By Feeras Juenda, Compliance Consulting Analyst, and Andrew Shrimpton, Chair, UK Regulatory and Compliance Solutions
On 7 April 2025, the UK’s Financial Conduct Authority (FCA) and His Majesty’s Treasury (HMT) published a Call for Input (CFI) and an open consultation respectively regarding proposed reforms to the regulatory regime currently applicable to alternative investment fund managers (AIFMs) in the UK. The key proposals contained in these papers are summarised below.
FCA seeks to improve UK competitiveness
With approximately £14 trillion of total assets under management (AUM), the UK’s asset management sector is second only in size to that of the United States. The existing UK AIFM regime is anchored in the European Union’s Alternative Investment Fund Managers Directive (EU AIFMD), which was retained following the UK’s departure from the EU and which has seen minimal divergence to date. In contrast, EU member states have until 16 April 2026 to transpose the new AIFMD II into national law.
The aim of the latest proposals is to streamline the UK’s regulation of AIFMs and establish an approach that is proportionate to an AIFM’s size and activities. The hope here is that, by making it simpler and cheaper for asset managers to conduct business in the UK (while maintaining high regulatory standards), the reforms would increase the UK’s attractiveness as an asset management hub.
Another aim is to create clearer rules that are better tailored to different firms, creating efficiencies in how UK firms can do business and further supporting economic growth and competition – for example by helping to channel investments into early-stage companies and infrastructure, boosting the long-term growth of the UK economy.
This ties in nicely with the current UK government’s growth agenda and the FCA’s five-year strategy for 2025-2030, as well as the regulator’s secondary international competitiveness and growth objective. Against this backdrop, the FCA has also recently appointed Sarah Pritchard as deputy chief executive, a newly created role to support this expanding remit.
Key proposals
Under the current rules, AIFMs with AUM of more than €100m – or €500m for funds that are unleveraged and have no redemption rights for the first five years – are subject to the full-scope UK AIFM regime. In contrast, an AIFM below these AUM thresholds would be categorised as a sub-threshold AIFM and would accordingly be subject to fewer requirements.
The key proposals contained in HMT’s consultation and the FCA’s CFI seek to revoke the legislative thresholds and instead establish new regulatory classifications for UK AIFMs.
A three-tiered approach
The proposed three-tiered approach to the regulation of AIFMs is as follows:
- Large AIFMs (NAV of £5bn or more)
- Mid-sized AIFMs (NAV of £100m to £5bn)
- Small AIFMs (NAV of below £100mn)
Other notable proposals
Other notable proposals contained within these papers include:
- Listed closed-ended investment companies (LCIC): HMT is proposing that all LCICs remain in scope of the AIFM regulations to ensure continued financial stability and consumer protection
- Depositaries: The FCA does not intend to make any significant changes to how asset safekeeping and fund oversight should be carried out for large and mid-size AIFMs, however it may explore proportionate alternatives
- National Private Placement Regime (NPPR): The NPPR enables overseas AIFMs, and UK and Gibraltar AIFMs managing overseas AIFs, to market those AIFs in the UK. HMT is proposing to broadly restate the NPPR regime for overseas AIFMs in legislation, with any technical changes subject to consultation
- Marketing notifications: HMT is proposing to remove the requirement for full-scope UK AIFMs of UK or Gibraltar AIFs to notify the FCA 20 working days prior to marketing such AIFs to professional investors
- Private equity notifications: HMT is considering removing the requirement for full-scope UK AIFMs and above-threshold overseas AIFMs to submit information to the FCA regarding any AIFs they manage that acquire control of non-listed companies and issuers, as the regulator has limited powers to act where issues in the private equity sector, such as asset-stripping, are identified
- External valuations: The existing AIFM regulations prescribe that external valuers are legally liable to AIFMs for any losses caused by their negligence or intentional failure. HMT is proposing to remove this legal liability from legislation to encourage greater market participation, and notes that these external valuers would still have contractual liability to AIFMs. This links to the FCA’s publication of its multi-firm review of private market valuation practices earlier this year.
Next steps
Other key issues that the FCA aims to separately address concerns on:
- Simplifying the requirements for managers of authorised AIFs into a single set of rules
- Prudential rules for AIFMs
- Regulatory reporting under AIFMD
- Requirements for AIFMs around disclosure, distribution and marketing to retail investors
- Remuneration requirements for AIFMs
- The AIFM business restriction that applies to an external AIFM that is a full-scope UK AIFM
In the interim, the FCA’s CFI and HMT’s consultation paper both closed for comments on 9 June 2025. After considering the responses, the Government intends to publish a draft statutory instrument for feedback, following which the FCA will consult on detailed rules in the first half of 2026.
How IQ-EQ can help
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If you have any questions about the proposed reforms to AIFM UK regulations and how they may impact your business, or if you’d like to find out more about the support available from IQ-EQ’s expert compliance consulting team, contact us today.
