A new regime for alternative investment fund managers?

On 7 April 2025, HM Treasury launched a consultation around reforming the UK alternative investment fund managers regime.

The introductory paragraph to the consultation reminds us that the Government is focussed on growth; this has always been a key aspect of the agenda (mentioned in the Government’s “Financing Growth” proposals for the sector, as well as Rachel Reeve’s Mansion House speech in November 2024).  The Government considers that the financial services industry has a key role to play in powering growth within the economy, particularly the asset management sector; the City of London website confirms that there are £10.9tn of assets under management within the UK. 

The intention behind the consultation is to ensure that regulation of the sector is proportionate for UK markets, to foster the much-desired economic growth. HM Treasury comments that a problem with the current regime for alternative investment fund managers (AIFMs) is that the scoping thresholds were established in 2013 and have not since been increased; these are enshrined in legislation and are inflexible.  As a result, this creates “cliff-edges” where firms may be pushed across the threshold of “full scope” due to market movement or changes in valuation (things that may be outside a firm’s control).  The cliff-edges also disincentivise growth due to an immediate significant uptick in regulation whereby firms actively avoid moving into full scope territory as a result. HM Treasury also highlights that the small registered AIFM regime may be misleading, creating a “halo effect” for consumers; Financial Conduct Authority (FCA) registration implies regulatory oversight despite the FCA having limited dealings with small registered AIFMs.

Removing thresholds

The government therefore proposes to remove the legislative threshold for the small AIFM regimes to enable the FCA to determine proportionate and appropriate rules for AIFMs of all sizes depending on their investment activities, investor base and risks they pose. The FCA published a Call for Input alongside the consultation (the Call for Input), indicating its proposed approach to regulating AIFMs under the new regime.  The FCA proposal is for a three-tiered approach, with only the largest AIFMs being subject to a regime similar to that currently applying to full-scope UK AIFMs.  A new mid-tier of firms would be subject to elements of the existing framework (although this would not be as prescriptive). Small firms would only be subject to very basic requirements. The finer detail of the mechanics of the proposed new regime is set out in the Call for Input and should be read alongside the consultation.

HM Treasury highlights that removing the thresholds for the small regimes means all firms within the small registered regime would sit within the regulatory perimeter.  For example, small registered unauthorised property collective investment schemes might come within the regulatory perimeter; managers of such schemes will need to become authorised as managers of alternative investment funds.  The same goes with internally managed sub-threshold investment companies that have managed to operate without significant regulation around them.

The consultation remains open until 9 June 2025 for comment, asking stakeholders to provide responses to the questions set out.  Following the consideration of responses to the consultation, HM Treasury will publish a draft statutory instrument on the new regulatory framework and the FCA will formally consult on its proposed rules for AIFMs.

The Birketts view

While the consultation remains open for several months, chatter in the market is largely supportive of the proposals.  The AIFM regime has for some time been viewed as burdensome, with many of the requirements representing additional administration and cost for managers. If the outcome is that these requirements are restricted to the larger AIFMs in the market, this will be welcome.  Nevertheless, managers of small registered AIFMs may be concerned that they may now need to seek authorisation after years of being largely exempt from the regime.