Regulations surrounding GPs are tightening globally. Firms are now being extensively scrutinized across ESG, tax reporting, cybersecurity, and LP transparency benchmarks. PE firms even face stricter regulatory scrutiny, especially within the diligence and portfolio oversight phase. 

The question is, are GPs sufficiently prepared? Surprisingly, 45% still struggle to understand and execute new regulations. GPs should not just leave compliance to marginal operations. They need to be proactive and have well-aligned systems. Otherwise, they risk litigation liability, erosion of investor trust, and unstable fund governance.

In this guide, we explore key regulatory and compliance challenges that GPs face today and how to navigate them effectively.

Major Regulatory and Compliance Challenges for GPs

As the regulatory climate advances and becomes more fragmented, GPs face a new level of compliance risks. These risks cut across the board, are more dynamic, and far less forgiving of delay. Here are the main challenges currently influencing compliance for GPs.

1. ESG regulations are getting stricter and more scrutinized

Regulatory authorities in various jurisdictions are tightening their ESG disclosure requirements, with weighty significance for GPs. For example, the EU’s CSRD materially broadened the scope of ESG reporting requirements. It now requires elaborate disclosures on sustainability risk, value chain impact, and double materiality. 

Elsewhere, the SEC recently dropped its earlier proposal that required ESG-aligned funds to maintain data in a standardized, tabular format. This would have allowed investors to identify ESG strategies and compare them with other funds easily. Even so, this doesn’t indicate the end of ESG scrutiny. 

The SEC’s Name rule still remains a very real risk. Additionally, limited partners and international regulators still demand more transparency and accuracy in ESG reporting, including auditable data and inclusion of ESG factors into investment strategies.

If GPs lack dynamic and scalable systems or third-party guarantee processes, they risk greenwashing allegations or regulatory actions.

2. Heightened cybersecurity and data protection obligations

As the cost of a data breach reaches US$4.9 million, 10% more than the previous average and the highest total ever, it calls for GPs to tighten their compliance. Regulators require them to integrate data security protections, showcase prompt breach response, and formal incident documentation. 

For example, under the SEC’s 2023 rule on cybersecurity risk, firms must have incident response policies and file disclosures within four business days of a material breach. In the EU, the DORA, which became effective in January 2025, provides scrupulous ICT risk management and oversight of third-party vendors. It also demands prompt incident reporting from financial entities.

GPs may, therefore, face everlapping compliance issues, and any failure, whether on preparedness or detection, can attract regulatory penalties and disrupt operations.

3. Transparency expectations are rising fast

LPs and regulators demand standardized disclosures from GPs, especially around fund performance, expenses, fees, and conflicts of interest. For example, in the US, the SEC’s Private Fund Adviser rules introduce these key disclosure requirements:

  • ・Quarterly statements that detail management fees, paid compensation to allied persons, and fund-level expenses
  • ・Performance reports using gross and net returns and customized to fund structures, for example, liquid vs. illiquid
  • ・Compulsory annual financial statement audits for every fund

Beyond this jurisdiction, LPs also have higher disclosure expectations, such as:

  • ・Transparent accounting for deal-by-deal expenses
  • ・Disclosure of related transactions and conflicts
  • ・Documenting valuation methodologies

GPs without centralized reporting systems or unified templates risk not meeting investor expectations or falling short of formal regulations.

4. Use of AI is Outpacing governance frameworks

GPs are significantly adopting AI and machine learning tools to improve deal sourcing, automate due diligence, and refine operational productivity. Even so, this adoption is accelerating faster than the regulatory and internal governance frameworks can match.

Whereas regulators are starting to respond, the governance structure to regulate these frameworks often lags actual usage.

Under the EU AI Act:

  • ・AI frameworks for credit scoring or risk evaluation may be grouped as high-risk, sparking the need for human oversight, risk assessment, technical documentation, and clear responsibilities.
  • ・Foundation models like the LLM applicable in financial contexts must meet data governance, disclosure, and monitoring procedures under this Act.

Even though there isn’t a global standardized framework yet, regulators are on the lookout. For example, in the U.S., the 2023 White House Executive Order on AI mandates financial entities to structure guidance, while the SEC qualitatively prompts stricter scrutiny where AI-focused decisions might impact fiduciary duty or valuation procedures.

The compliance risk for GPs isn’t limited to ultimate execution. It lies in exploiting tools without oversight structures, a lack of audit trails, and exposing portfolio analysis to bias. This results in a discrepancy between AI utilization and governance expectations, creating actual regulatory and operational risk.

