AIFMD Reform: HMT and FCA Set Out Vision for a More Proportionate Regime

On 7 April 2025, both HM Treasury (HMT) and the Financial Conduct Authority (FCA) published papers that signal a significant shift in the UK’s approach to regulating alternative investment fund managers (AIFMs). These proposals, part of the broader "Smarter Regulatory Framework", aim to simplify, modernise, and crucially, tailor the regime to better reflect the diverse range of firms operating in the asset management space.

Together, the HMT consultation and the FCA’s Call for Input offer a blueprint for a more proportionate, scalable regulatory framework, one that acknowledges the differences between a £10m venture capital fund and a £50bn private equity house.

Why This Matters

The UK AIFMD regime has remained largely unchanged since it was copied across from EU law post-Brexit. While fit for purpose in many respects, it’s long been criticised for being too blunt an instrument, overly burdensome for smaller firms and often duplicative or ill-suited for certain structures, such as listed closed-ended funds.

With FSMA 2023 repealing retained EU law in financial services, the government now has an opportunity to design a new approach. The direction of travel is clear: less reliance on legislation, more discretion for the FCA to craft rules that reflect firms' size, structure, and business models.

Key Proposals from HMT

HMT’s consultation focuses on the legal and structural framework underpinning the UK AIFM regime, essentially, the perimeter and who gets caught by what.

Moving Beyond the Small Regimes

Currently, sub-threshold AIFMs are divided into two categories:

• Small Authorised AIFMs, who are FCA-authorised but face lighter requirement;, and

• Small Registered AIFMs, who merely register with the FCA and fall outside the authorisation regime entirely.

  
  

These thresholds haven’t been updated since 2013. More importantly, they create cliff-edge effects, a firm can suddenly fall into full-scope regulation simply because of market movements or a new valuation.  Additionally, HMT is concerned that registration creates a “halo effect” implying greater FCA interaction than there is in reality.

HMT proposes scrapping these legislative thresholds entirely. The idea is to allow the FCA to set proportionate rules based on size, activity, and risk, not blunt asset figures.

The following groups currently in the Small Registered category would need to seek FCA authorisation:

• Managers of Unauthorised Property Collective Investment Schemes;

• Internally Managed Investment Companies.

  
  

However, Managers of SEF and RVECA funds would remain under existing rules, subject to a separate review.

Listed Closed-Ended Investment Companies

HMT also addresses listed closed-ended investment companies (LCICs), which now comprise a substantial part of the FTSE 250. These vehicles are unique, structured as companies, governed by independent boards, and subject to the Listing Rules. Nevertheless, they’re currently regulated as AIFs, leading to overlap and confusion.

Despite calls to remove LCICs from AIFM regulation altogether, HMT proposes to keep them within scope, including those that are internally managed and below threshold, but with more tailored and proportionate requirements. This reflects the FCA’s intent to simplify duplicative rules for LCICs specifically.

However, internally managed LCICs currently within the Small Registered Regime would, as a result of the proposals, be required to seek FCA authorisation, fitting into the FCA proportionate approach.

Other Notable Proposals

HMT’s consultation also proposes:

• Moving key definitions to the Regulated Activities Order (RAO), improving coherence without changing the perimeter.

• Retaining the National Private Placement Regime (NPPR) largely as-is, a relief for overseas managers.

• Scrapping the 20-day FCA approval period for marketing notifications, to speed up time-to-market.

• Rethinking the need for private equity control notifications, which have limited regulatory bite.

• Reviewing the liability framework for external valuers, which currently deters participation, especially in long-term asset strategies.

  
  

FCA's Call for Input: A Tiered Approach

Running in parallel with HMT’s proposals, the FCA’s Call for Input offers a more granular look at how it intends to reshape the rules that apply to AIFMs.

The FCA has clearly heard the complaints: the current regime creates cliff-edge effects, doesn’t scale well, and isn’t always suited to less traditional or less liquid strategies. Its answer? A three-tiered system based on NAV:

Tier	NAV Threshold	Regulatory Approach
Small firms	Up to £100m	Core requirements, focused on conduct and investor protection
Mid-sized firms	£100m – £5bn	Lighter-touch version of full-scope regime
Large firms	Over £5bn	Near full-scope AIFM regime (with some unnecessary rules cut)

NAV, rather than the existing AUM measure, will be used as the determinant. This shift alone should pull a significant number of firms out of the most onerous requirements.

No Permission Variation Needed

Importantly, firms will no longer need to apply for a variation of permission simply because they’ve crossed a threshold. The rules themselves will flex to apply appropriate obligations depending on a firm’s size and activity, making regulatory compliance smoother and more predictable.

Sector-Specific Considerations

The FCA also acknowledges that a one-size-fits-all approach doesn’t work. It’s considering bespoke approaches for:

• Venture capital managers, and

• LCICs, given their listed status and significant regulation under which may be unnecessarily duplicative, for example:

  • The UK Listing Rules (including diversification, governance, and investment policy requirements);

  • The UK Corporate Governance Code or AIC Code;

  • The Prospectus, Transparency, and Market Abuse rules; and

  • UK company law.

    
    

To address this the FCA is considering tailored rules in the following areas:

• Disclosure: Disapplying some investor disclosure requirements under FUND, which duplicate LCIC financial reporting;

• Liquidity/Leverage: Removing liquidity risk rules where leverage is insignificant, possibly defined as under 10% of NAV;

• Delegation: Clarifying rules where boards, not AIFMs, appoint service providers like administrators and marketers; and

• Overlapping Roles: Addressing areas where both AIFMs and boards set limits (e.g. leverage), to reduce regulatory friction.

  
  

The FCA is expected to align further with HMT’s proposals following the consultation period.

Depositaries and Oversight

No major changes are proposed in relation to depositaries. Full-scope and mid-sized firms will still require them; small firms will continue to rely on CASS (the FCA’s Client Assets sourcebook). Rules specific to depositaries of authorised funds are expected to remain untouched for now.

The Road Ahead

The deadlines for both consultations are set for 9 June 2025.

• To respond to HMT: email AIFMR@hmtreasury.gov.uk

• To respond to the FCA: email AIFMRegimeCFI@fca.org.uk

Once feedback is reviewed:

• HMT will publish a draft statutory instrument, laying out the future regulatory framework; and

• The FCA intends to consult on its detailed rulebook in H1 2026.

  
  

Final Thoughts

While these proposals are still at the consultation stage, they clearly reflect a serious commitment to right-sizing the UK’s AIFM regime. The shift from legal thresholds to supervisory discretion, combined with a more thoughtful tailoring of rules based on firm size and structure, should be welcomed by managers across the spectrum.

Firms should now take stock of their current structures and operational models to assess how the proposed reforms could impact them, and consider engaging with the consultation process to help shape the future regime.