FCA sets out its approach for a new UK AIFM framework

On 7 April 2025, FCA published a Call for Input published on the same day and entitled 'Future regulation of alternative fund managers' (the CFI).

The CFI was published on the same day as an HM Treasury (HMT) consultation, "Regulations for Alternative Investment Fund Managers" (the CP), in which it set out proposals to simplify the regulatory framework applying to AIFMs.

For our summary of the HMT's CP, see here.

What does the CFI cover?

The CFI sets out the FCA's proposals for rules for AIFMs, based on the approach set out in the HMT CP.

The aim is to develop a UK regime which is proportionate to a firm's size and activities, allows for growth without sudden or undue regulatory burdens, makes it easier for firms to grow, compete, innovate and enter the market and, at the same time, protects consumers and encourages firms to manage risks responsibly.

The FCA's proposals have been guided by feedback to its Discussion Paper, DP23/2, "Updating and improving the UK regime for asset management". For our summary of the DP see here.

Feedback to the DP indicated that the rules for AIFMs should be made less complex, more proportionate and better tailored to the UK market, while remaining broadly aligned with the EU.

The FCA agrees that there is a strong case for retaining - but substantially improving - the existing framework.

What does it not cover?

Although the CFI examines issues related to the regime for managers of unauthorised AIFs, it does not deal at length a number of other issues which the FCA is currently considering, such as

• simplifying the requirements for managers of authorised AIFs into a single set of rules

• regulatory reporting under AIFMD and

• requirements for AIFMs around disclosure, distribution and marketing to retail investors.

These topics will be addressed separately

What happens next?

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

• To reply to the FCA's CFI, email AIFMRegimeCFI@fca.org.uk.

• Responses to the HMT CP should be sent by email to AIFMR@hmtreasury.gov.uk

Having considered feedback provided:

• the FCA will (subject to decisions by HMT) consult on detailed rules for AIFMs in the first half of 2026 and

• HMT will publish a draft statutory instrument on the regulatory framework for AIFMs.

What's in the CFI?

The CFI deals with a number of topics which may (or may not) change under the new UK AIFM regime. Taking these in order:

A. Making the rules clearer

The FCA proposes to group its rules into clearer, thematic categories, reflective of different business activities and phases of the product cycle, to facilitate the setting of clear requirements for firms of different size.

• The largest firms would continue to be subject to a regime similar to the current rules for full-scope UK AIFMs but with unnecessarily burdensome rules disapplied and with certain rules applied only to firms doing specific activities.

• Mid-sized firms would follow a comprehensive regulatory regime consistent with the rules that apply to the largest firms but with greater flexibility and proportionality. Increasing the thresholds as proposed (see below) would lead to a significant number of current full-scope firms being reclassified as mid-sized and these would be subject to a simpler, more flexible and less onerous regime, with fewer prescriptive rules to follow.

• Small firms would be subject to rules which set baseline standards essential for maintaining appropriate levels of consumer protection and market integrity.

B. Setting the thresholds

The current legislative thresholds use leveraged AuM. The FCA, though, considers that the regime might operate more simply if determinations of size and thresholds are based on NAV (i.e., an AIFM's assets minus its liabilities). This would also reduce the risk that firms try to manage their leveraged AuM around reporting dates to remain below a category threshold.

The CFI proposes an upper threshold of £5bn NAV and a lower threshold at £100m, assessed against the NAV of the funds managed by an AIFM.

The FCA feels that the upper threshold strikes an adequate balance to distinguish the largest firms, and would capture around 75% of total NAV and over 75% of leveraged AuM, while providing substantial opportunities for smaller firms to grow without undue burdens.

Firms between the new thresholds (i.e., between £100m and £5 bn) would be subject to the mid-sized firm regime, a more flexible and proportionate regime than the current full-scope regime. Those below the lower threshold would be small firms. A firm which is currently a full-scope UK AIFM but would be a small firm under the new rules, would see a significant reduction in detailed and prescriptive requirements, while benefitting from greater flexibility.

C. Moving up to a higher category

With the removal of legislative thresholds, firms would not need to apply for a variation of permission to change size category but could instead be required to notify the FCA of their size category, including any opting up.

Firms will be able to comply with rules applicable to larger firms but will not be required to do so.

D. Leverage

The FSB is expected to publish recommendations coming out of its work on leverage in non-bank financial intermediation (in which AIFMs play an important role) later this year - the FCA will consider the implications for the AIFM regime at that stage.

The FCA also intends to evaluate the effectiveness of current AIFMD provisions in addressing risks from leverage in line with the forthcoming FSB recommendations and is considering if it needs to be clearer about its expectations as to how highly leveraged firms manage risk.

E. Applying the rules to firms undertaking different activities

The current requirements (for example, those on risk limits) are not always suitable for managers of funds focused on less liquid investment types, such as private equity and real estate

Although it expects firms to comply with relevant rules, the FCA wants to avoid imposing unnecessary standards on firms doing different activities. The FCI also considers the possibility of more bespoke regimes to set regulatory standards for managers of venture capital and growth capital funds and for managers of listed closed-ended investment companies.

As explained in its CP, HMT intends to retain the current RVECA regime for now but will assess how it could be best adapted to support the venture and growth capital sector - the FCA will consider how to adapt its regime in the light of this work.

Similarly, HMT has proposed that listed closed-ended investment companies remain in-scope of AIFM regulation for financial stability and consumer protection reasons. If this ends up as HMT's final policy, the FCA would set appropriate standards, taking into account the specific nature of that market and their wider regulatory framework

F. Depositaries

The FCA 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 does "not expect to change the rules that are unique to depositaries of authorised funds in any material way".

Small authorised AIFMs and full-scope AIFMs managing overseas AIFs not marketed in the UK are not required to appoint a depositary and the FCA does not intend to make them do now - the Client Assets sourcebook (CASS) would continue to apply safekeeping rules to small authorised AIFMs under the new regime.

G. Remuneration

Remuneration requirements under AIFMD led to the creation of the AIFM Remuneration Code for staff at full-scope firms. The FCA will review the operation and effectiveness of these rules (alongside the code for UCITS ManCos and investment firms) before deciding whether to propose changes to them.

H. Prudential requirements

Since the AIFMD's prudential rules were introduced in 2013 (partly in response to risks identified during the global financial crisis), there have been changes in the perceived balance of risks and the potential for a recalibration of the rules to address those risks. The FCA intends to review the new regime's prudential requirements and how they apply to different-sized firms.

I. Business restrictions

The rules restricting the principal activities of an external full-scope AIFM to undertaking only AIFM management functions and the management of UCITS or other collective investment undertakings were intended to address conflicts of interest.

Given that such conflicts are already covered by other AIFM rules, the FCA does not regard the above restriction as reducing risks to a meaningful degree - it does, though, create cost and inefficiency as firms need to seek top-up permissions or create new legal entities once they pass the size threshold.

As a result the FCA will look at the business restriction when considering the conduct and prudential rules under the new regime.

J. Regulatory reporting

The reporting regime brought in by AIFMD has not been reviewed since its introduction. In order to collect information in a way that is future proof, helps it understand the market and monitor the collective and individual risks posed by firms, the FCA will consider how best to establish a more effective reporting regime that is proportionate in its demands on firms.