Beyond registration – the future for Small Registered UK AIFMs under the proposed AIFMD reforms

This article forms part of our series examining the FCA’s proposed reforms to the UK’s asset management framework. Following our overview of the consultation package, each article explores the key proposals set out in each consultation paper within the consultation package, helping firms understand the proposed changes, assess their potential impact and identify practical steps to consider.

The UK’s alternative investment fund landscape is set to change, with around half of the UK's Small Registered AIFMs likely to find themselves inside the FCA's authorisation perimeter.

The FCA, in parallel with HM Treasury (HMT), have published proposals (CP26/28) that include reducing the availability of the Small Registered UK AIFM regime, which will impact a significant proportion of the current Small Registered UK AIFM population. For such managers that currently benefit from the light-touch registration regime, this is likely to represent a significant challenge.

Unlike authorised AIFMs, Small Registered UK AIFMs are subject to limited regulatory oversight and are generally outside the scope of the FCA's rules.  The regulator’s view is that the current regime no longer strikes the right balance between market access and investor protection, with concern that some investors may assume that registration carries a greater degree of regulatory oversight and protection than is actually the case, creating a so-called "halo effect".

By bringing more fund managers within the FCA's authorisation perimeter, policymakers believe they can improve investor confidence, create greater consistency across the sector and strengthen the UK's reputation as a leading asset management jurisdiction.

What will change?

Under the proposals, around 70 of the 145 firms currently operating as Small Registered UK AIFMs are expected to need to move from the registration regime to full authorisation. Given that  Small Authorised UK AIFMs are subject to AUM thresholds of €500m (for unleveraged funds with no redemption rights within 5 years) or €100m (for leveraged funds), the FCA expects these firms to fall into the new small AIFM category (for firms with NAV up to £750m)^[1]. This is likely to affect managers of property funds, internally managed AIFs and other funds that currently benefit from the registration regime.

There are no proposals to ‘grandfather’ existing Small Registered UK AIFMs into the new regime, so firms will need to be authorised before the reforms take effect in 2028.  The FCA expects around 10% of authorisation applications to be unsuccessful, as it considers that a proportion of Small Registered UK AIFMs (some of which the FCA says are “exploiting” the “light touch regime”) will be unable to demonstrate the capabilities to meet the requirements of being authorised.  Therefore, ensuring the firm has in place appropriate governance and compliance frameworks ahead of authorisation, and producing a detailed and compelling application will be crucial.

Exemptions for RVECAs, SEFs, REITS and VCTs

Not all Small Registered UK AIFMs will be immediately impacted by the proposals, which preserve the regime for managers of:

• Registered Venture Capital Funds (RVECA);

• Social Entrepreneurship Funds (SEF); and

• Certain internally managed closed-ended investment companies admitted to trading on a UK multilateral trading facility or UK recognised investment exchange. (Typically, such funds trade on the LSE or Specialist Funds Segment, AIM or Aquis Stock Exchange.)

While the managers of such funds would not need to become FCA-authorised any time soon, these carve-outs are not intended to be a permanent solution, with HMT and the FCA indicating that they will revisit the position as part of a broader review of the venture capital sector sometime in 2028.

It’s important to note that the Small Registered UK AIFM AUM thresholds of €500m and €100m will continue to apply under the new regime (i.e. they will not mirror the proposed new thresholds for small, medium and large AIFMS, these being £750 million, £750 million to £5 billion, and over £5 billion, respectively), albeit the reference currency will change from Euros to Sterling.  Therefore, under the proposals, a Small Registered UK AIFM whose funds’ AUM breaches the applicable £100m or £500m threshold will need to seek approval to become authorised as an AIFM. This is no change to the current position, albeit such firms immediately fall into the Full Scope UK AIFM regime.  However, under the new, more proportionate regime, Small Registered UK AIFMs that breach the relevant threshold will, upon authorisation, fall into the small AIFM category (NAV of £750m or below). 

