In July 2026, His Majesty's Treasury ("HMT") and the UK Financial Conduct Authority ("FCA") published their much-anticipated proposals on reforming the UK alternative investment fund managers ("AIFM") regime.

Their sweeping proposals are outlined in a suite of documents, comprising:

1. HMT's proposed amendment to the Alternative Investment Fund Managers Regulations, and accompanying policy note;
   
   
2. FCA CP26/28 on The UK AIFM Regime;
   
   
3. FCA CP26/26 on Fund Reporting for Asset Management Entities ("FRAME"); and
   
   
4. FCA CP26/27 on Remuneration: Solo-regulated firms' rules reforms.

As many readers will be aware, at present, the UK AIFM regime largely reflects the European Union's Alternative Investment Fund Managers Directive and supplemental rules and guidance ("EU AIFMD") as it stood at the end of the Brexit transition period on 31 December 2020 and, in particular, prior to the EU AIFMD's recent amendment ("EU AIFMD II"). HMT and the FCA are, however, now in the process of taking a red pen to the UK rulebook with a view to streamlining and clarifying the regime, ensuring that the application of the rules and requirements are proportionate to an AIFM's size and activities, removing overly prescriptive or redundant requirements, and reducing the administrative burden on AIFMs. In doing so, they hope to boost the UK's attractiveness as a centre for fund management without compromising investor protection.

This note is intended to outline key implications of the proposed rules for UK AIFMs, including, in summary:

1. tiered categorisation of AIFMs, with regulatory requirements applying on a graduated basis;
   
   
2. amendments to investor transparency requirements;
   
   
3. minor changes to the delegation rules;
   
   
4. a new approach to leverage calculations;
   
   
5. replacing Annex IV reporting with FRAME;
   
   
6. streamlining of the portfolio company disclosure rules;
   
   
7. a new marketing notification process;
   
   
8. a new prudential regime;
   
   
9. a new remuneration code; and
   
   
10. "clarifications" to the definition of AIF.

1. Tiered categorisation of AIFMs

One of the most notable changes under the proposals is the introduction of a three-tiered system for categorising AIFMs based on the aggregate net asset value of the alternative investment funds ("AIFs") and non-AIF collective investment schemes ("Residual CIS") they manage, with requirements applicable to each tier calibrated to the size of the relevant AIFMs.

At present, under the UK Alternative Investment Fund Managers Regulations 2013 and supplemental rules and guidance (the "UK AIFM Regulations"), an authorised UK AIFM may either be a full-scope UK AIFM or a small authorised UK AIFM. A small authorised UK AIFM is an AIFM which manages a portfolio of AIFs with an aggregate AUM which does not exceed EUR 100M (or EUR 500M, where such AIFs are (broadly) closed-ended AIFs which do not employ leverage). Small authorised UK AIFMs are subject to light touch regulatory compliance obligations in contrast to full-scope UK AIFMs, and there is perceived to be a cliff-edge effect for small authorised UK AIFMs which cross the EUR 100M/500M threshold and are required to become a full-scope UK AIFM.

Under the new proposals, AIFMs would instead be recategorised as:

• Small AIFMs (<£750 million NAV);
  
  
• Medium AIFMs (£750 million-£5 billion NAV); or
  
  
• Large AIFMs (>£5 billion NAV).

Regulatory requirements would be applied on a graduated basis across the three tiers, with large AIFMs subject to the full weight of the regime, medium AIFMs subject to a reduced set of detailed obligations, and small AIFMs subject to baseline requirements only. Firms could voluntarily elect to comply with the requirements that apply to larger firms.

As reflected above, the thresholds would no longer be denominated in Euros, but rather sterling. The calculations would also be based on NAV (of not only AIFs managed by the relevant AIFM, but also any Residual CIS), with specific rules around calculation frequency.

The £750 million threshold now proposed is a positive outcome for smaller asset managers given the £100 million threshold proposed in a prior call for input by the FCA.

