AIFM proportionality depends on operating-model evidence

At a Glance

The FCA is consulting on proposals to reform the regulatory framework for alternative investment fund managers in the UK, with the aim of protecting consumers and safeguarding market integrity while making rules more proportionate to firms' size and activities.

The consultation is relevant to UK-authorised AIFMs, UK-registered AIFMs, firms marketing alternative investment funds in the UK, and other stakeholders. The FCA is seeking feedback on its proposals, which include the introduction of a new 3-tier structure and a new sourcebook for AIFMs.

The proposed reforms aim to remove unnecessary complexity and administrative burden, support firms to grow and compete internationally, and maintain high standards where they matter most.

What the FCA Is Proposing

Introduction of a New 3-Tier Structure

The FCA is proposing to introduce a new 3-tier structure for AIFMs, with a graduated application of the rules. This is intended to make the regime more proportionate to firms' size and activities, and to better match the rules to firms' risks.

New Sourcebook for AIFMs

The FCA is proposing to create a new sourcebook, the Alternative Investment Funds sourcebook (ALTS), to bring most AIFM rules together in one place. This will make the regime easier for firms to enter and navigate, and quicker for the FCA to update in future.

Changes to Firm Size Thresholds

The FCA is proposing to change the firm size thresholds, with a new threshold of £750m NAV for smaller AIFMs to transition to medium AIFMs. This is intended to strike a balance between protecting consumers and safeguarding market integrity, and making rules more proportionate to firms' size and activities.

Who Should Read This Consultation

The audience spans authorised and registered AIFMs, firms marketing AIFs in the UK and service providers whose operating models depend on the manager's classification.

Other stakeholders, such as depositaries, prime brokers, and delegates of AIFMs, may also be affected by the proposed reforms. Firms considering entering the UK alternative investment market, as well as trade bodies and industry associations representing asset managers, may also want to consider the implications of the proposed reforms.

Questions Firms Should Resolve

Firms will need to carefully consider the potential impact of the proposed reforms on their business and operations. This will involve assessing the potential benefits and costs of the reforms, as well as identifying any necessary changes to their systems and processes. For The UK AIFM Regime, MEMA recommends testing the scope assessment against the firm's permissions, products, governance arrangements, legal entities and group relationships. Before committing implementation spend, owners should map The UK AIFM Regime to policies, decision rights, data, systems and material third parties.

The FCA is seeking feedback on its proposals, and firms may want to consider responding to the consultation. This will provide an opportunity for firms to shape the final rules and ensure that their views are taken into account. Firms will also need to consider the potential timing and costs of implementing any changes required by the final rules. The working paper should separate what CP26/28 actually proposes from management assumptions, record unresolved interpretations and identify the evidence required before any change is approved.

Decisions Before the Consultation Closes

MEMA Assessment

The board should consider the potential impact of the proposed reforms on the firm's business and operations, and ensure that the firm is prepared to respond to the consultation and implement any necessary changes. The board should also consider the potential benefits and costs of the proposed reforms, and ensure that the firm's views are taken into account in the final rules.

The board should review the firm's current systems and processes to ensure that they are aligned with the proposed reforms, and identify any necessary changes. The board should also consider the potential timing and costs of implementing any changes required by the final rules, and ensure that the firm has a plan in place to manage these costs and timelines.

Source Evidence

Plain English Glossary

• CP - Consultation Paper. FCA publication setting out proposed rule changes and inviting feedback from industry and the public.

Disclaimer

This article is for general information only and does not constitute legal or regulatory advice. Firms should assess the application of regulatory requirements by reference to their permissions, products, customers and operating model.

How MEMA Can Help

MEMA can help firms translate regulatory change into practical controls, policies, monitoring activity and board evidence. Book a free scoping call to discuss what this development means for your firm.

MEMA can provide ongoing FCA compliance support for firms reviewing how the development affects their permissions, products and operating model.

For adjacent asset-management context, see our analysis of private-markets valuation and governance.