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The FCA has proposed a significant overhaul of the AIFMD framework in the hopes of simplifying standards and boosting growth for medium sized funds. It should prove easier for firms to grow, compete, and innovate whilst ensuring sensible risk behaviour and consumer protection.
This proposal follows on from the previous 2023 consultation, in which respondents argued AIFMD rules needed to be less complex, more proportionate, and better tailored toward the UK market.
Why was change needed?
The FCA has noted several issues with the existing framework. It was observed there was a ‘cliff-edge’ effect whereby upon crossing the full-scope threshold, firms were obliged to hold more capital and meet stronger requirements. This leads to firms intentionally limiting their growth or re-structuring their business (e.g. moving to a fund advisory model) to avoid crossing thresholds. Regulatory practices which provide a disincentive for growth does not represent effective regulation and the FCA recognises this.
Furthermore, the FCA notes that current requirements assume an AIFM is managing a diversified portfolio of transferable securities, mirroring rules for UCITS managers. However, these rules are not suitable for firms that manage PE / VC / real estate and other illiquid assets. As such, it is noted a more bespoke regime may be required to set regulatory standards. Similarly, FCA note that listed closed ended investment companies (investment trusts) will still be classified as AIFs but they need to have a better more tailored regulatory regime than currently.
The FCA further noted that the existing RVECA regime needs further flexibility when considering eligible investments. The Treasury does intend to retain the current regime, but it intends to make considerations on how it can be better adapted to support venture capital and growth capital.
To achieve the above, there is a need to group rules into clearer, thematic categories which reflect business activities and phases of product cycles. The FCA is proposing to re-structure the AIFMD rulebook as follows:
| Structure and operation of the firm | General standards of governance and behaviour |
| Basic systems and controls requirements | |
| Pre-investment phase | Requirements during product design and development |
| Disclosure requirements to prospective investors | |
| During investment | Ongoing obligations while a product is in operation |
| Periodic investor information disclosure requirements | |
| Change related | Rules that apply when a manager changes something about a product |
| Rules that apply or require disclosure when something specific happens |
The new rules will set minimum standards for firms depending on their size, with the FCA proposing to categorise firms based on Net Asset Value (NAV) thresholds, rather than leveraged Assets Under Management (AUM).
The table below sets out the threshold proposals and potential impacts:
| Firm Size | NAV threshold | Impact |
| Large | >£5 billion | · These firms will be subject to rules that are similar to the current Full Scope AIFM regime.
· Burdensome rules and prescriptive detail (e.g., around investor disclosures) will be disapplied. · Application of specific rules to firms based on their activities. |
| Medium | >£100 million to <£5 billion | · Existing Full Scope AIFMs which are reclassified as mid-sized will become subject to simpler, more flexible rules.
· Mid-size firms would be subject to rules that cover all major aspects of fund management, such as those in Fund (Chapter 3), SYSC and COBS. |
| Small | <£100 million | · Remain subject to core requirements relative to the size and scope of activities.
· Rules for small firms will set minimum standards to ensure appropriate levels of consumer protection and market integrity. |
What other changes are up for discussion?
Full Scope AIFM business restrictions (MiFID ‘top up’ permissions): the FCA will look at the current restrictions on the MiFID activities that Full Scope AIFMs can undertake, as it is recognised that the current rules create costs and inefficiencies for firms.
Depositaries: potential to remove the obligation to appoint a depositary to unauthorised AIFs aimed at professional investors.
Removal of the Small Registered AIFM regime: HM Treasury is consulting on proposed changes to the AIFMD regime alongside the FCA, in which it proposes to remove the Small Registered AIFM regime. There is concern that the regime may be misleading for investors, as FCA registration implies a degree of regulatory oversight. Removal of the regime would require existing Small Registered AIFMs to become authorised.
What did the FCA not mention?
It‘s worth noting that this Call for Input represents the early stages of the FCA’s plans for an overhaul of the AIFMD regime, so there are few concrete proposals – these will follow in a subsequent Consultation Paper. The FCA has also flagged that it will consider prudential requirements, regulatory reporting, and remuneration at a future date.
What’s next?
The date for firms and other stakeholders to respond to the Call for Input is 9th June 2025, which can be provided via the FCA website or through writing to the Asset Management and Funds Policy team directly.
We encourage you to respond to the Call for Input as contributing at this earlier stage may influence the FCA’s thinking and have an impact in helping to shape policy.
How can Bovill Newgate help?
Our team of experts provide comprehensive insights into the latest regulatory developments, helping you interpret the rules and adjust your compliance strategies accordingly.
We offer tailored services to meet your specific needs, ensuring you receive the appropriate level of support and guidance and remain informed about any proposals.
Our ongoing support and training offerings will also allow you and your team to stay informed and prepared for anything over the horizon. We can provide regular updates, compliance health checks, and tailored training programmes to ensure your firm meets regulatory expectations.
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