The Financial Conduct Authority (FCA) on April 7, 2025 published a Call for Input, Future regulation of alternative fund managers on new proposals to reform the UK regime for alternative investment fund managers (AIFMs). HM Treasury (HMT) has also published a related consultation paper titled Regulations for Alternative Investment Fund Managers.
The FCA’s initiative is part of a broader effort to foster growth in the UK economy. The FCA proposes a more proportionate regime for AIFMs, tailored to the nature and scale of firms' businesses.
A New Three-tiered Approach
The FCA’s Call for Input proposes a three-tiered approach to AIFM regulation for large, mid-sized and small AIFMs.
Under the proposed new approach:
- Large AIFMs would be subject to a regime similar to the current rules for full-scope AIFMs, although the FCA has said that it would disapply unnecessarily burdensome rules applicable to these firms.
- Mid-sized AIFMs will remain subject to a comprehensive regulatory regime covering the same areas they are currently subject to, but will allow more flexibility on how they comply with applicable requirements by removing most of the more detailed requirements.
- Small AIFMs would only be subject to core baseline standards.
As a result of this reclassification, firms that are currently full-scope UK AIFMs and who were to be reclassified as mid-sized or small under the FCA’s new rules, would see a significant reduction in detailed and prescriptive requirements.
New Thresholds
HMT proposes to remove existing legislative assets under management (AUM) thresholds for small registered AIFMs. The FCA will under the proposed new framework be given powers to set thresholds to classify AIFMs according to the three-tiered approach described above.
The FCA proposes to move away from the AUM-based approach and to introduce new thresholds based on net asset value. Larger AIFMs will be those above the upper threshold of £5 billion in net asset value. The FCA thinks the regime for small firms should be primarily for AIFMs in the early stage of development or which operate solely in a highly focused segment of the market. The FCA proposes setting the lower threshold at £100 million. Mid-sized AIFMs will be captured in the remaining population of firms with net asset value falling between the £5 billion and £100 million thresholds.
The FCA suggests that firms moving between thresholds will likely be required to simply notify the FCA, rather than having to vary their permissions as is currently the case for small AIFMs moving above full-scope AIFM threshold. This will reduce costs and spare managers from having to embark into a complex and time-consuming regulatory process. Managers would also be able to opt up to comply with the requirements applicable to a higher threshold if they wish to (for example, as a result of investors’ demands).
As a result of the removal of the legislative thresholds, HMT indicates that certain types of small registered AIFMs, in particular managers of unauthorized property collective investment schemes and internally managed investment companies, will be brought into the scope of FCA authorization and supervision. For these managers the regulatory burden will increase as these will be subject to, as a minimum, the core baseline standards applicable to small firms.
Treatment of Investment Trusts
The FCA seeks feedback on tailoring rules for investment trusts, including those around transparency and leverage. Although, HMT and the FCA are of the view that investment trusts should remain in scope of AIFM regulation for financial stability and consumer protection reasons, the FCA is considering a more proportionate approach to risk management for trusts with low leverage.
Depositaries
The FCA asks for views on whether stakeholders see a need for changes to the AIFMD’s depositary requirements and whether these requirements should apply only to specific levels of firm. In particular, the FCA is also seeking feedback on whether the depositary requirements should be applied only to specific types of funds, e.g. authorized funds.
Venture and Growth Capital Funds
HMT is not proposing to amend the regime for managers of Social Entrepreneurship Funds (SEF) and Registered Venture Capital Funds (RVECA) but it indicated that the Government will consider in the future how the AIFM regime can be better adapted to this type of manager. The FCA also raises the question of whether a separate regime for venture capital and growth capital funds would be beneficial.
External Valuer Liability Regime
HMT is considering removing the liability regime for losses which currently applies to external valuers. This proposed change is expected to support growth in the market for external valuation services.
National Private Placement Regime (NPPR) and Marketing Notifications
HMT is not planning changes to the NPPR which applies to the marketing of overseas AIFs into the UK.
With regard to the marketing of UK or Gibraltar AIFs to UK professional investors, HMT plans to remove the requirement to notify the FCA 20 working days prior to marketing. This will remove unnecessary delays for new fund launches.
Private Equity Notifications
HMT is also considering the removal of the requirements for certain AIFMs to notify the FCA when acquiring control of private companies under the existing asset-stripping rules.
Additional Areas Under Consideration
The FCA’s Call for Input addresses certain issues related to the regime for managers of unauthorized AIFs. However, it does not address at length other issues the FCA is also considering, including:
- Simplifying the requirements for managers of authorized 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
The FCA indicated that it will address these topics in separate workstreams.
Next Steps
The FCA’s Call for Input and the HMT consultation are both open until June 9, 2025. The FCA plans to consult on detailed rules in 2026.
Kroll’s View
The proposed changes will be welcomed by the industry. The proposed new thresholds based on net asset value, rather than the AUM calculation methodology under current rules, will be easier for firms to understand as a more common and uniform measure used by the industry. The three-tiered approach to categorizing AIFMs will also ensure a more tailored and proportionate application of relevant rules based on the risks that individual groups of firms pose to the FCA’s objectives and UK markets.
With regard to other proposed changes, the review of the external valuer liability regime can also bring benefits to the market by potentially expanding the number of service providers willing to hold the external valuer designation and increase independence in asset valuations. The review of the depositary regime, which is unique to the UK and EU, could also result in changes which would bring UK AIFMs on a more level playing field with other international alternative fund managers.
There will be more proposals in key areas such as prudential and remuneration requirements, Annex IV reporting and AIFM business restrictions. Kroll will be following closely the future developments and continue to assist clients with any regulatory changes.
If you would like to discuss any aspect of the FCA or HMT papers, please reach out to us or your usual Kroll contact.