2. Amendments to investor transparency requirements

A. Pre-contractual disclosure requirements

Unlike under the existing disclosure requirements under the UK AIFM Regulations, a distinction would be drawn between funds marketed to professional and retail investors. For marketing to professional investors, the FCA proposes to generally replace the existing, prescriptive pre-investment disclosure framework (based on Article 23 EU AIFMD) with a more principles-based regime.

When marketing to professional investors, an AIFM would now be required to make available such information about the fund that investors would reasonably require to understand the fund, its activities, merits and risks, and the costs of investing in it. The FCA provides, by way of guidance, a list of types of information that AIFMs should consider disclosing in this context (based heavily on disclosure requirements that exist today), but the list is not prescriptive. This principles-based requirement is coupled with a series of prescriptive disclosure requirements, including those relating to: (i) the consequences of a professional investor being recategorised as a retail investor; (ii) valuation of the fund's assets; (iii) liquidity risk management; (iv) leverage; and (v) conflicts of interest.

From an industry perspective, the revised pre-contractual disclosure requirements for marketing to professional investors do not appear hugely controversial. However, one practical consequence of the FCA rules diverging significantly from EU AIFMD is that, for AIFMs managing a fund subject to both the EU and UK regimes, it may no longer be practicable to satisfy the pre-contractual disclosure requirements by way of a single, consolidated set of disclosures.

B. Annual reporting requirements

Medium and large AIFMs managing unauthorised AIFs would continue to be required to produce an annual report containing audited financial statements for each such fund. The content of those annual reports would be less prescribed than is presently the case, with the FCA again moving to more principles-based disclosure requirements. Small AIFMs would be required to produce a shorter "annual summary", containing a financial statement prepared in accordance with appropriate accounting standards but not necessarily audited.

C. Reasonable requests for information

The more principles-based disclosure requirements will be supplemented with a new rule requiring that, where an investor in a fund makes a reasonable request for further information about the fund, the AIFM would be required to provide the investor such information, and also make it available to other investors.

Assuming this proposal survives consultation in its current form, it will be interesting to see how it is interpreted and applied in practice. From an industry perspective, on its face, the requirement to satisfy reasonable requests for information does not appear unduly alarming - some funds already grant similar rights (albeit usually subject to several caveats, including that the information is readily available to the AIFM and that the investor meets any associated costs). That said, it is not clear how reasonableness is to be assessed. To the extent that reasonableness is to be determined from the investor's perspective, must it represent a reasonable request from the particular investor that requested it, or a reasonable request for an investor to make generally (a more objective standard)? In case of the former, this would lead to a strange outcome whereby the AIFM has to disclose that information to all investors, even if it would not have been reasonable for them to request it. Alternatively, is reasonableness to be determined from the perspective of the firm (i.e., not onerous for the firm to have to disclose)?

3. Minor changes to delegation rules

The FCA has proposed to retain many of the core rules around delegation, including the principle that an AIFM remains responsible for, and must oversee, the functions it delegates and must not delegate its functions to the extent it becomes a "letter-box entity". The delegation regime would, however, now apply to all authorised UK AIFMs regardless of their size, including small AIFMs.

In a further departure from EU AIFMD, the delegation rules in these proposals distinguish between an AIFM's investment management functions (i.e., portfolio management and risk management), its "additional core AIFM functions" (a new concept capturing third-party valuation, regulatory compliance monitoring, and the marketing of AIFs), and "AIFM management functions" that are neither of the foregoing. Regulatory requirements would vary accordingly, with delegations of investment management functions subject to the most stringent rules, delegations of additional core AIFM functions subject to a reduced set of obligations, and delegation of the remaining AIFM management functions subject to baseline requirements only. Delegations of supporting activities such as administrative or technical functions would be fully out-of-scope of the delegation rules. In addition, AIFMs would be able to delegate portfolio management or risk management to entities not authorised or registered for asset management without seeking prior regulatory approval.

