The UK’s Financial Conduct Authority (FCA) and HM Treasury have opened the door to a potential overhaul of the regulatory framework for alternative investment fund managers (AIFMs), a move that is drawing cautious optimism from across the asset management industry.
A Call for Input launched today outlines plans to recalibrate how managers are classified and regulated, with the goal of supporting growth, competitiveness and innovation in the UK’s investment sector.
The FCA regulates the financial services industry in the UK, protecting consumers and promoting market stability, while His Majesty’s (HM) Treasury is a ministerial department of the UK government responsible for developing and executing the government’s public finance policy and economic policy.
Chris Cummings, chief executive at the Investment Association, the trade body that represents UK investment managers, praised the initiative, describing it as a vital step toward modernising the UK’s regulatory regime. “The UK is a world-leading centre for investment management, and we welcome the opportunity to work with policymakers and regulators to streamline the regulatory regime for investment managers,” he said. According to Cummings, the proposals will enhance the industry’s ability to serve clients both domestically and globally, while strengthening its contribution to economic growth.
At the core of the FCA’s proposal is a tiered regulatory approach that segments managers into small, mid sized and large categories based on assets under management. Under this model, only firms managing more than £5 billion in assets would fall under the full scope of current AIFM rules. The changes would also aim to reduce red tape for smaller managers without compromising the overarching regulatory standards, according to Leonard Ng, partner and head of the UK/EU financial services regulatory group at law firm Sidley, called the proposal a “very positive development.”
The industry has long advocated for a more proportionate regime, added Ng, and it’s encouraging to see those calls reflected in the government and FCA’s thinking. “The existing rules for alternative asset managers were negotiated mostly in 2010-2011 (the AIFM Directive being published in the EU Official Journal in 2011), and were a direct reaction to the global financial crisis, so it is high time to review that regime,” Ng added.
The proposed three-tier framework is an “interesting” evolution that offers a more nuanced approach to regulation, he highlighted.
However, Ng also pointed out that the suggested asset thresholds, particularly the new £5 billion mark, will likely be a focal point for industry feedback. “Industry will of course want to consider whether the suggested thresholds are the right ones (and indeed whether a different test should be used altogether), but this is certainly a step in the right direction,” he added.
Grania Baird, partner at law firm Farrer & Co, emphasised both the opportunities and challenges of the reforms. “The increase in thresholds to ensure that only the largest firms are subject to the greatest regulation makes sense and there should be some benefits for medium-sized AIFMs in the longer term. However, there will be costs in the short to medium term in adapting to the new regime.”
She also flagged concerns for smaller players, adding, “The proposal to remove the small registered AIFM regime, which the Treasury has said could create a ‘halo effect’, is a blow for smaller boutique firms and funds who have benefited from this light-touch regime.
While broadly welcomed, the proposals remain high-level for now, and some industry stakeholders are urging caution until more specifics are available. Jonathan Herbst, global head of financial services at law firm Norton Rose Fulbright, described the FCA’s paper as “thin on detail at this stage,” emphasising that the initiative’s success will depend on how proportionality and flexibility are implemented. “Making the regime more outcomes-focused is surely something that the industry will welcome,” he said, but warned that “the devil will be in the detail.”
The FCA plans to consult more formally on rule changes in the first half of 2026, following feedback from this initial engagement and legislative action from HM Treasury. Stakeholders have until 9 June 2025 to respond to the Call for Input, stated the FCA.
As Cummings summed up: “ The proposals will allow the UK investment management industry to better serve its customers in the UK and around the world, to deploy capital effectively to support growth and to make a broader contribution to the UK economy.”
Source: Fund Europe
