UK AIFMD Reform: Simpler and Clearer?

His Majesty’s Treasury (HMT) launched a consultation on reforms to the Alternative Investment Fund Managers (AIFM) regulations on 7 April 2025 to simplify and clarify the regime. It was accompanied by a UK Financial Conduct Authority (FCA) Call for Input, published the same day, indicating the regulator’s proposed approach under the new framework. Combined, these proposals seek to make significant reforms to the supervision of UK AIFMs, compared to the current status quo (a legacy of pre-Brexit) EU law. As HMT’s consultation states, the driving impetus for these reforms is to “streamline the regulatory requirements for AIFMs, and reduce burdens, while maintaining core protections for consumers and markets.”

Broader net, simpler rules?

The proposals would remove the assets under management (AUM) threshold that currently divides “sub-threshold” and “full-scope” AIFMs. The status quo formula is structured around the following thresholds:

• UK AIFMs managing below €100 million (or €500 million for unleveraged closed-ended funds) qualify as sub-threshold AIFMs. There is a further split between small authorised AIFMs (FCA-authorised but subject to lighter requirements) and small registered AIFMs (which only register with the FCA and are exempt from authorisation).
• AIFMs managing AUM above these thresholds must become “full scope AIFMs”.

The proposals would replace the familiar €100m/€500m threshold (based on gross leveraged assets under management) with new thresholds measured by net asset value (NAV). The proposed new structure is that:

• The small registered AIFM category will be abolished, requiring these AIFMs to become authorised firms.
• The lower threshold dividing small and mid-size AIFMs is expected to be raised to around £100 million NAV, and AIFMs managing up to £100 million would be considered “small firms”.
• AIFMs managing between £100 million and £5 billion would be “mid-size firms” and thus subject to a (new) proportionate regime.
• AIFMs managing above £5 billion would be subject to the same requirements as today, and will remain “full-scope AIFMs”, thus subject to the same standards of regulatory burden as they are today, which include, for example, all of the risk management requirements under the AIFMD Level 2 Regulation.

The applicable rules will depend upon whether an AIFM is classified as “small”, “mid-size”, or “full-scope”. Only managers exceeding £5 billion (NAV) would be treated as full-scope AIFMs under the new rules, which marks a significant increase from the current full-scope entry point of €100 million AUM.

By basing thresholds on NAV rather than gross assets, the proposed regime also avoids penalising firms for using leverage and reduces the risk of breaching a threshold due to short-term market value changes. Firms would no longer face an abrupt “cliff-edge” jump in regulation if they slightly exceed an inflexible threshold.

The FCA’s Call for Input suggests that the regulations could be streamlined for specific types of funds–for example, rules could be adjusted for venture capital fund managers or for listed closed-ended investment companies to reflect their different business models. Hedge funds, private equity, real estate funds and others may not pose the same risks, so a one-size-fits-all approach can be replaced with more nuanced rules where appropriate. In practice, this could mean lighter or more focused obligations for managers of purely illiquid or closed-ended funds (who don’t offer frequent investor redemption rights, for instance) compared to those managing open-ended or highly leveraged hedge funds.

Other proposed reforms from HMT and the FCA include an abolishment of the 20-day marketing approval process which applies to full-scope UK AIFMs of UK AIFs and a dropping of the obligation for AIFMs to notify the FCA when they acquire control of non-listed companies (so-called portfolio company notifications under Article 27 of UK AIFMD).

Our guidance

Overall, the intent is to remove duplicative or overly prescriptive requirements and better align the regulatory obligations with each firm’s size and activities. However,  the proposed new rules are set at a very high level and significant dialogue with the sector will be needed if the FCA is to achieve its goal of simplification.

The FCA’s push for fewer rules could cause uncertainty if applied improperly, rather than easing regulatory burden for AIFMs. Thus, it is crucial to understand how a simplified rulebook will be implemented and how firms should self-assess the application of rules under this new regime. The FCA is expected to publish additional information to make this rulebook clearer in the coming months. Engagement from the sector before the 9 June 2025 deadline would be wise to steer the government and the FCA in the right direction.

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