News & Views

A welcome step towards a more proportionate AIFM regime?

The UK's regulatory landscape for Alternative Investment Fund Managers (AIFMs) is under the microscope once again, with both HM Treasury and the Financial Conduct Authority (FCA) launching significant consultations that could reshape the future of this vital sector.

As many in the industry will attest, the current regime, stemming largely from the implementation of the Alternative Investment Fund Managers Directive (AIFMD), while aiming for robust investor protection, has often felt cumbersome and disproportionate, particularly for smaller players. These new consultations offer a glimmer of hope for a more tailored and competitive framework.

HM Treasury's consultation signals a clear intention to simplify the legislative backbone underpinning AIFM regulation. The proposal to remove detailed, firm-facing requirements from primary legislation and entrust the FCA with crafting more granular rules is a pragmatic move.

This shift could allow for greater flexibility and responsiveness to the evolving nuances of the alternative investment landscape. The specific focus on sub-threshold AIFMs and listed closed-ended investment companies is particularly noteworthy. The potential abolition of the "small registered AIFM" regime, while bringing more firms within the regulatory perimeter, is tempered by the promise of a lighter "small AIFM" regime.

The devil, as always, will be in the detail of these new rules, but the direction of travel appears to be towards a more risk-based and proportionate approach. The proposed streamlining of marketing notifications for new AIFs is also a welcome acknowledgement of the need for efficiency in bringing new products to market. Furthermore, the re-examination of valuation rules, particularly concerning the direct liability of external valuers, addresses a long-standing concern within the industry.

Complementing the Treasury's overarching vision, the FCA's Call for Input provides a deeper dive into the potential shape of the future regulatory landscape. The suggestion of a three-tiered approach based on firm size, potentially with a £5 billion net asset value threshold, represents a significant departure from the current binary full-scope/sub-threshold model. This stratification has the potential to create a more nuanced regulatory burden, aligning requirements more closely with the scale and systemic importance of AIFMs.

The FCA's intention to tailor rules based on activities and investment strategies is also a positive signal, recognizing the inherent diversity within the alternative investment fund universe.

The FCA's Call for Input touches upon a broad range of critical areas, including remuneration, reporting, conduct, prudential requirements, and business restrictions. The industry's response to these questions will be crucial in shaping the final regulatory framework.

The specific consideration of a bespoke regime for venture capital and growth capital funds is a particularly encouraging development, acknowledging the unique role these funds play in fostering innovation and economic growth. Similarly, the exploration of more proportionate alternatives for depositary and custody requirements could alleviate significant operational burdens, especially for smaller and less complex AIFs.

While the promise of a more streamlined and proportionate regime is undoubtedly positive, the industry will be keenly watching the development of the detailed rules. Ensuring that the new framework strikes the right balance between fostering a competitive UK asset management sector and maintaining robust investor protection will be paramount.

The consultation period, running until June 9, 2025, provides a crucial window for industry stakeholders to engage constructively and contribute their expertise. The FCA's anticipated consultation on the detailed rules in the first half of 2026 will be the next critical stage in this important evolution of AIFM regulation. Ultimately, these consultations represent a significant opportunity to refine the UK's regulatory framework, making it more agile, competitive, and fit for the future of alternative investments.

For further information, please email Joshua Bates or call 0151 906 1000.