UK Government consults on amending its AIFM regulations

On 7 April 2025, HM Treasury (HMT) published a consultation, entitled "Regulations for Alternative Investment Fund Managers" (the CP), in which it set out proposals to

• simplify the Regulatory framework applying to managers of Alternative Investment Funds (AIFMs), while retaining core consumer and market protections
• remove detailed, firm-facing requirements from legislation
• enable the FCA to create a more proportionate and streamlined regime for fund managers, with rules tailored to the nature and scale of a firm's business and
• streamline its AIFM regulations to make them simpler and cheaper for most asset managers to do business in the UK.

The aim of the CP is to "gather insights and feedback on the proposed regulatory changes".

The CP was accompanied by an FCA Call for Input published on the same day and entitled 'Future regulation of alternative fund managers' (the CFI). Our summary of the CFI can be found here.

What happens next?

The consultation periods for both the CP and the CFI close on 9 June 2025.

• Responses to the HMT CP should be sent by email to AIFMR@hmtreasury.gov.uk.
• To reply to the FCA's CFI, email AIFMRegimeCFI@fca.org.uk.

Having considered feedback provided:

• HMT will publish a draft statutory instrument on the regulatory framework for AIFMs
• the FCA will consult on its proposed rules for AIFMs.

What does the CP contain?

When the EU implemented the AIFMD, it was transposed into UK law through a combination of Treasury regulations and FCA rules (together, the AIFM Regulations).

Following Brexit, FSMA 2023 repealed assimilated law (previously called 'retained EU law') in financial services, including AIFMD – this allows the Government to replace it with rules set by the UK's independent regulators, operating within a framework set by the Parliament.

The FCA's consideration of possible changes to rules for AIFMs kicked off with DP 23/2, "Updating and improving the UK regime for asset management". which looked at ways of reducing the regulatory burden on asset managers could be reduced and the possibility of simplifying FCA rules. See our summary of DP 23/2 here.

The CP looks at a number of areas where it believes that the AIFM Regulations regime could be improved:

A. Requirements for sub-threshold Alternative Investment Fund Managers
AIFMD required EU Member States to establish at least a registration regime for AIFMs below the threshold in Article 3 of AIFMD – the UK decided to establish two regimes for such sub-threshold AIFMs.

The Small Authorised Regime covers almost all sub-threshold AIFMs (with a few exceptions) - these must be authorised by the FCA to manage AIFs but are not subject to Full-Scope requirements.

The Small Registered Regime covers the minority of firms not previously FCA authorised. Such sub-threshold managers were required to register with the FCA rather than seek authorisation. This regime now applies to the managers of

• Social Entrepreneurship Funds (SEF) and Registered Venture Capital Funds (RVECA), which are subject to requirements, including restrictions on portfolio holdings, under assimilated law applicable to these structures
• Unauthorised Property Collective Investment Schemes (managing assets of unauthorised funds mostly holding land) and
• 'Internally Managed Companies' (which are not collective investment schemes and which do not appoint an external AIFM).

Problems with the existing Regimes
The threshold for the Small Regimes, however, has not changed since it was established in 2013, even to allow for inflation. In addition, although AIFMs just below the threshold are subject to minimal requirements, those just above it face a significant increase in requirements. This creates cliff-edge risk as the threshold can be passed because of market movements or changes in valuation rather than any actions of the firm.

Given these and other shortcomings, the Government proposes to remove the legislative thresholds for the Small Regimes. The FCA can then determine proportionate and appropriate rules for AIFMs of all sizes taking into account their investment activities and investor base, as well as the specific risks they pose. An initial outline of the FCA's intended approach is set out in the CFI (see below).

Removing the threshold, though, would mean that all firms currently in the Small Registered Regime would be required to seek FCA authorisation and comply with a set of rules, proportionate to their size. HMT considers that there is “a strong case” for doing this as the challenges with the thresholds are particularly pronounced for the Small Registered Regime.

