UK private fund managers face a shift in leadership with the arrival of a new ruling entity
The UK government, in collaboration with the Financial Conduct Authority (FCA), has announced a new regulatory framework for fund managers, with a focus on streamlining the framework for Alternative Investment Fund Managers (AIFMs). This new approach aims to replace the current body of EU legislation, including the Alternative Investment Fund Managers Directive (AIFMD), which was transposed into UK law at the time of Brexit but is now set for repeal in its firm-facing form by HM Treasury.
The proposed UK framework centers on a **streamlined, proportionate, and tiered regime** that reflects the size and scope of the managers' activities. The FCA will then introduce corresponding rules tailored to the UK context.
Key features of the UK proposal include:
1. A **proportionate tiered rules regime** applying regulatory requirements based on the size and activities of the fund managers. 2. A focus on **reducing burdens on smaller managers** by applying a lighter-touch approach, although there is industry concern that bringing all managers into a single regime risks increasing regulatory burdens on smaller firms. 3. The aim is to **enhance the UK’s competitiveness** as a global asset management hub while ensuring market and investor protections.
In contrast, the EU's AIFMD II updates, part of broader ongoing reforms to the AIFMD framework, continue to emphasize harmonized obligations, including stringent authorization requirements, operating conditions, ongoing transparency and reporting obligations, and stronger Environmental, Social, and Governance (ESG) and sustainability-related disclosures.
The EU reforms also involve national discretions and amendments that evolve the directive's scope and enforcement in coordination with various member states, reflecting a more centralized and harmonized EU-wide regulatory system compared to the UK’s more flexible, size-based approach.
The FCA will review the prudential requirements, business restrictions, reporting regime, and remuneration rules for AIFMs. Venture capital and private equity managers with higher bespoke thresholds may have to adhere to the new "mid-size" authorization rules, unless this is changed. The regulatory framework currently hinges on asset under management (AUM) thresholds, but the Treasury wants to empower the FCA to set and adjust these thresholds more dynamically based on firm size, activities, and other factors.
International investment managers with authorised firms in both the UK and EU may face increased compliance costs due to divergence between the two regimes. The proposals include easing the requirement for a 20-day FCA notification before marketing AIFs and adjusting the disclosure of significant holdings in UK non-listed companies.
The new AIFM taxonomy will look different and thresholds will be calculated in a new manner. Concerns about external valuers' direct liability could be addressed by shifting to contractual liability. The proposed regime for mid-sized fund managers may not deliver proportionality in practice, and there is a risk of increased compliance complexity, risks, and costs.
The national private placement regime will remain unchanged. The consultation for the new regulatory framework has closed, and the FCA plans to publish detailed rules in the first half of 2026 together with an implementation timeline. The Treasury suggests abolishing the registration regime for the smallest AIFMs, meaning they will all need authorisation from the FCA. The EU has passed updates to AIFMD known as "AIFMD II" that are set to come into effect in April 2026, but the UK government is proposing fundamental changes instead.
Unnecessarily burdensome or prescriptive rules will be removed across the board, whereas some bespoke rules may only apply to firms doing specific activities. The new framework aims to reduce regulatory burdens while maintaining consumer protection and market integrity.
- The proposed UK regulatory framework for fund managers, set to replace the current EU legislation, envisions a more streamlined, tiered regime that caters to the size and activities of private equity and venture capital firms, thereby positioning the UK as a competitive global asset management hub.
- To achieve proportionality, the new UK framework plans to reduce regulatory burdens on smaller managers by adopting a lighter-touch approach, although industry experts express concerns that bringing all managers into a single regime might inadvertently increase regulatory obligations on these firms.
- Concurrently, the EU's updated AIFMD II continues to emphasize harmonized obligations, such as rigorous authorization requirements, ongoing transparency, reporting obligations, and stronger Environmental, Social, and Governance (ESG) disclosures, reflecting a more centralized and coordinated EU-wide regulatory system compared to the UK’s more flexible, size-based approach.