows there are real-world consequences to asset valuations.

There’s now an overlap between LTAF managers in the UK, and UCI Part II managers in Luxembourg, in terms of regulatory approaches around liquidity management and valuation practices. We’re seeing managers operating across multiple jurisdictions dealing with different regulatory expectations for essentially similar products.

Finally, while AI remains a valuable tool in valuation processes, it cannot replace human judgement, and we should not be over-reliant on it. AI is however an excellent tool for quickly gathering and assimilating unstructured data.

Special Purpose Vehicle (SPV) formation rule changes

The changes to Luxembourg’s Special Purpose Vehicle (SPV) formation rules represent a positive development for private asset managers, by reducing operational friction in the launch and structuring of investment vehicles.

Previously, the requirement to open bank accounts before the General Partner (GP) entity was fully established created practical delays, particularly where private markets managers needed to move quickly to launch funds or investment structures. Allowing the GP to be incorporated with a commitment to pay subscribed capital within 12 months provides greater flexibility and streamlines the formation process.

For our clients, this supports a more efficient fund launch model, improving speed to market and reducing administrative complexity across fund structuring, governance and onboarding processes. Moreover, from a regulatory landscape perspective, the change reflects a wider shift in European fund regulation: supervisors are seeking to balance robust governance requirements with practical operational improvements that support innovation and market efficiency.

AIFMD II implementation updates

Overall, AIFMD II implementation has gone smoothly, but there are still grey areas around interpretation creating discussion in the market. Questions remain around topics such as loan origination, leverage thresholds, transition periods, and whether marketing documents need updating to reflect new fee disclosures. The market is waiting for further regulatory guidance and updated circulars.

At Carne, we supported clients through proactive engagement, tailored guidance and close collaboration with industry stakeholders, ensuring a smooth implementation and delivery within the required timeframe. From a UK perspective, while AIFMD II is an EU development, the FCA is monitoring the changes closely. Post-Brexit, the UK is generally more cautious and prefers to observe market impact before adopting similar reforms.

FCA guidance on registered fund assets

Another recent development is that the FCA has proposed allowing UK UCITS and most non-UCITS retail schemes (NURS) to hold up to a 10% indirect exposure to cryptocurrencies through regulated Exchange-Traded Notes (ETNs).

While Luxembourg is on board with this, the Central Bank of Ireland has taken a more conservative stance on crypto assets, arguing that they do not meet their UCITS eligible asset criteria, and that they do not see sufficient justification to relax these rules.

Catharine Dwyer, firm authorisations manager at the CBI, told delegates at ETF Stream’s ETF Ecosystem Unwrapped that the regulator is “watching the area with interest” but “not seeing sufficient merit in a rule change at the moment.”

CBI on Geopolitical risk integration

Finally, looking beyond regulation and on to broader themes, Mary-Elizabeth McMunn, Deputy Governor, Financial Regulation, CBI spoke at the Institute of Bankers on resilience in the funds sector in the face of change.

One key area we were keen to hear about was the huge benefits across the funds sector from artificial intelligence, in areas such as portfolio management, risk management, compliance and regulatory reporting and investor communications with the Deputy Governor pointing out numerous use cases across the funds sector. Noting that the principle of human oversight remains paramount, the Deputy Governor pointed out that AI usage raises important questions about explainability, accountability, bias, and operational resilience.

Ms McMunn highlighted that resilience in the funds sector depends on strong governance, effective risk management and the ability to respond under pressure. She was keen to emphasise that geopolitical risks must become a core part of firms’ risk frameworks, as shifting global conditions increasingly affect all parts of the investor business.

She also noted that governance frameworks must be tested in challenging environments, asking whether boards have “the expertise and confidence” to make difficult decisions when required. On regulation, she stressed the need for constructive engagement and adaptation, with supervision remaining “risk-based and proportionate” while maintaining strong standards around operational resilience and accountability.

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