The Treasury and the Financial Conduct Authority are seeking industry views on proposals to change the regulatory framework for fund managers in the United Kingdom.
On 7 April 2025, the Treasury issued a Consultation Paper outlining proposed reforms to the legal framework for fund managers in the United Kingdom.
In parallel, the Financial Conduct Authority issued a Call for Input outlining its proposals for regulating fund managers within the Treasury's proposed framework.
Key Takeaways
- The proposals seek to streamline the regulatory framework for fund managers.
- Alternative investment fund managers (AIFMs) in the United Kingdom (UK) will be subject to proportionate rules based on the net asset value (NAV) of the alternative investment funds (AIFs) they manage.
- Only those AIFMs with over £5 billion NAV under management will be subject to the most stringent requirements under the new large AIFM regime. These requirements will be similar to the current rules for full-scope AIFMs, although some requirements may be modified.
- The proposals seek to introduce a new mid-sized AIFM regime, designed to be simpler and more flexible than the regime for large AIFMs.
- The threshold for determining the scope of the small AIFM regime will move away from assets under management (AUM) to the NAV of portfolios under management, meaning small AIFMs can deduct liabilities from assets and will no longer be required to factor in the use of leverage.
Timing of Proposed New Framework
The deadline for responding to the proposals is 9 June 2025.
The Financial Conduct Authority (FCA) plans to consult on detailed rules in H1 2026, subject to feedback from the Treasury.
Key Proposed Changes to the Regulatory Framework for AIFMs
Currently, the rules applicable to AIFMs are principally derived from the UK onshoring of the European Union's Alternative Investment Fund Managers Directive (AIFMD).
The scope of rules is dependent on certain AUM thresholds1, with AIFMs above particular thresholds classified as "full-scope UK AIFMs" and subject to the full-suite of rules, and AIFMs below threshold classified as "small UK AIFMs" and subject to modified and fewer requirements.2
The proposals seek to remove the existing AUM thresholds, and instead classify AIFMs into three categories based on NAV of AIFs under management, with rules tailored to each classification.
Large AIFMs (NAV of more than £5 billion): These firms will be subject to a regime similar to the current rules for full-scope AIFMs, but some of the current requirements—such as those on disclosure and reporting—may be modified.
Mid-sized AIFMs (NAV of more than £100 million up to £5 billion): These firms will be subject to most of the rules applicable to larger AIFMs, but fewer of the detailed procedural requirements.
- The FCA has indicated the scope of rules for mid-sized AIFMs could include the existing AIFMD-derived rules in Chapter 3 of the Investment Funds sourcebook, along with other AIFMD-derived standards in the Senior Management Arrangements, Systems and Controls and the Conduct of Business sourcebooks.
- The FCA proposes to allow greater flexibility and proportionality, including not seeking to impose the more detailed procedural requirements, typically found in the UK-onshoring of the AIFMD supplementing legislation (under Commission Delegated Regulation (EU) No 231/2013) (the "Level 2 Regulation") except where necessary to set appropriate standards, specify exceptions or clarify expectations.
Small AIFMs (NAV of up to £100 million): These firms will be subject to "baseline standards essential for maintaining appropriate levels of consumer protection and market integrity".
Moving Up a Higher Category
Under the proposals AIFMs will no longer need to apply for a variation of permission as they change size category; rather, AIFMs would need to notify the FCA of their size category, including any opting up to a higher category.
AIFMs will have the option to comply with rules that apply to larger firms but will not be required to do so. AIFMs would be encouraged to consider other factors that would make it desirable to do so, e.g. client expectations.
Other Additional Proposals
Below is a list of some of the FCA and the Treasury's other key proposals.
- Depositary and Custody Requirements: The FCA acknowledges industry concerns around the cost and inflexibility of depositary requirements, especially for private assets, e.g. private equity. The FCA has indicated it is open to considering more flexible custody models, but no immediate changes are being proposed.
- Remuneration: The FCA will review the operation and effectiveness of the remuneration rules for AIFMs, alongside the code for UCITS management companies and investment firms.
- Regulatory Reporting and Prudential Requirements: The FCA aims to review the prudential requirements and how they apply to different-sized firms. The FCA will also review the regulatory reporting rules, with a view to achieving a more effective reporting regime that is proportionate in its demands on AIFMs.
- National Private Placement Regime: The Treasury states that there are currently no plans to amend the National Private Placement Regime; rather, the Treasury intends to broadly restate the marketing regime for overseas AIFMs in legislation and any technical changes will be subject to consultation.
- Marketing Notifications for UK AIFMs: The Treasury is proposing to remove the requirement on UK AIFMs of UK AIFs to notify the FCA of their intention to market such AIFs to professional investors 20 working days prior to marketing.
- Private Equity Notifications: The Treasury proposes removing the requirement on full-scope UK AIFMs, and full-scope overseas AIFMs registered under National Private Placement Regime, to notify the FCA of the acquisition of control of non-listed companies and issuers by AIFs.
Proposed New Rule Structure for AIFMs
The FCA has recognized that the FCA Rules, in conjunction with the Level 2 Regulation, set out expectations for different activities or phases of the product cycle within the same rule or provision.
In order to make the rules clearer, the FCA proposes to group the rules into thematic categories, as follows:
- Structure and operation of the firm: general standards of governance and behaviour; and basic systems and controls requirements.
- Pre-investment phase: requirements during product design and development; and disclosure requirements to prospective investors.
- During investment: ongoing obligations while a product is in operation; and periodic investor information disclosure requirements.
- Change-related: rules that apply when a manager changes something about the product; and rules that apply or require disclosure when something specific happens.
Other Considerations Not Addressed in the Proposals
The FCA has indicated it will separately address other issues it is considering with respect to AIFMs, including:
- Simplifying the requirements for managers of authorised AIFs into a single set of rules.
- Requirements for AIFMs around disclosure, distribution and marketing to retail investors.
- The AIFM business restriction that applies to an external AIFM that is a full-scope UK AIFM.
Next Steps
Firms should familiarise themselves with the content of the proposals and continue to monitor developments in this space, including the details of the final rules.
Footnotes
1. The threshold being AUM of €100 million, except where the AIFM only manages AIFs that are unleveraged and have no redemption rights for the first five years, where it is set at €500 million.
2. The UK implemented two domestic regimes for small UK AIFMs: (i) small authorised UK AIFMs and (ii) small registered UK AIFMs. Small authorised UK AIFMs are authorised and regulated by the FCA and subject to (among other things) certain sections of the FCA Handbook. Small Registered UK AIFMs are not authorised and regulated by the FCA but meet certain requirements to be maintained on the register of Small registered UK AIFMs but are not generally subject to the FCA Handbook.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
