A reset for Alternative Asset Managers

HM Treasury (HMT) published a consultation paper yesterday proposing a “streamlined framework” for regulating UK alternative asset managers (AIFMs) in a break from the EU Alternative Investment Fund Managers Directive (AIFMD). In HMT’s words it is essential that the regulations underpinning this important sector are appropriately targeted and proportionate for UK markets to foster economic growth. At the same time, the FCA published a Call for Input on its proposals for the future regulation of alternative fund managers.  

HMT Proposals – what are they?

Under the current AIFM regulations which implement the AIFMD and were carried over after Brexit, there is, in HMT’s words, a “cliff edge” between asset managers who are regulated as “small” AIFMs (and to whom most of the detailed AIFMD requirements do not apply) and those who are “full scope”. “Small” means total gross assets under management of €100m (unleveraged) or €500m (leveraged).  

HMT is proposing to remove the thresholds, leaving it to the FCA to determine proportionate and tailored rules. They will bring into scope of regulation two sub-threshold categories of “small registered AIFM” that are not currently authorised, that is unauthorised property collective investment schemes and internally managed investment companies.  

A separate chapter is devoted to listed closed-ended investment companies which HMT proposes should remain in scope, although they ask for views as to whether they should remove them altogether from AIFM regulation and whether removal of investment companies should be limited to those that are listed on the London Stock Exchange or include other types.  This would be very welcome to those who make the point that, in principle, there is no logical reason why listed investment companies should be treated any differently from listed commercial companies. This might remove the regulatory arbitrage which has seen some companies (with shareholder approval) change their listing category from closed-ended investment companies to equity shares (commercial companies).

HMT also has some additional proposals where the Government intends to regulate:

• moving relevant definitions and guidance related to the regulated activity of “managing an AIF” to the Regulated Activities Order;
• revoking the regulated activity of acting as a depositary as there will no longer be a concept of a full scope AIFM, leaving the role of the depositary for the FCA to determine;  
• retaining the National Private Placement Regime for use by overseas AIFMs and UK AIFMs managing overseas AIFs;
• revoke the requirement for full scope UK AIFMs to notify the FCA of their intention to market UK AIFs 20 working days prior to marketing;
• potentially remove the requirement for full-scope UK AIFMs and oversea AIFMs to submit information on AIFs which acquire control of non-listed companies and issuers; and
• potentially removing statutory liability of the external valuer (but contractual liability will remain) so as to facilitate growth in the market for external valuation services.

FCA Call for Input

The FCA proposes to categorise firms by net asset value under management, with three divisions and the ability to opt up to a higher category:

Small firms (NAV of £100m or less)

Baseline standards that “reflect a minimum standard appropriate to a firm entrusted with managing a fund” or are are essential for maintaining appropriate levels of consumer protection and market integrity.  

Mid-sized firms (NAV more than £100m but less than £5bn)

The FCA say they would have a comprehensive regulatory regime that is consistent with the rules that apply to the largest firms, but reducing prescriptive rules in the Level 2 AIFMD Regulation, making the regime simpler, more flexible and less onerous.

The largest firms (NAV of £5bn or more)

The regime would be like the current rules for full scope AIFMs but may be more tailored to specific activities and the removal of rules where prescription is not considered necessary.

The FCA may consider a bespoke regulatory regime for venture capital and growth capital AIFMs and ask whether there are any other areas where they should consider setting up tailored regimes.  

While noting that listed closed-ended investment companies (LCICs) are subject to a comprehensive regulatory framework (including the UK Listing Rules, the Disclosure Guidance and Transparency Rules, the Prospectus Regulation Rules and the UK Market Abuse Regime and companies law), the FCA askes for input on areas where overlap with the responsibilities of the board of the LCIC may be removed, for example on the appointment of administration and marketing service providers and on leverage.

When it consults on detailed rules, the FCA will consider reforms to the AIFMD remuneration and prudential requirements and regulatory reporting.

Timing

The Consultation and Call for Action close on 9 June 2025. HMT does not give any timelines but says that, following consideration of responses, it will publish a draft statutory instrument on the regulatory framework for AIFMs and the FCA will consult on its proposed rules for AIFMs.  The FCA say that, subject to feedback and to decisions of HMT, they plan to consult on detailed rules in the first half of 2026.  

Would it be too much to hope for a new regime for 2027?