Government and FCA AIFM proposals will help better shape UK regime

HM Treasury (28 pages/701 KB) and the FCA (30 pages/539 KB) have set out proposals to amend rules for investment managers. These proposals are designed to streamline regulatory requirements, reduce operational burdens, and ultimately support economic growth.

Oliver Crowley, investment funds expert at Pinsent Masons, said: “The consultations provide a good opportunity to shape the AIFM regime to suit a more modern private markets ecosystem. Changes to the rules should, however, be ambitious and sufficiently flexible to permit evolution of what has historically been, and continues to be, a rapidly evolving and innovative space.”

The Treasury’s initiative is part of the government’s broader strategy to make the UK a more attractive hub for asset managers. The Treasury consultation, open until 9 June, seeks feedback on simplifying the regulatory framework while maintaining essential consumer and market protections. The proposed changes aim to remove detailed, firm-facing requirements from legislation, allowing the FCA to create a more proportionate and streamlined regime. This approach is expected to make it simpler and cheaper for asset managers to operate in the UK.

In parallel with the government’s consultation, the FCA has issued a ‘call for input’, outlining its proposed approach to detailed rules for AIFMs. The FCA’s proposals include a three-tiered regulatory framework, with the largest firms subject to a regime similar to the current rules, albeit with some prescriptive elements removed. Mid-tier firms would face a comprehensive regulatory regime without many of the detailed requirements, while small firms would be subject to the core baseline standards. The current hurdles between full-scope AIFMs and small AIFMs has been in place since the EU’s AIFM Directive came into force in 2013. Small AIFMs enjoy a light touch regime but once they pass the hurdle are subject to a significant regulatory burden even though relatively small. The three-tier proposal will lighten this burden for many at the lower end of the mid-market.

A further proposal is to move small registered AIFMs into the authorised space. Small registered AIFMs are often used in real estate funds. This change would mean that many small registered AIFMs, which are currently exempt from FCA authorisation, would need to apply become authorised. with more stringent regulatory requirements.

Elizabeth Budd, financial services regulatory expert at Pinsent Masons, said: “The key theme from the HM Treasury consultation and FCA call for input is to ensure that the regulatory regime around AIFs is fit for purpose in a world very different from that in which it was originally created and to ensure that it can flex and adapt in a sensible timeframe. It is also a further reflection of the FCA implementing the Smarter Regulatory Framework or FSMA model adopted in the Edinburgh Reforms.”

The FCA’s approach aims to streamline requirements for different types of activities, such as managing venture capital or listed closed-ended investment companies, to reflect their unique business models. The overall aim is to reduce regulatory burdens while maintaining core protections for consumers and markets.

Stakeholders, including managers of alternative investment funds and trade associations, are encouraged to participate in the consultation and call for input and provide their feedback.