UK Proposes Overhaul of AIFM Regulatory Regime

In April 2025, HM Treasury (HMT) and the Financial Conduct Authority (FCA) launched a significant consultation aimed at reforming the UK’s regulatory framework for Alternative Investment Fund Managers (AIFMs). This initiative marks the UK’s strategic divergence from the EU’s AIFMD II, with a focus on reducing regulatory burdens, supporting growth, and maintaining core protections for consumers and markets.

Key Highlights:

• Divergence from the EU: While the EU rolls out AIFMD II, the UK is choosing a more flexible, outcomes-based approach rather than mirroring the EU’s prescriptive changes.
  
• Three-tier Regime: The UK proposes categorizing AIFMs by assets under management:
  
  • Large AIFMs (>£5bn NAV): Will retain many existing requirements but see unnecessary rules removed.
    
  • Mid-sized AIFMs (£100m–£5bn): Will benefit from simplified, less burdensome regulation.
    
  • Small AIFMs (<£100m): Will follow streamlined core standards. The current “small registered” category will be eliminated, requiring full FCA authorisation.
    
• Strategic Proportionality: The FCA plans to tailor rules to firm size and investment strategy, offering flexibility for managers of private equity and real estate funds, who have long struggled under hedge fund-style regulation.
  
• Other Notable Proposals:
  
  • Removal of marketing notification delays
    
  • Changes to valuation liability to encourage external valuation services
    
  • Review of remuneration and prudential standards
    
  • Simplified, strategy-specific rule structuring
    
  • Retention of LCICs within AIFM scope but with potential regulatory easing
    

Implications for Firms:

• Firms operating in both the UK and EU will need to manage diverging compliance tracks, especially as the EU’s AIFMD II takes effect in April 2026.
  
• Small registered UK AIFMs face the biggest transition, with higher compliance demands.
  
• Mid-sized and strategy-focused managers stand to gain the most from the proposed flexibility.
  

Next Steps:

The consultation period ends on 9 June 2025, with draft legislation expected later in the year. The FCA will follow with a detailed consultation in 2026, with new rules likely taking effect from late 2026 onward.