Reform to regulatory regime for alternative asset managers

The FCA has published a “Call for Input” and announced a Treasury consultation on moving to a less onerous regulatory regime for smaller asset managers. The aim is “to make it easier for firms to enter the market, grow, compete and innovate.”

The proposals published on 7 April include lifting the size threshold at which alternative asset managers are subjected to the main rules for the sector, from £100million in assets under management to £5 billion. This would reduce the number of firms subject to the full rules from 699 to 64, significantly reducing the regulatory costs burden for smaller players. Further, a lighter regime of regulation will be implemented for smaller alternative investment managers, with bespoke regimes for investment trusts and for venture capital firms due to those sectors’ distinct characteristics.  The result would be rules applying proportionately to different tiers of firms, in a tailored approach.

Most of the existing rules for alternative asset managers were implemented as a direct consequence of the 2008 global financial crisis, so an update of the rules is regarded by many in the industry as timely. In addition, much of the current regulation is derived from EU legislation, including the alternative investment fund managers directive (AIFMD). Consideration is now being given to bringing into effect provisions that repeal the AIFMD’s firm-facing legislative requirements.

The FCA’s hope is that a more streamlined and proportionate regime will make it easier for firms to operate globally, whilst maintaining market confidence.  These changes are part of the FCA’s commitment to support economic growth in its 5-year strategy, published on 25 March 2025 and following the FCA’s letter to the Prime Minister of January which recorded approximately 50 proposed measures to support growth.

Comment

Any relaxation in regulation will be welcomed by private equity houses and venture capital / hedge funds who are grappling with higher borrowing costs and turbulent markets following the US’s introduction of tariffs earlier this month. Lighter-touch regulation going forward in the UK also chimes with the anticipated shift to less financial regulation in the US under the current administration.   

The FCA is inviting comments on the proposals before 9 June 2025 and plans to consult on detailed rules in the first half of 2026, subject to feedback and to decisions by the Treasury.