On 7 April 2025, the Financial Conduct Authority (FCA) issued a Call for Input, Future regulation of alternative fund managers.

Background

The Call for Input follows a Discussion Paper that the FCA published in 2023, DP23/2: Updating and improving the UK regime for asset management. Among other things respondents to DP23/2 called on the FCA to make the rules for alternative investment fund managers (AIFMs) less complex, more proportionate and better tailored to the UK market.

The Call for Input accompanies a HM Treasury consultation paper on proposed changes to the legal framework for AIFMs.

The goal is to create a more proportionate and streamlined regime for fund managers, enhancing the UK’s attractiveness as an asset management hub.

Proposals – Simplified rules

The FCA proposes to simplify its rules noting that in several areas of the UK AIFM regime FCA rules and the Level 2 Regulation (the onshored version of Commission Delegated Regulation (EU) No 231/2013) set out expectations for different activities or phases of the product cycle within the same rule or provision. As this makes the rules difficult for firms to understand it plans to group the rules into clearer, thematic categories that reflect different business activities and phases of the product cycle. The proposed thematic categories cover:

  • Structure and operation of the firm: (i) general standards of governance and behaviour; and (ii) basic systems and controls requirements.
  • Pre-investment phase: (i) requirements during product design and development; and (ii) disclosure requirements to prospective investors.
  • During investment: (i) ongoing obligations while a product is in operation; and (ii) periodic investor information disclosure requirements.
  • Change-related: (i) rules that apply when a manager changes something about the product; and (ii) rules that apply or require disclosure when something specific happens.

The FCA proposes to create three levels of firms based on their size to achieve proportionality – largest firms, mid-sized firms and small firms. Firms that are currently full-scope UK AIFMs, and who become reclassified as small under the new rules, would see a significant reduction in detailed and prescriptive requirements.

Proposals – thresholds

The FCA proposes adjusting the thresholds for regulatory requirements. For example, it proposes an upper threshold of £5bn net asset value to distinguish the largest firms. The threshold for small firms would be £100m. The current threshold for small firms is set at €100m of leveraged assets, calculated on a gross basis. The new lower threshold would be assessed against the net asset value of the funds managed by an AIFM. This would increase the threshold before firms are deemed to be mid-sized.

Proposals – leverage

The FCA’s view is that the most appropriate threshold for large firms is £5bn net asset value.

The FCA plans to evaluate the adequacy and effectiveness of the current AIFM provisions in addressing risks from leverage in line with the forthcoming Financial Stability Board recommendations. The FCA is also considering if it needs to be clearer about its expectations of risk management by highly leveraged firms.

Proposals – investment trusts

The FCA would apply the proposed thresholds mentioned above to closed-ended investment companies although it is considering whether, due to their characteristics, it could take a different approach in the following areas: transparency requirements, leverage and delegation.

Proposals – depositories

The FCA sees no immediate need to make radical changes to how asset safekeeping and fund oversight should be carried out for large and mid-size AIFMs. However, it welcomes input from stakeholders on whether they would like it to explore proportionate alternatives that meet global regulatory standards.

The FCA does not expect to change the rules that are unique to depositaries of authorised funds in any material way.

Proposals – examples

Annex 1 gives examples of how rules might apply to firms proportionately within the framework, although the FCA will subsequently consult on specific rules.

Further papers expected

The Call for Input addresses issues related to the regime for managers of unauthorised AIFs. It does not address at length other issues the FCA is considering, including:

  • Simplifying the requirements for managers of authorised AIFs into a single set of rules.
  • Prudential rules for AIFMs.
  • Regulatory reporting under AIFMD.
  • Requirements for AIFMs around disclosure, distribution and marketing to retail investors.
  • Remuneration requirements for AIFMs.
  • The AIFM business restriction that applies to an external AIFM that is a full-scope UK AIFM.

The FCA states that it will address these topics separately.

Next steps

The deadline for comments on the Call for Input is 9 June 2025.

The FCA plans to consult on detailed rules in the first half of 2026, subject to feedback and to decisions by HMT on the future regime.