Background
On 7 April 2025 HM Treasury (HMT) published a consultation paper (Consultation Paper) on proposed changes to the UK alternative investment fund managers (AIFM) legislative framework, and the Financial Conduct Authority (the FCA) published a call for input on how to create a more proportionate, streamlined and simplified regime.
This is an important opportunity for AIFMs, depositaries and other stakeholders to engage with the UK government and the FCA to ensure that the proposed future AIFM regime is sufficiently tailored for the UK market and increases the UK's attractiveness as an asset management hub.
HMT Consultation Paper
The existing framework applicable to AIFMs is principally derived from the EU Alternative Investment Managers Directive (the AIFMD). Broadly speaking, the application of the regime and the accompanying rules depend on whether the AIFMs assets under management (AUM) exceed certain thresholds.
HMT notes that the thresholds have not been updated or reviewed since the introduction of the AIFMD in 2013 and has created an unhelpful “cliff-edge” effect where sudden market fluctuations or changes in AUM valuations have inadvertently brought smaller AIFMs within scope of the full scope AIFM regime with all of the associated costs and regulatory burdens. Therefore, the UK Government is minded to eliminate the current fixed legislative thresholds that currently require AIFMs with AUM above EUR100m or EUR500m (for funds that are unleveraged) to be authorised by the FCA and comply with the full-scope requirements, and give the FCA the power to introduce a proportionate tiered rules regime, which would apply the rules to AIFMs based on their size, scope of activities, and the associated risk profile of the AIFs that they manage.
Impact on sub-threshold AIFMs
HMT notes that the UK currently operates two regimes for sub-threshold managers1: (a) an authorisation regime; and (b) a registration regime.
Managers that fall within the scope of the authorisation regime must be authorised by the FCA to manage AIFs but they are subject to a lighter touch oversight and compliance rules regime.
There are currently three categories of managers that fall within the scope of the registration regime, namely, (i) managers of Social Entrepreneurship Funds (SEF) and Registered Venture Capital Funds (RVECA); (ii) managers of Unauthorised Property Collective Investment Schemes (Property Fund Managers); and (iii) Managers of ‘Internally Managed Companies’ (Managers of IMCs).
Property Fund Managers and Managers of IMCs are required to register with the FCA and comply with certain limited reporting requirements. HMT is proposing to require Property Fund Managers and Managers of IMCs to seek authorisation from the FCA, as managers. This will result in such managers incurring certain significant up-front costs to become authorised and comply with a set of FCA rules based on their size. HMT welcomes feedback from impacted firms on the impact of having to seek FCA authorisation.
Managers of SEF and RVECA funds are registered with the FCA and subject to certain limited and tailored requirements. At this stage, HM Treasury intends to maintain the existing framework for managers of SEF and RVECA funds but it will consult on proposed changes in a separate consultation process. Nevertheless, market participants are encouraged to provide feedback on how the regulatory regime could be best adapted to suit the needs of SEFs and venture capital funds.
Listed Closed-Ended Investment Companies
HMT is proposing that all Listed Closed-Ended Investment Companies2 remain in-scope of the AIFM regulations.
They note that there is evidence that some funds are being structured as internally managed companies in order to qualify for the light touch registration regime, even where this is not consistent with the business model of the fund. Therefore...
and then 