UK alternative investment fund reform aims to cement UK global position

The consultations, recently launched by HM Treasury and the Financial Conduct Authority (FCA), put forward changes intended to create a bespoke regulatory framework that would enable UK fund managers to operate more effectively in global markets.

The proposed reforms follow prior consultations and calls for input and represent a move away from the standardised framework inherited from the EU’s Alternative Investment Fund Managers Directive (AIFMD) regime, which was assimilated into UK law following Brexit. They propose establishing a more tailored regime designed to reflect the characteristics of the current domestic asset management sector and international standards, including those developed by the International Organization of Securities Commissions and the Financial Stability Board.

The Treasury’s proposals, set out in a policy note (22 pages / 277KB PDF) and draft statutory instrument (36 pages / 1,247 KB PDF) (SI) form part of the government’s financial services growth and competitiveness strategy, which seeks to reinforce and advance the UK’s leading position in asset management.

The draft SI sets out the new legislative framework for the AIFM regime, moving much of the rulemaking power into the hands of the FCA. Comments on the draft statutory instrument should be submitted by 14 October.

The draft SI reshapes the framework for authorisation and registration of AIFMs. In particular, listed closed-ended investment companies are to remain within scope of the regime and it is proposed that the existing category of small registered AIFMs is abolished save for managers of Registered Venture Capital Funds (RVECA) and Social Enterprise Funds (SEF), which will be considered as part of a separate review.

This means that unauthorised property fund managers and internally managed AIFs – except small internally managed listed closed-ended investment companies – will need to seek FCA authorisation as a result of the proposals. No transitional grandfathering provisions are currently proposed, meaning affected firms are likely to need to obtain authorisation before the intended implementation date, expected to be in 2028.

The National Private Placement Regime (NPPR) for UK and third-country AIFMs marketing certain AIFs in the UK is to be retained, with limited changes to streamline the marketing notification and reporting processes and make it easier for the FCA to suspend and revoke permission to market funds where necessary.

In parallel to the Treasury publications, the FCA has published detailed proposals for the revised regime in its consultation paper (344 pages /2.8 MB PDF). Many of the rules are to be consolidated within a new Alternative Investment Funds sourcebook (ALTS), creating a dedicated section of the FCA Handbook for AIFM regulation. The deadline for responses to the consultation proposals, draft rules and on the discussion chapter on prudential reforms is 14 October 2026and for the other discussion chapters is 18 September 2026.

The UK is home to one of the world's largest alternative asset management industries, and the FCA said the package is designed to “protect consumers and safeguard market integrity while ensuring rules are proportionate and support firms to enter, grow, compete, innovate and operate internationally”.

Laura Dobie, investment funds specialist at Pinsent Masons, said: “With the transfer of the bulk of the UK AIFM regime off the statute books and into the FCA Handbook, the FCA will be able to shape the rules governing the UK investment funds landscape and bring them up to date to reflect the current market. With rulemaking moving to the hands of the regulator, the FCA will be able to more easily refine the rules on an ongoing basis to meet market needs.”

The revised regime is expected to be structured as a three-tier framework of small, medium and large firms based on a net asset value scale, with each tier subject to a proportional set of rules. The introduction of a more graduated regulatory framework and the removal of the small registered AIFM category reflects this dual objective.

Dobie said by bringing currently registered managers within the scope of authorisation, the FCA aims to strengthen oversight and investor protections. At the same time, the proposed small, medium and large categorisation seeks to ensure that regulatory requirements are proportionate to firms' size and risk profile.

The FCA has also outlined its plans for core aspects of the regime including valuation, leverage, risk management, liquidity risk management, delegation arrangements, investor reporting and   disclosures and marketing requirements. Closed-ended investment funds trading on UK markets and internally managed investment companies are expected to have separate, tailored requirements. The paper also includes discussion chapters on areas including depositaries, prime brokers, the current restriction on other business activities of full-scope AIFMs and prudential requirements.

Edward Miles, an investment funds specialist at Pinsent Masons, added: “The FCA's current proposals will bring to bear a timely overhaul of the existing regime and provide welcome clarity on the UK's private markets regulatory landscape. The proposed move of much of the firm-facing AIFM regime away from a patchwork of retained EU-derived legislation, Treasury regulations and FCA rules into a more centralised and dedicated space should give the regulator greater flexibility to update the new regime over time and respond in real time to market developments.”

He added that the replacement of the dated AIFMD regime with a more flexible, tailored and proportionate regime should also “enhance the UK's market offering while maintaining clear standards”.

The UK reforms are taking place against a broader backdrop of international regulatory change with policymakers in a number of jurisdictions reviewing and refining their own regimes for investment fund managers, in light of common themes such as market competitiveness, investor protection, systemic risk oversight and regulatory efficiency. This includes the implementation of AIFMD II across the European Union and other financial centres, including the DIFC, looking to review and modernise their funds regulatory frameworks.

The FCA intends to publish a second consultation paper on the discussion chapters and certain other aspects of the AIFM regime. Final rules on the AIFM regime will be published following the end of the consultation periods, with the new regime expected to come into force in 2028. Stakeholders, including UK AIFMs and trade associations, are encouraged to participate in the consultations and provide their feedback to the proposed changes.

In conjunction with the AIFM regime consultation, separate FCA consultations have been launched on a revised reporting regime for funds (235 pages / 2.5MB PDF) and remuneration framework (101 pages / 1,224KB PDF) for firms regulated by the FCA.