Reforms to the UK AIFMD regime

May 2025

The FCA and HMT are seeking input on proposals to reform the regulatory requirements for UK Alternative Investment Fund Managers (AIFMs). The goal is to reduce the regulatory burden for these firms while maintaining adequate protections for consumers and markets.

As this article explores, this is another example of the UK authorities acting to support the government's growth agenda whilst adjusting inherited EU rules. The proposed approach is also significantly different to the EU’s plans, where EU AIFMs will need to comply with additional requirements from April 2026.

The AIFMD was implemented in the UK via the AIFM Regulations and FCA rules in 2013. As well as regulating AIFMs consistently for the first time, the UK’s approach to implementation introduced three types of AIFM based on thresholds: full-scope AIFMs, small authorised AIFMs, and small registered AIFMs (the latter being exempt from the requirement to seek FCA authorisation).

HMT’s proposals would take the UK AIFMD requirements out of legislation, giving the FCA control to establish a revised regime for UK AIFMs in its handbook.

HMT's consultation includes the following proposals:

• Removing the current thresholds for defining AIFMs: HMT proposes to remove the legislative thresholds for small authorised and small registered AIFMs, arguing that the thresholds have not increased with inflation, create cliff-edges between AIFM type, and could lead to misconceptions about the FCA's powers in relation to small registered AIFMs. This would give the FCA greater flexibility to adjust the regime.

• Proposals for Small Registered AIFMs: HMT sets out how these firms should be treated in future depending on the funds they manage:
  • Unauthorised Property Collective Investment Schemes, and internally managed investment companies: HMT proposes that managers of these funds will need to seek FCA authorisation.
  • Social Entrepreneurship Funds (SEFs) and Registered Venture Capital Funds (RVECAs): HMT plans to retain the existing approach for now and consider their regulation under a separate consultation.

• Listed closed-ended investment companies: HMT proposes that all listed closed-ended investment companies should remain in scope of the AIFM regulations.

• Additional proposals: There are a range of minor adjustments proposed, such as moving the definition of 'managing an AIF' to the Regulated Activities Order, broadly restating the marketing regime for overseas AIFMs (the NPPR) in legislation, and potentially removing or adjusting the requirement to notify the FCA about acquiring control of non-listed companies. HMT is also considering whether it could facilitate growth in the market for external valuation services by removing the legal liability of the external valuer – this is likely to be popular with valuation providers but less so with AIFMs.

The FCA's call for input (CFI) seeks views on how it intends to regulate AIFMs in response to HMT's proposals. Overall, it is proposing to retain but ‘substantially improve’ the existing AIFM regime. The FCA plans to do this by being more proportionate to firms’ size and activities and removing unnecessary requirements in a manner that is consistent with international standards. The CFI covers the following topics:

• Issues with the current framework: The FCA asks for feedback on highlighted issues with the regime – such as abrupt, cliff-edge increases in requirements when an AIFM exceeds defined thresholds (discouraging growth), and overly prescriptive requirements.

• New thresholds for AIFMs with associated requirements: Most importantly, the FCA plans to create a new regime with three tiers based on an AIFM's net asset value rather than leveraged AUM. Firms would not need to vary their permission when moving between tiers and could voluntarily apply the rules that apply to larger firms (in a similar way to SM&CR).
  • Large firms (AUM > £5bn) would be subject to a similar regime as today, with some rules disapplied or adjusted.
  • Mid-sized firms (£100m > AUM < £5bn) would follow similar rules but would not be subject to the more detailed procedural requirements (e.g. such as in the UK AIFMD Level 2).
  • Small firms (AUM < £100m) would be subject to ‘core requirements’ with baseline standards.

• Restructuring the rules: The FCA plans to regroup the rules into clearer thematic categories to better explain when they apply (e.g. pre-investment, during investment).

• Leverage: The FCA will consider the implications of the FSB's recommendations on non-bank leverage, once finalised, for its current and proposed regimes. It is also considering if clearer expectations around risk management are needed for highly leveraged firms.

• Applying the rules to different vehicles:
  • Venture capital and growth capital: The FCA asks for views on whether there should be a separate regime for these, or other specific types of funds.
  • Listed closed-ended investment companies (investment trusts): The FCA proposes to apply the above three thresholds to these companies. However, it is considering whether a different approach to regulation could be taken in certain areas – for example, removing the requirement for certain disclosures or liquidity management rules for unleveraged products.

• Depositaries: The FCA doesn't plan to make radical changes to how asset safekeeping and fund oversight should be carried out for large and mid-size AIFMs. However, it welcomes input from stakeholders on alternative approaches.

Separately, outside of this CFI, the FCA will review the remuneration rules (also for UCITS Man Cos and investment firms), the prudential requirements that apply to AIFMs, AIFMs' business restrictions, and the effectiveness and proportionality of the Annex IV reporting regime.

Although the proposed flexibility and proportionality is likely to be welcomed, particularly by smaller firms, there will be a trade-off in terms of the regulatory change effort needed to meet the new rules. In addition, for groups that also have EU AIFMs, these changes will introduce significant divergence between the UK and the EU that will require parallel approaches to be implemented.

It is also notable that while the EU has reviewed its regime and introduced various new requirements (see a summary here), the UK is taking the opposite approach – seeking to streamline and be more proportionate where possible.

The consultations close in June 2025 before a more detailed FCA consultation is expected in the first half of 2026. Separately, the FCA will consider the wider topics referred to above (e.g. remuneration) and will work with HMT on transferring provisions from the AIFMD Level 2 Regulation into its rules – to be covered in a detailed consultation.

This is a busy time for the private asset sector, as the above reforms are considered but also as firms begin to implement the EU’s reforms. With less than one year to go until the AIFMD II package takes effect, and the associated detailed regulatory technical standards and guidelines are digested, firms are starting implementation programmes and making the required changes as the clock ticks down.

The retailisation of private assets is also accelerating at pace, as firms explore the optimal way to bring private assets to retail clients in a controlled and compliant manner. This is illustrated by the accelerating launch of LTAF and ELTIF products in the UK and the EU respectively.

You can read more on regulatory developments impacting the private assets sector in KPMG in the UK’s dedicated series here.