The 2028 Venture Capital Review

While no specific details of this review have been announced, possible outcomes could include retaining the existing registration mode for certain managers, introducing a bespoke venture capital regime, or bringing venture capital managers within a proportionate authorisation framework designed specifically for the sector.

The planned review reflects the Government's recognition that venture capital plays a unique role in supporting innovation, productivity and economic growth. Policymakers have acknowledged the importance of ensuring that regulation remains proportionate and does not create unnecessary barriers for emerging managers and early-stage investment strategies.

Next steps

The final rules for the new AIFMD regime are expected to be published in 2027, with the new regime going live in 2028.  Given the lack of any grandfathering provisions, Small Registered UK AIFMs that will need to become authorised should start preparing early. Some firms may also view this as an opportunity to consider broadening the range of regulated activities they undertake.

With around 70 Small Registered UK AIFMs expected to seek FCA authorisation over a relatively short period, the FCA will quickly become familiar with common business models, governance structures and application approaches. As a result, the quality of an application will play a key role in distinguishing firms that are genuinely ready for authorisation from those that are not. Therefore, a comprehensive, well-evidenced application, supported by robust governance, operational and compliance frameworks, will be critical. Firms that begin planning now will be better placed to identify gaps, implement necessary changes and navigate the authorisation process successfully.

How Ocorian can help

At Ocorian, we work with asset managers, investment firms and other solo-regulated firms to help them navigate regulatory change in a practical and proportionate way. Our regulatory specialists can support firms in assessing the potential impact of the FCA’s proposals and preparing for authorisation.  We can provide support throughout the process, including:

1.   FCA authorisation strategy and readiness assessment: 

• Regulatory permissions mapping and business model assessment.
• Assessment of governance, compliance, risk management and operational arrangements.
• Identification of potential issues likely to attract FCA scrutiny.
• Managing interactions with the FCA throughout the application process.
• Preparation for FCA interviews and supervisory discussions.

2.   Preparation of the FCA authorisation application pack:

• Completing the FCA application pack.
• Preparing the Regulatory Business Plan.
• Drafting financial forecasts and regulatory capital analysis.
• Preparation of controllers, ownership and governance documentation.
• Drafting responses to FCA questions and supplementary information requests.

3.   Governance and SMCR framework:

• Design and implementation of governance arrangements.
• Preparation of management committee and board terms of reference.
• Preparation of SMCR documentation, including Statements of Responsibilities.
• Senior manager and board training.

4.   Developing your compliance framework, including drafting and implementation of:

• Compliance Monitoring Programme;
• Compliance Manuals;
• Risk Management Frameworks;
• Conflicts of Interest Policies;
• Valuation Policies;
• Fund Governance Procedures;
• Investor Disclosure Procedures;
• Financial Crime Frameworks;
• Complaints Procedures; and
• Outsourcing and Third-Party Oversight Policies.

5.   Prudential and financial resource requirements:

• Assessment of regulatory capital requirements.
• Financial resources planning and stress testing.
• Wind-down planning.

6.   Post-authorisation support:

• Ongoing compliance and regulatory advisory services.
• Compliance officer and MLRO support.
• Compliance monitoring and health checks.
• Regulatory change and implementation support.
• Training for boards, senior management and staff.

About the author 

Tracy Clarke is a Principal Consultant, providing advice and support to asset managers and advisors. She has 12 years of experience working in compliance for investment managers in the venture capital and real estate space. Having previously held the SMF16 and SMF17 roles, has first-hand experience of managing the compliance issues that firms face.

^[1] CP26/28 proposes replacing the existing distinction between small and full-scope UK AIFMs with a more graduated framework comprising small, medium and large AIFMs. The proposed NAV thresholds are less than £750 million, £750 million to £5 billion, and over £5 billion, respectively. (Note the threshold is moving from AUM to NAV as the threshold metrics).