5. Cross-border tax and regulatory complexity is intensifying

As private capital globalizes, GPs handling multiple jurisdictional funds face increased sophistication in meeting international tax and regulatory demands. 

Globally, the OECD’s BEPS 2.0 Pillar Two rules include a 15% global minimum tax on international entities, including fund frameworks meeting particular revenue edge.

GPs should examine if portfolio companies or holding vehicles fall within this scope and prepare for reporting and top-up tax calculations.

EU’s DAC7 sets a new demand on digital platform operators, but also highlights broader forces around the automatic exchange of tax data. Meanwhile, foreign income rules like GILTI, Subpart F, and FATCA’s fund reporting requirements continue to advance.

The challenge for GPs is to navigate entity classification, ensure fund frameworks are tax-efficient, and integrate operational, legal, and tax teams to handle jurisdictional overlap.

How GPs Can Navigate Regulatory and Compliance Complexity

Whereas the above compliance challenges for GPs are significant, they aren’t insurmountable. Proactive entities are transcending reactive compliance to adopt strategic, system-based mechanisms. Here are the top approaches GPs can utilize to augment their compliance position and navigate regulatory complexity.

1. Establish a centralized ESG reporting and oversight framework

GPs should use a centralized reporting structure that allows for consistent, auditable, and scalable ESG data gathering and analysis. Key components of the structure include:

  • ・Aligning with key disclosure benchmarks depending on jurisdictional exposure
  • ・Allocating formal ESG oversight duties, with board-level visibility and accountability
  • ・Protecting limited assurance from independent third parties where disclosure risk is material

This strategy ensures that ESG disclosures are compliant and reputable, lowering regulatory exposure and building trust with LPs.

2. Strengthen cybersecurity governance and incident response

GPs should advance cybersecurity from an IT task to a central governance priority. An effective cybersecurity compliance approach should have:

  • ・Formal and written policies that mirror the applicable regulatory structures
  • ・Continuous risk evaluation, penetration testing, and mitigation mechanisms
  • ・Third-party risk handling techniques to appraise and track service providers with access to sensitive data
  • ・Training and awareness programs to promote a security-focused culture across the entity

These controls help GPS minimize exposure to operational and reputational risk and signify regulatory readiness and tenacity to investors.

3. Standardize transparency and fee disclosure practices

To adhere to regulatory demands and LP transparency expectations, GPs must enforce structured, recurring processes for reporting fees, expenses, and performance. The framework should support these components:

  • ・Automated generation of quarterly reports, including fund expenses, management fees,  portfolio charges, and in line with the SEC’s rules
  • ・Formalized templates for performance reporting that distinguish gross and net returns, and are customized to fund type
  • ・Version control and internal systems that manage disclosures across functions
  • ・Transparent documentation of valuation methodologies and expense allocation
  • ・LP communication controls that handle follow-up queries or supplement breakdowns

Since institutional investors view transparency as a sign of operational maturity, GPs should adopt the outlined standardized policies to boost transparency.

4. Implement responsible AI governance protocols

GPs must ensure that AI integration and use adhere to emerging compliance risks in fund management and regulatory expectations. A responsible AI governance structure should have:

  • ・Documented use cases, like the application of models in sourcing, portfolio management, diligence, or risk appraisal
  • ・Specified regulatory oversight frameworks, with accountability in investment and compliance teams
  • ・Policies for monitoring bias, unexpected outcomes, and explainability that align with the applicable standards, such as the EU AI Act
  • ・Audit trails and version controls that augment transparency and regulatory appraisal

5. Build integrated cross-border compliance and tax oversight

Since fund structures and investments are spread over multiple jurisdictions, GPs must adopt a coordinated strategy to manage tax and regulatory demands at the fund and portfolio level. The strategy should:

  • ・Map jurisdictional demands related to BEPS 2.0, DAC7, FATCA, GILTI, and other related frameworks
  • ・Centralize compliance calendars to monitor filing deadlines, audit requirements, and report thresholds
  • ・Allow interdisciplinary coordination between tax, finance, legal, and compliance teams to promote alignment across fund operations
  • ・Use RegTech for asset managers like RAISE to handle region-specific demands effectively

Conclusion

Navigating the changing regulatory sphere calls for more than ticking compliance boxes. GPs should be proactive and adapt structured strategies to meet the rising expectations across AI, governance, ESG, transparency, cybersecurity, and international taxation. This helps reduce risk and augment LP relationships and operational credibility.

Linnovate Partners works with fund and asset managers to spot gaps, implement a scalable GP compliance strategy, and refine oversight across jurisdictions. Contact us today to schedule a demo with our team.