In our recent alert “Properly Valuing Private Equity, Venture, Real Estate, and Other Private Market Assets: Some Pointers for UK and EU Managers”, we discussed the Financial Conduct Authority’s (FCA’s) focus on fund managers’ valuation of private assets. The FCA has included asset valuation as an area for reconsideration in the paper “Call for Input: Future regulation of alternative fund managers” (FCA Paper), published on 8 April 2025, calling for input on the future regulation of alternative investment funds managers (AIFMs). The FCA Paper was published on the same day as the His Majesty’s Treasury (HMT) consultation “Regulations for Alternative Investment Funds Managers” (HMT Consultation).
The period for comment closes on 9 June 2025, but the FCA indicates that it plans a formal consultation on revisions to its Handbook of Rules and Guidance (FCA Rules) in the first half of 2026, once HMT has decided on the outcome of the HMT Consultation.
The Intended Effects of the Changes
The intended substantive effect of the HMT consultation and FCA Paper is to create a regime that can be more properly and proportionately tailored to the different types of managers than is possible under the current regime. This is a laudable aim, but there is still much detail to come. The most significant impact will likely be on managers looking to set up in the UK for the first time. Here, the ease and speed of process relative to nearby places, such as Luxembourg and the Channel Islands, which offer expedited registration processes, will be important for assessing any new regime’s success.
The intended formal effects of the proposals will be changes to the AIFM Regulation 2013 (AIFMR) and parts of the FCA Rules, in particular the Investment Funds Sourcebook (FUND). The AIFMR and FUND were the main UK legislative instruments promulgated to give effect to the European Union (EU) AIFM Directive (AIFMD) when the UK was still a member of the EU.
The removal of the legal requirement for the UK to implement and continue to ensure compliance with the AIFMD, which resulted in the UK leaving the EU, gives HMT and the FCA the freedom to remove provisions required under the AIFMD. Interestingly, neither the FCA Paper nor the HMT Consultation contemplate or otherwise address changes of the types contained in the updates to the AIFMD. (See our alert “End of the Beginning: AIFMD II’s Final Text”.)
The HMT Consultation
Because the AIFMR contains much of the key legal provisions governing UK AIFMs, and HMT (rather than the FCA) is responsible for its provisions, the HMT Consultation sets out the important structural changes to the UK regime for AIFMs. These are the main points covered in the HMT Consultation:
- HMT is proposing to change the scope of firms subject to the UK AIFM regime and to remove the threshold that determines when a firm is subject to the full AIFM regime from legislation. The FCA would then be able to determine that threshold and is considering how to apply the regime across AIFMs of different sizes and those doing different activities after the legislative changes have been made. This suggests that the concept of a “full-scope AIFM” will fall away.
- The default outcome of removing the legislative thresholds for the registration regimes for small AIFMS (Small Registration Regime) is that all AIFMs currently within the Small Registered Regime would fall within the regulatory perimeter. HMT and the FCA are therefore seeking input on how the AIFMs for funds, such as Social Entrepreneurship Funds and Registered Venture Capital Funds, should be regulated, including whether the existing regime should remain. The current exemptions for other AIFMs within the Small Registered Regime, such as property and internally managed companies, are intended to fall away.
- In addition to the focus on thresholds and the Small Registration Regime, HMT devotes a chapter to various proposals for listed closed-ended investment companies.
- The other proposals in the HMT Consultation include:
- Alternative investment fund is to be defined in the Regulated Activities Order (RAO) consolidating the materials that currently appear in the AIFMR, the FCA Rulebook, and the EU materials “onshored” into UK law.
- The definitions of the regulated activities of acting as a depositary and trustee are to be revisited in light of other definitional changes in the RAO.
- The AIFM Business Restriction in FUND 1.4, which limits regulated AIFM activities, is to be revisited. Although the HMT Consultation does not mention this, it tends to suggest that the “collective investment management” (CPM) firm and “CPM investment (CPMI) firm” distinction could fall away, which raises questions about how the application of the Prudential Sourcebook for MiDFID Investment Firms rules for AIFMs who also perform investment services could be affected.
- The current regime for marketing non-UK AIFs into the UK, which reflects the national private placement regime in the AIFMD, is to be retained.
- The requirement of UK AIFMs to notify the FCA at least 20 working days before marketing an AIF that they manage is to be abolished.
- The requirements for AIFMs who manage AIFs that acquire control of nonlisted companies and issuers to notify the FCA when they acquire holdings in listed companies is to be abolished. There is, however, no proposal to remove the restrictions on capital reductions or similar withdrawals of capital under the so-called “asset stripping”.
- The removal of legal liability for external valuers and removing concept from legislation. As we note above, the role of valuation has come under recent FCA scrutiny.
The FCA Paper
Main points of the FCA Consultation after an initial reading:
- The FCA proposes three tiers of AIFMs, with the number and intensity of rules applying according to classification.
- The largest AIFMs would be subject to a regime like that of the current rules for full-scope UK AIFMs. The FCA will, however, disapply unnecessarily burdensome rules from all AIFMs.
- Small AIFMs would be subject to core requirements appropriate to their size and activity.
- The FCA proposes:
- an upper threshold of >£5 billion net asset value (NAV) to distinguish large AIFMs.
- a range of £100 million to £5 billion NAV for medium AIFMs
- a lower threshold of <£100 million NAV for small AIFMs.
- The threshold would be assessed against the net asset value of the funds managed by an AIFM and not the gross asset value.
- The FCA addresses the role of depositaries; it states that it can see no immediate need to make radical changes to how asset safekeeping and fund oversight should be carried out for large and midsize AIFMs. It invites input, however, on proportionate alternatives that meet global regulatory standards.
- The FCA will review the operation and effectiveness of the remuneration rules and prudential rules for AIFMs.
- The FCA states it wants to achieve a more effective reporting regime that is proportionate in its demands on AIFMs and will consider how to achieve this.
The FCA is not yet consulting on changes to its rules, hence the FCA Paper being a request for input and not a formal consultation on draft rules and guidance. That said, the FCA Paper sets out in Annex 1 possible examples of what the rewritten rules would look like.
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