The FCA and HM Treasury have proposed a tiered approach to overhauling the current Alternative Investment Fund Manager (AIFM) rules. Understanding the approach and its changes could help you to prepare for the new regime.

The UK asset management industry has entered a transformative phase as HM Treasury and the FCA unveiled a coordinated two-part regulatory reform aimed at modernising the post-Brexit framework for AIFMs. 

The first step in this regulatory reset was the HM Treasury’s consultation paper, “Regulations for Alternative Investment Fund Managers”, which proposed delegating detailed rule-making powers to the FCA. This move is designed to enable a more agile and proportionate regulatory approach, tailored to the size and complexity of firms operating in the UK market. 

Complementing this, the FCA launched a “Call for Input” - a pre-consultation exercise seeking industry feedback on the future shape of the UK’s asset management regime. This initiative builds on the FCA’s 2023 discussion paper, which signalled its intention to “update and improve the UK regime for asset management.” 

A tiered framework based on Net Asset Value (NAV) 

Central to the proposed reforms is a shift from gross Assets under Management (AuM) to NAV as the basis for regulatory thresholds. The new regime will introduce three categories of AIFMs: 

The FCA is expected to introduce a layered approach within the mid-tier category to avoid the current “cliff-edge” effects, ensuring that regulatory burdens are proportionate to the scale and risk profile of each firm. 

Change is coming - key areas of reform

Prudential requirements: recalibration of capital buffers is under consideration, particularly for firms with MiFID top-up permissions. 

Remuneration codes: A proposal has been put forward to streamline the current patchwork of overlapping codes (AIFM, UCITS, MIFIDPRU) into a unified framework. 

Regulatory reporting: The FCA aims to reduce duplication, eliminate redundant returns, and enhance the clarity and utility of data collection. 

Leverage: The FCA is expected to align more closely with the Financial Stability Board’s standards for non-bank institutions, introducing stricter risk management, stress testing, and disclosure requirements for highly leveraged firms. 

Other areas: Disclosures, depository engagement, and external valuer liability are likely to be addressed in forthcoming consultation papers.

Looking forward

While the direction of travel is clear, the path forward is complex. The FCA faces the challenge of designing a regime that accommodates diverse risk profiles within the mid-tier category. Industry stakeholders are encouraged to engage actively with both the Treasury’s consultation and the FCA’s “Call for Input” to help shape a regulatory framework that is proportionate, effective, and globally competitive. 

As the UK moves toward a unified asset management regime, firms should prepare for a period of significant change - one that promises long-term benefits but will require careful navigation in the months ahead.