The Financial Conduct Authority (FCA) recently proposed the biggest overhaul of the UK alternative investment fund manager (AIFM) regime since 2013. The projected benefits will depend on whether greater proportionality can reduce compliance overhead without shifting costs to smaller managers.
The proposals in CP 26/28 replace the current distinction between full-scope and sub-threshold AIFMs with three categories based on aggregate net asset value (NAV):
- Small AIFMs managing less than £750 million
- medium AIFMs managing between £750 million and £5 billion,
- and large AIFMs managing more than £5 billion.
The requirements would be consolidated in a new FCA handbook section titled Alternative Investment Funds (ALTS) sourcebook. The new rules cover valuation, risk, liquidity, delegation, investor disclosures and leverage calculations. Their application would depend on the manager’s size and activities, its funds and investors.
Final rules are expected in 2027, with implementation provisionally planned for 2028.
Savings Claim Masks Uneven Costs
The FCA says the package of reforms could save firms £128 million annually with a large share of that estimate coming from the FRAME proposals in CP26/26, which the regulator expects to cut the overall fund-reporting burden by 75%.
The FCA expects 638 full-scope AIFMs moving into the small or medium categories to benefiting from greater flexibility but warns that resulting savings cannot be fully quantified and some small authorised AIFMs could bear new authorisation, liquidity-management and investor-reporting costs. Its projected savings of over £24,000 a year per firm is an illustrative break-even estimate.
More Discretion for Established Managers
Full-scope AIFMs that fall into the small or medium categories would face fewer prescriptive requirements for risk, disclosures to professional investors and methods for measuring leverage. Crossing a size threshold would generally require an FCA notification instead of an application to vary permissions.
The Association of Investment Companies (AIC) welcomed the higher threshold and the proposed treatment of listed investment companies. Guy Rainbird, the AIC’s Public Affairs Director, said: “These changes would make the rules more proportionate and reduce unnecessary compliance burdens.”
Higher Costs for Some Managers
CP26/28 forms part of a coordinated reform package with HM Treasury, which is consulting separately on the underlying legislation. Treasury proposes to remove the registration-only route for most small AIFMs. Existing registered managers would need FCA authorisation unless they manage Registered Venture Capital Funds or Social Enterprise Funds or are below-threshold internally managed listed investment companies covered by the proposed exemption.
Existing registered AIFMs that fall outside the proposed exemptions would have to obtain FCA authorisation; their current registration would not automatically carry over to the new regime
ACA Group expects registered AIFMs and some small, authorised managers to face substantially greater requirements. These could include more formal governance, documented valuation processes, liquidity controls, annual investor reporting and closer regulatory oversight.
A firm’s activities, funds and investors would determine its duties alongside its size category. ACA’s analysis cautions firms against assuming that entry into the small category will produce a correspondingly lighter workload.
Compliance consultancy Cosegic reached a similar conclusion in its LinkedIn commentary: “But ‘small’ won’t mean ‘lightly supervised’.” Every authorised AIFM would need valuation policies and procedures. More detailed requirements would apply as firms move into the medium and large categories. Institutional investors may also demand controls beyond the regulatory minimum.
New Tiers Raise the Data Stakes
Managers would calculate the mean NAV of each AIF over the most recent calendar quarter and aggregate those values to determine their category. They would need to reassess their classification following relevant material or significant changes and notify the FCA through a SUP 15 material-change form when they cross a threshold.
Medium and large AIFMs would face more detailed requirements for recording valuation methodologies, inputs and assumptions. Firms managing open-ended funds or leveraged closed-ended funds may need stronger liquidity assessments and stress testing. Delegation records must show how an AIFM monitors service providers while retaining accountability.
FCA’s FRAME adds a separate data change. Firms will need to map fund, portfolio and risk information into its reporting model while maintaining existing processes during the transition.
Cross-border groups face another complication. ONE group solutions said firms operating across the UK and European Union would need to capture efficiencies under the UK framework while maintaining consistent, locally effective governance. Different classifications and reporting duties could increase rules mapping and data-management work even where UK requirements become less prescriptive.
Private capital administrator Palmer has warned that reopening the AIF definition could create new legal and operational costs. “Reopening the definition on a UK-only basis risks disturbing a hard-won consensus which, despite its imperfections, has become operationally workable,” wrote Sophia Hoynes, Palmer’s senior legal counsel. Hoynes argued that divergence from the EU framework could increase legal analysis, documentation and marketing assessments, adding cost and slowing cross-border fundraising without improving investor outcomes.
Managers have until 14 October 2026 to respond to the main proposals. Their immediate task is to establish their likely category, determine whether any of the Treasury’s proposed exemptions apply and assess whether their valuation, liquidity, delegation and reporting systems can support the new requirements.
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