New proposals for the UK AIFM regime from HM Treasury and the FCA

The Alternative Investment Fund Managers (AIFM) regime, originally derived from the Alternative Investment Fund Managers Directive, is now set to be amended as a result of the new Treasury Consultation and the FCA’s Call for Input, which were both published on 7 April 2025. Both papers are designed to be read together, with the FCA’s Call for Input particularly focused on the implications of changing the regulatory environment for the future development of rules and guidance.

Background

The Financial Services and Markets Act 2023 allows the Government to replace assimilated EU financial services law with rules set by UK regulators; as the AIFM regime is EU-derived, amendments can now be made to better suit the UK’s new regulatory and growth objectives.

Sub-threshold AIFMs

Currently, there are two regimes for sub-threshold firms (i.e. those which have assets under €100m under management, except for where a manager only manages AIFs that are unleveraged and have no redemption rights for the first 5 years, where it is set at €500m). 

The first regime, the Small Authorised Regime, provides that FCA authorisation is required but managers are not subject to the same detailed requirements as full-scope AIFMs. The Small Registered Regime covers a small number of firms who are not authorised but were still required to register with the FCA. 

The Consultation notes that the threshold for the regimes was established in 2013 and has not been increased since its introduction and does not account for market movements and inflation. The threshold also creates cliff-edge risks in relation to the transition from sub-threshold to full-scope regimes, with the Small Registered Regime also having the potential to mislead investors given the limited powers of the FCA over such managers. 

The Treasury’s Consultation proposes to remove the Small Registered Regime and considers the implications for each category of small registered manager (the default outcome being FCA authorisation). 

Overall, the removal of the legislative thresholds is intended to enable the FCA to determine proportionate and appropriate rules for AIFMs of all sizes having regard to their investment activities and investor base, as well as the specific risks they pose.

A three-tiered approach 

The FCA Call for Input further defines the new categories of AIFM:

In contrast with the current assessment of leveraged assets under management, the FCA believes there may be a better case for basing the size determination (as above) on net asset value, allowing the regime to operate more simply.

While the FCA expects most small AIFMs to be unlikely to need to materially raise standards under the new regime, a significant number of existing full-scope firms should be reclassified as mid-sized and therefore subject to a “simpler, more flexible and less onerous regime”.

The FCA also intends to introduce flexibility into the rulebook, so that the application of the rules is more tailored to different investment types. For example, the application of risk management rules may be different as between an AIFM managing a diversified portfolio of transferable securities and those focused on less liquid investment types such as private equity or real estate. Without legislative thresholds, firms will also not need to apply for a variation of permission as they change size. This may instead potentially be achieved by a notification. 

Additional proposals

Other areas touched on by the Treasury Consultation and FCA Call for Input include: 

Listed Closed-Ended Investment Companies (LCIC)

Listed Closed-Ended Investment Companies are investment funds admitted to the Official List and traded on the Main Market of the London Stock Exchange. 

The Treasury proposes that they remain in-scope for the AIFM regulations, including needing to become authorised where previously an internally managed LCIC could have been a small registered UK AIFM. However, the FCA is considering whether it could take a tailored approach in the precise application of the rules to LCIC managers in relation to transparency, leverage and delegation requirements.  

Managing an AIF

The Treasury does not propose changes to the definitions or regulatory perimeter as part of the transition, albeit it proposes moving definitions relating to the regulatory perimeter to the Regulated Activities Order to ensure they continue to work as intended. 

NPPR and marketing notifications

The Treasury is proposing broadly restating the marketing regime known as the National Private Placement Regime (NPPR) used by overseas AIFMs and UK and Gibraltar AIFMs managing overseas AIFs. However, the Treasury is proposing to remove the requirement on full-scope AIFMs of UK or Gibraltar AIFs to notify the FCA of their intention to market such AIFs to professional investors 20 working days in advance.

Private equity notifications

Full-scope AIFMs and above threshold overseas AIFMs must submit information to the FCA regarding any AIFs they manage which acquire control of non-listed companies and issuers. The Treasury is considering whether to remove this requirement or to implement a new requirement that the information be submitted elsewhere, given the limited powers of the FCA to act in relation to the activity (such as asset-stripping) which the notifications are intended to help identify.

External valuation

At present, an external valuer appointed to carry out valuations of an AIF is liable to the AIFM for any losses caused by the valuer being negligent or intentionally failing to perform its tasks. The Treasury is considering whether to remove the legal liability of the external valuer in legislation, leaving liability on a contractual basis between the external valuer and the AIFM, with the AIFM retaining legal liability to the fund and its investors. 

Depositaries

The FCA states that it sees no immediate need to make radical changes to how asset safekeeping and fund oversight should be carried out for large and mid-size AIFMs and that safekeeping rules under CASS would continue apply to small firms in the new regime. However, the FCA welcomes input from stakeholders on whether they would like it to explore proportionate alternatives that meet global regulatory standards. 

The AIFM business restriction

The FCA considers that the current rules (restricting the activities which may be carried on by a full-scope AIFM) appear to create costs and inefficiencies without meaningfully reducing risks. The restriction will therefore be assessed when the FCA looks at how conduct and prudential rules will apply under the new regime.  

Remuneration, prudential requirements and regulatory reporting

The FCA also plans to review the operation and effectiveness of remuneration rules for AIFMs, the application of prudential rules to different-sized firms and how to achieve a more effective reporting regime that is proportionate in its demands. 

Next steps

Both the Treasury Consultation and the FCA’s Call for Input close on 9 June 2025.

Following consideration of responses to the Consultation, HM Treasury will publish a draft statutory instrument on the regulatory framework for AIFMs and the FCA will look to develop detailed rules and guidance for consultation in the first half of 2026. 

If you wish to discuss the potential impact of the proposals on your firm, please contact Jennifer Mellor or John Roberts in our Funds and Financial Regulation team.

This article was written by Matthew Pegler and John Roberts.

The overall aim of both this consultation and the FCA’s Call for Input is to streamline the regulatory requirements for AIFMs, and reduce burdens, while maintaining core protections for consumers and markets.

https://www.gov.uk/government/consultations/alternative-investment-fund-managers-regulations-consultation