In a move to reshape the UK's financial landscape, the Treasury and the Financial Conduct Authority (FCA) have launched a consultation aimed at overhauling the regulatory framework for alternative asset managers. This initiative seeks to streamline rules, moving beyond the EU's AIFMD to foster greater competition, innovation, and efficiency within the sector.
The Treasury and the Financial Conduct Authority (FCA) are collaborating to reform rules for alternative asset managers. Their goal is to boost growth, competition, and innovation in the sector. This initiative focuses on moving beyond the EU’s Alternative Investment Fund Managers Directive (AIFMD).
The FCA and Treasury have launched a consultation on a simpler regime for these managers. This includes specific rules for investment trusts and Venture Capital Trusts (VCTs). The call for input seeks feedback on the future regulation of alternative fund managers. The aim is to cut red tape. This should make it easier for firms to enter the market. It will also help them compete globally.
The proposals intend to shift away from AIFMD’s ‘firm-facing’ legal requirements. Simon Walls, interim executive director of markets at the FCA, commented on the plans. He said they want rules better suited to UK investment managers. These rules could improve their efficiency. This would further support competition, competitiveness, and economic growth.
He added that this is part of broader work. The FCA aims to streamline asset manager regulations. This supports the continued competitiveness of the UK’s leading financial services. This aligns with their new strategy. The industry has until June 9 to respond to these proposals.
The consultation suggests a threshold system for regulation. Currently, firms face new regulatory burdens once they reach £100 million in assets. The Treasury believes this can discourage firms from growing. Instead, the FCA and Treasury propose a new threshold. Only the largest firms, with over £5 billion in assets, would face the full scope of requirements. This aims to reduce barriers to entry and administrative costs for smaller firms.
The consultation paper addresses tailoring rules for investment trusts. Areas under review include transparency requirements and leverage. The FCA acknowledged the Treasury’s proposal. Listed closed-ended investment companies (LCICs) would remain under AIFM regulation.
The regulator recognized that LCICs have unique features. They share some characteristics with operating companies. However, most are structured and operated as funds. They are often presented to investors as alternative collective investment vehicles.
If LCIC managers remain in the AIFM regime, the FCA will set suitable standards. These standards will consider the specific nature of this market and its wider regulatory framework.
The regulator is also working on other disclosure requirements for investment trusts. It is considering disapplying certain FCA handbook provisions. These provisions focus on investor information and annual reporting. Currently, full-scope UK AIFMs of LCICs must disclose this extra information.
The FCA will also take a more proportionate approach to risk management rules. This applies to investment trusts with low levels of leverage. Furthermore, the FCA is considering tailoring delegation rules for investment trusts.
Michael Moore, chief executive of the British Venture Capital Association, reacted to the proposals. He welcomed the government’s consultation. It aims to develop a simpler and more competitive system for AIFMs.
He stated that more effective, less burdensome regulation is needed. This will make the UK private capital industry more globally competitive. It will also help attract more investment. This investment will come from both UK and international investors. It will support growing British businesses.
Moore believes this consultation is an important step. It aims to secure the UK’s position as a leading private capital hub. He looks forward to engaging on the principles and details of the changes. He sees this as an opportunity. It could significantly boost the Government’s growth mission. This would be achieved by developing the UK’s private capital fund ecosystem. It would also increase inward investment in UK SMEs.
The FCA has published a Call for Input. This seeks feedback on their proposed approach. They aim to change the regulatory framework for AIFMs in the UK. This accompanies a consultation by the Treasury on its proposed legal framework changes. The goal is to provide clarity to stakeholders. It also offers an opportunity to comment before detailed rules are developed.
The FCA wants to make it easier for firms to grow. They also want to enhance competition and innovation. Entering the market should also be simpler. Consumer protection remains a priority. Encouraging firms to manage risks responsibly is also key. This work is part of their commitment. They aim to streamline the regulatory regime for asset managers. Clearer rules, better tailored to firms, could create efficiencies. This could further support economic growth and competition.
This consultation is relevant to managers of alternative investment funds. Organizations providing services to them will also be interested.
The deadline for submitting comments is June 9, 2025. Comments can be submitted online or via email. Written submissions can also be sent to the FCA’s London office.
The FCA plans to consult on detailed rules in the first half of 2026. This is subject to feedback and Treasury decisions. More details on the implementation timeline will follow.
The FCA intends to give firms time to adapt to the new regime. They also aim to remove unnecessary rules relatively quickly.
Much of the UK’s asset management regulation comes from EU law, including AIFMD. The Treasury has proposed to enact provisions to repeal AIFMD’s firm-facing legislation. Where appropriate, the FCA will replace relevant legal provisions in their rules. They will also review their existing requirements for firms.
The FCA wants to ensure their approach is proportionate to firms’ size and activities. This allows for growth without sudden regulatory burdens. They aim to remove unnecessary regulation. Reducing the administrative burden for all AIFMs is also a goal. The FCA also wants a regime that is flexible enough for cross-border business. It should also align with international standards.