4. New approach to leverage calculations

The FCA proposes to retain the existing definition of leverage, being any method by which the exposure of an AIF is increased, whether through borrowing of cash or securities, leverage embedded in derivative positions, or by any other means. However, in good news for UK AIFMs that use leverage, the FCA is proposing to remove the requirement for UK AIFMs to calculate leverage according to the gross and commitment methodologies presently prescribed by law, acknowledging that these calculations are complex, burdensome, and open to interpretation. The FCA instead proposes requiring firms to disclose the quantum of their leverage using a method or methods best suited to their fund and investment strategy, provided the disclosure is clear, fair, and not misleading.

5. Replacing Annex IV reporting with FRAME

The FCA intends to abolish Annex IV reporting as it currently exists and replace it with a new regulatory reporting framework called FRAME. FRAME is intended to be simple, proportionate, and aligned with international standards. The frequency, scope, and nature of the reporting requirements applicable under FRAME would be calibrated to the size and type of the relevant fund. The size of the AIFM would no longer have a bearing on reporting, as is presently the case under the UK AIFM Regulations.

AIFMs managing funds with NAV under £500 million would only be subject to "essential" requirements in respect of such funds. This would include general information on a fund, its profile and strategy, investor base and distribution, performance and flows, liquidity profiles, and (for funds which employ leverage and hedge funds) counterparty exposure. "Enhanced" reporting requirements, which include the foregoing as well as certain additional heads of reporting, would apply with respect to funds with NAV above the £500 million threshold.

Additional information would be required for certain types of funds, including private markets funds, private equity funds, loan origination funds, and hedge funds. Each of these fund types is defined in the rules (in the case of loan origination funds, broadly in line with the new definition introduced by EU AIFMD).

Reporting fields relating to leverage are to be expanded, with the FCA looking to collect more granular underlying data on leverage exposures, sensitivities, the source and form of leverage, and fund resilience.

Reporting frequency and lag times are proposed to vary by fund type but, in respect of unauthorised UK AIFs, AIFMs would generally report annually on a 120-day lag.

Though the reduced reporting frequency will be welcomed by larger managers currently reporting quarterly, any reporting changes are still unlikely to prove popular in the short term as managers have to adapt their processes to ensure appropriate data capture. This may be felt particularly by UK AIFMs that market their funds in the EU under national private placement regimes and consequently also provide Annex IV reporting in accordance with EU AIFMD. However, operational issues caused by the divergence between the UK and EU reporting requirements were on the cards in any case, with regulatory reporting requirements under the EU AIFMD also due to change.

6. Streamlining the portfolio company disclosure rules

The various disclosures and notifications required by the UK AIFM Regulations upon certain investments in UK non-listed companies and issuers are intended to be streamlined, with the removal of the requirement to notify acquisitions or disposals of major holdings in such companies which do not amount to control. In addition, acquisitions of control would no longer need to be notified to the FCA (though notifications would still need to be given to the non-listed company and its shareholders). There is also now a reduced list of items to disclose regarding such acquisitions in the relevant fund annual report. For private equity managers making buy-out investments, the proposed changes are unlikely to prove material. Note that, unlike the disclosure and notification requirements, the anti-asset stripping restrictions under the UK AIFM Regulations would remain substantially unchanged, which some managers will find disappointing.

7. New marketing notification process

Currently, when notifying a UK AIF for marketing in the UK, UK AIFMs are required to, in effect, seek FCA approval for marketing. By law, this process may take up to 20 business days. Under the proposed rules, this process would be a true notification process, with UK AIFMs permitted to commence marketing immediately on submission. This simple change will be welcomed by UK AIFMs, allowing them to get their funds to market more quickly.

8. New prudential regime

The FCA has announced its intention to revise the existing regulatory capital regime for UK authorised AIFMs, with a view to reducing its complexity (particularly for AIFMs which also conduct MiFID investment services), to rationalise inconsistencies in treatment amongst firms (noting, in particular, the current disparity in treatment between full-scope UK AIFMs and small authorised AIFMs), and to address what it perceives as omissions (including forward-looking requirements). The FCA's commentary around the new prudential regime amounts merely to a discussion rather than a detailed proposal at this stage, but its stated direction of travel is to bring AIFMs within the scope of its Core Prudential Sourcebook (COREPRU) - the integrated prudential framework it has developed as a common baseline across the sectors it prudentially regulates, with sector-specific elements added only where the risks of a particular activity require them. The FCA is seeking views on where to set the baseline financial resources requirement, whether to introduce a basic liquid asset requirement, as well as whether there should be structured risk management and wind-down planning requirements, amongst other things. Whilst the detail of its proposal will follow, it appears likely at present that small authorised AIFMs and Residual CIS operators will face increased regulatory capital requirements in due course.

