On 7 April 2025, HM Treasury (HMT) issued a consultation paper, Regulations for Alternative Investment Fund Managers.

Background

The consultation paper follows the commitment that the Prime Minister made last month to cut the administrative cost of regulation on business by a quarter. It sets out the Government’s proposed approach for a streamlined framework for the regulation of Alternative Investment Fund Managers (AIFMs), and the depositories they use.

The Financial Conduct Authority (FCA) has also issued a Call for Input alongside the HMT consultation paper, which indicates its approach to regulating AIFMs within the framework proposed by HMT.

Policy proposals – Small Authorised Regime

In chapter 3 of the consultation paper HMT sets out policy proposals for sub-threshold AIFMs.

The Alternative Investment Fund Managers Directive (AIFMD) was implemented in the UK through a combination of statutory instruments and FCA rules (AIFMD regulations). Among other things the AIFMD established, at a minimum, a registration regime for sub-threshold AIFMs (the threshold is set at €100m, except for where a manager only manages AIFs that

are unleveraged and have no redemption rights for the first 5 years, where it is set at €500m).

The UK took this forward by establishing two regimes for sub-threshold firms. The Government created the Small Authorised Regime, which applies, with certain exceptions, to all sub-threshold AIFMs. Firms within the Small Authorised Regime must be authorised by the FCA to manage alternative investment funds (AIFs) but are not subject to full-scope requirements. The Small Registered Regime applies to three categories of sub-threshold AIFM and exempts them from the requirement to seek FCA authorisation when managing certain AIFs. The three categories of firm are: (i) Managers of Social Entrepreneurship Funds (SEF) and Registered Venture Capital Funds (RVECA); (ii) Managers of Unauthorised Property Collective Investment Schemes, meaning AIFMs managing assets of unauthorised funds mostly holding land; and (iii) Managers of ‘Internally Managed Companies’, meaning investment companies which are not collective investment schemes, and which do not appoint an external AIFM.

The Government is proposing to remove the legislative thresholds for the Small Regimes. The FCA’s Call for Input provides an initial outline of its intended approach to the future regulation of AIFMs, including how this could be differentiated dependent on the size and activities of the firm. The default outcome of removing the legislative thresholds for the Small Regimes, is that all firms currently within the Small Registered Regime would fall within the regulatory perimeter.

HM Treasury proposes to retain the existing rules for the regulation of managers of SEF and RVECA funds and consider their regulation in full as a separate workstream. Furthermore it also proposes to require managers of sub-threshold Unauthorised Property Collective Investment Schemes and managers of sub-threshold Internally Managed Companies to seek FCA authorisation, as managers of AIFs.

Policy proposals – Listed Closed-Ended Investment Companies

In chapter 4 HMT sets out policy proposals for managers of Listed Closed-Ended Investment Companies that have been regulated since the AIFMD was implemented in the UK. Following careful consideration, the Government is proposing that all Listed Closed-Ended Investment Companies remain in-scope of the AIFM regulations to ensure continued financial stability. This proposal will include bringing internally managed Listed Closed-Ended Investment Companies below the threshold into scope of the AIFM regulations.

Policy proposals – miscellaneous

In chapter 5 HMT sets out various miscellaneous policy proposals including moving certain definitions to the Regulated Activities Order.  

As for the National Private Placement Regime, HMT states that it will broadly restate the marketing regime for overseas AIFMs in legislation and that any technical changes will be subject to consultation when draft legislation is published.

In terms of notifications and external valuation HMT sets out further proposals. Currently:

  • Full-scope UK AIFMs of UK or Gibraltar AIFs are required to notify the FCA of their intention to market such AIFs to professional investors, and the FCA has 20 working days to grant or refuse approval. Because the AIFs are marketed predominantly to professional investors, the Government sees no need to notify the FCA 20 working days prior to marketing.
  • Full-scope UK AIFMs and above threshold overseas AIFMs must submit information to the FCA regarding any AIFs they manage which acquire control of non-listed companies and issuers. The Government is considering whether to remove the requirement for firms to submit these types of notifications to the FCA, or whether this information should be notified elsewhere.
  • AIFMs may appoint external valuers to carry out a valuation of an AIF. However, the external valuer is liable to the AIFM, for any losses caused by the valuer being negligent or intentionally failing to perform its tasks. The Government is considering whether growth in the market for external valuation services would be facilitated by removing the legal liability of the external valuer and removing this concept from legislation. In this scenario, the external valuer would have contractual liability to the AIFM, and the AIFM would still have legal liability to the fund and its investors; the final responsibility would rest with the AIFM.

Next steps

The deadline for comments on the HMT consultation paper is 9 June 2025.