HMT and FCA set out new UK AIFM reform package

What does this mean?

AIFs are a broad category of firms with different business models and risk profiles. A key objective of the FCA is to ensure the UK’s regulatory framework better reflects AIFs' activities in a proportionate manner while responding to market developments, such as the growth of private markets. 

HMT’s draft SI and the FCA’s consultation paper should be read together, as the overall effect depends on both the legislative perimeter and the operating rules proposed through ALTS. The reform creates more room for proportionality, but classification, threshold status and fund risk profile will be important in determining the obligations that apply.

A revised approach to categorisation thresholds

The FCA is proposing a net asset value (NAV) calculation of firm size, rather than the current leveraged assets under management approach. AIFMs managing less than £750 million NAV will be classified as small AIFMs, firms with NAV between £750 million and £5 billion medium AIFMs, and those above £5 billion large AIFMs. Classification should be reassessed whenever there is a material change to the business or a significant change in assets under management that could affect the AIFM’s aggregate NAV category. Firms must calculate average NAV over the most recent calendar quarter and notify the FCA if their category changes. To reduce cliff-edge effects as firms grow the FCA is proposing transition periods before higher obligations apply.

In addition to size, the proposed regime would also take account of fund structure, leverage, liquidity profile, redemption risk and market-integrity considerations. Smaller firms may therefore still be affected by reform and face baseline standards, even where the most prescriptive requirements remain focused on larger or higher-risk managers.

Clarifying the definition of an AIF 

Some of the proposals may require firms to assess their permissions. The FCA is proposing changes to clarify the distinction between AIFs and Collective Investment Schemes (CISs). HMT is consulting on amendments to the legal definition of an AIF, which could result in some CISs being reclassified as AIFs. Firms managing reclassified funds would need to notify both the FCA and investors and obtain the necessary Part 4A authorisation.  

The registration regime is also being narrowed. HMT proposes to remove it for most AIFMs, while retaining it for Registered Venture Capital Fund (RVECA) and Social Enterprise Fund (SEF) managers pending future venture capital reform. Unauthorised property fund managers and internally managed AIFMs outside the proposed exemption are expected to need authorisation, although the transition arrangements and authorisation route are still to be confirmed.

HMT also proposes an exemption for certain small internally managed investment companies admitted to trading on a UK multilateral trading facility (MTF) or recognised investment exchange, subject to conditions. Above-threshold and externally managed closed-ended investment companies would remain within the AIFM regime, with the FCA proposing tailored rules to reflect their closed-ended structure and the wider company law, listing and disclosure framework.

Valuation, liquidity and risk management 

Valuation is a core part of the reform package, particularly given the FCA’s wider supervisory focus on private market valuation governance. The FCA is proposing a valuation framework for AIFMs that keeps the emphasis on robust policies, conflict management, independence and oversight of third-party or independent valuers. Valuation requirements will also be tailored to large, medium and small AIFs. HMT separately proposes to remove the statutory unlimited liability provision for external valuers, reflecting concerns that it has constrained that market.

Risk and liquidity requirements are also being recalibrated. The FCA’s proposed approach varies expectations by fund structure, leverage, redemption terms and complexity.  Closed-ended, unleveraged AIFs would face less significant requirements, whereas more detailed requirements would apply to firms managing open-ended funds or employing leverage, liquidity mismatch or those with a broader market impact. These firms would be required to maintain a risk management function that can independently identify, measure, monitor and manage material risks. For medium-sized AIFs, additional obligations would include full functional and hierarchical separation of risk management from portfolio management, a documented risk management policy (including risk limits) conflict management measures and reviews of risk frameworks. Large AIFMs would remain subject to more detailed requirements, including further conditions for functional and hierarchical separation, independent oversight, reporting and governance.

Leverage calculation 

The FCA is proposing to remove the current commitment and gross leverage calculation methods, which are seen as complex and burdensome. Instead, firms would be required to disclose their leverage to investors using measures most relevant to their investment strategy. The FCA also proposes replacing the current “substantially leveraged” threshold with streamlined reporting from all leveraged firms, enabling more effective monitoring of market-wide and systemic leverage risks.

Investor disclosures

The FCA is proposing changes to the investor disclosure framework to make it more proportionate and to better distinguish between professional and retail investors. For professional investors, firms would be required to provide the information investors need to assess a fund’s risks, merits and costs as well as some mandatory disclosures, including on valuation and liquidity risk management.  For retail investors, the FCA proposes retaining a more detailed regime which would cover areas including conflicts of interest, valuation liquidity, leverage, investor rights and complaints procedures.

Further areas under discussion

The FCA is also seeking views on areas it expects to develop in a second consultation. These include potential changes to the depositary regime, including whether to allow more flexible or split depositary models and to recalibrate cash monitoring obligations, as well as related prime broker rules, removal of the AIFM business restriction and future prudential requirements for fund managers.

What do firms need to do?

Firms should use the consultation period to understand where the proposals could change their regulatory obligations, where existing controls may need to be strengthened, and which policy questions still open for consultation or further FCA work could affect their operating model. 

For those firms which may come into scope of the AIFM regime and required authorisation, perimeter and permissions analysis should be prioritised. All firms should assess where they may fall within the proposed NAV-based categories, as that will shape the application of ALTS requirements.

Existing AIFMs should map the proposed ALTS framework against current governance, valuation, risk, liquidity, delegation and reporting arrangements to identify gaps, dependencies and areas where feedback to the FCA may be needed. FRAME should be considered alongside this work, given the likely data, systems and administrator arrangements of replacing AIFMD-style reporting.

As the FCA is proposing to streamline the regime in a number of areas firms should consider the implications of these changes from a cost reduction perspective.  

Firms and service providers should also engage on areas that remain open. Depositary, prime brokerage, business restriction and prudential reforms could affect custody, financing, delegation and capital arrangements, but remain at discussion-stage or subject to further consultation. Scenario analysis and targeted consultation responses are therefore more appropriate than detailed implementation planning at this stage.

Next steps

The main deadline for feedback is 14 October 2026, covering technical comments on HMT’s draft SI, responses to the FCA’s draft rules and feedback on the FCA’s prudential discussion chapter. An earlier 18 September 2026 deadline applies to the FCA’s non-prudential discussion chapters. HMT expects to lay the final SI in early 2027, with the FCA aiming to finalise ALTS in line with HMT’s finalised legislation. Implementation of the AIFM and asset management reporting regimes is intended for 2028.