9. Introduction of a new remuneration code

The FCA is proposing to introduce a new, single remuneration code for asset managers, to replace the AIFM Remuneration Code, the UCITS Remuneration Code, and the MiFIDPRU Remuneration Code. The new code is intended to be less prescriptive and more outcomes-focused, placing greater reliance on firm governance and management discretion. It is intended to apply to all staff (broadly defined) through general, high-level remuneration requirements, with additional targeted provisions for material risk takers (the concept of which would be re-defined). Current prescriptive requirements around fixed deferral structures (mandated minimum deferral periods, cash/instrument splits, vesting schedules, and holding periods) would be replaced with a principles-based requirement. Malus and clawback would remain as available tools, but mandatory application requirements would be removed.

Overall, the proposed changes to the existing remuneration code are likely to be well-received by the industry, offering greater flexibility and proportionality than current requirements.

10. Proposed "clarifications" to the definition of an AIF

Last, but by no means least, HMT is intending to "clarify" the legislative definition of an AIF in order to make it clearer when a firm is managing a fund that is an AIF and should therefore be authorised as an AIFM with the relevant Part 4A permission. An AIF is presently defined as a collective investment undertaking which raises capital from a number of investors with a view to investing it in accordance with a defined investment policy. HMT is seeking to amend the statutory definition of "AIF" to make clear that the definition may be satisfied regardless of whether capital has been raised, is being raised, or is yet to be raised by the relevant vehicle. The revised legislation also replaces the existing concept of a "defined investment policy" with a "policy as to how the capital is to generate a return or investment outcome". This is intended to clarify that an investment policy can be implicit.

Though ostensibly subtle, and unlikely to be impactful for a commingled, blind pool fund, these definitional tweaks may still have significant implications. The FCA acknowledges that its changes may lead to some operators of Residual CIS not presently authorised as AIFMs to have to seek authorisation as AIFMs. However, it may also impact authorised UK AIFMs, requiring the re-categorisation of certain types of fund vehicle which were not previously viewed as AIFs (e.g., on account of lacking an investment policy that was defined or serving as a conduit for the deployment of capital that had already been raised), thus increasing the operating cost and complexity of such vehicles.

Conclusion

Taken as a whole, from an industry perspective, many of the proposed changes outlined by the FCA are likely to be well-received. It is encouraging to see the FCA seek to reduce the compliance burden of authorised UK AIFMs when, on the continent, things have recently been travelling in the opposite direction (e.g., with the recent implementation of EU AIFMD II and with the Retail Investment Strategy on the horizon). It is clear the FCA has listened to some of the initial feedback from the industry captured during its prior call for input, making simple but impactful fixes (e.g., to the marketing notification process).

It is not, however, possible to please everybody. In particular, small AIFMs may be frustrated by having to comply with new rules to which they were not previously subject (e.g., delegation rules) even if the cliff-edge effect of crossing the small AIFM threshold is softened. Other AIFMs may be of the view that the FCA should have been heavier with its red pen and abolished certain rules altogether rather than reducing them (e.g., the portfolio company disclosure rules). Firms licensed as operators of Residual CIS without AIFM permissions may be concerned by the shifting boundaries of what constitutes an "AIF" and the licensing implications this may have for them.

In terms of next steps, the deadline for comments varies according to the specific paper concerned, but is generally in September-October 2026. The FCA has indicated that it intends to publish final rules in 2027 which would, generally speaking, take effect in 2028. UK AIFMs are encouraged to respond to the consultation with any comments they might have on the proposals and/or begin to assess the direction of travel and consider how they might be impacted.

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