In particular:

• HMT has decided to retain the existing rules for the regulation of managers of SEF and RVECA Funds and to deal with their regulation as a separate workstream. As part of this future work, HMT will consider how best to adapt the regulatory regime to suit the needs of such funds, which HMT notes have different objectives and characteristics from other AIFs
• To simplify the regulatory perimeter, HMT is proposing to require managers of sub-threshold Unauthorised Property Collective Investment Schemes to seek FCA authorisation and seeks views from those affected as to the impact this course of action will have
• HMT notes evidence of funds being structured as Internally Managed Companies in order to qualify for the Small Registered Regime, even when they do not follow the typical business model of an Investment Company
• Prior to AIFMD, managers of Internally Managed Investment Companies’ did not need FCA authorisation. Under the AIFM Regulations, sub-threshold managers of Internally Managed Companies were placed in the Small Registered Regime, but remained covered by enforcement powers and investor protections already afforded by the wider regulation of investment companies. HMT is now considering requiring the managers of sub-threshold Internally Managed Companies to seek FCA authorisation, as managers of AIFs.

B. Listed Closed-Ended Investment Companies

Listed Closed-Ended Investment Companies are investment funds admitted to the Official List, traded on the LSE’s Main Market and subject to the FCA’s Listings Rules. They now represent around over 30% of the FTSE 250 and invest in over £250 billion of assets.

Managers of such companies have been regulated since 2013 under the AIFM Regulations - prior to this, the companies were not regulated as investment funds in the UK.

HMT states that it is focused on ensuring that the regulatory regime for Listed Investment Companies is streamlined and proportionate and notes that several challenges have been raised as to how the AIFM Regulations apply to these companies. Among other things

• the corporate structure of Listed Closed-Ended Investment Companies means that they operate differently from other AIFs, their investors acquire securities with associated shareholder rights and the company has an independent board of directors, with responsibility for the fund’s oversight.
• Listed Closed-Ended Investment Companies must comply with elements of the Listings Rules as well as with the AIFM Regulations, which creates a degree of cross-over between the regimes.
• Retail investors make up over half of the investor base of Listed Closed-Ended Investment Companies and removing the company from the scope of AIFM Regulation would impact general consumer protection

“Following careful consideration”, HMT proposes that all Listed Closed-Ended Investment Companies remain in-scope of the AIFM regulations. (This would include those which are internally managed and below threshold.) It notes that the FCA is proposing to significantly streamline requirements for most AIFMs, and remove certain duplicative requirements in respect of the management of Listed Closed-Ended Investment Companies.

C. Additional Proposals

The CPP also sets out other changes which HMT is proposing to make, including:

• Definitions
  Definitions relating to the regulatory perimeter would be moved to the Regulated Activities Order so they continue to work as intended. No changes to the definitions or regulatory perimeter are intended to be made as part of this transition.

• Acting as a trustee or depository of an AIF:
  The regulated activity for acting as a trustee or depository of an AIF is currently based on the concept of a “full-scope AIFM” – as HMT is proposing to revoke this, the definition will need to be reviewed.

• The National Private Placement Regime
  The National Private Placement Regime (NPPR) requires overseas AIFMs, and UK and Gibraltar AIFMs managing overseas AIFs to notify the FCA that they are marketing and to confirm they are compliant with FSMA and AIFM Regulation.

  As market participants have not raised concerns with how the NPPR operates, HMT proposes to ‘broadly restate’ the regime in legislation. It confirms that any technical changes will be subject to consultation when the draft legislation is published.

• Marketing Notifications
  Under the AIFM regulations, full-scope UK AIFMs of UK or Gibraltar AIFs must notify the FCA that they intend to market their AIFs to professional investors. The FCA then has 20 working days in which to grant its approval (or refuse to do so). As this causes unnecessary delay in launching new products and makes it less attractive to market into the UK, HMT is proposing for there to be no need to notify the FCA 20 working days prior to marketing.

• Private Equity Notifications
  Full-scope UK AIFMs and above-threshold overseas AIFMs have to submit information to the FCA on any AIFs they manage which acquire control of non-listed companies and issuers. In practice, though, the FCA has limited powers to act regarding the type of activity (such as asset stripping) that this is supposed to safeguard against. HMT is considering whether to either remove the requirement for firms to submit these types of notifications to the FCA or to require this information to be notified elsewhere.

• External Valuation
  Although AIFMs can appoint external valuers to carry out an AIF’s valuation, the external valuer is liable to the AIFM for any losses caused by the valuer being negligent.

  This makes valuers cautious about taking on business – there is a particular impact on funds investing in longer-term assets as these can be more complex to value.

  HMT is considering whether to remove the legal liability of the external valuer. Instead, the external valuer would have contractual liability to the AIFM but the AIFM would still have legal liability to the fund and its investors.