The UK AIFM regime is changing – and for many fund managers, the path to authorisation may soon look very different

This article forms part of a 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.

In July, the FCA unveiled Consultation Paper CP26/28, the UK AIFM Regime, signalling the most significant reshaping of the UK AIFM landscape in years. The proposed reforms are designed to streamline regulation, remove unnecessary administrative complexity and create a more proportionate framework for fund managers. While the new regime is not expected to take effect until 2028, its implications are already prompting firms to reassess their growth plans and regulatory strategy. Those firms considering becoming authorised for the first time may wish to make a move before the reform takes place in order to enjoy a smoother transition of capital and liquidity along their growth journeys.
 

What has been proposed?

One of the most notable changes is the proposed removal of the small registered AIFM regime, with the exception of firms operating under the social entrepreneurship funds (SEF) or registered venture capital funds (RVECA) frameworks. As a result, managers of funds such as real estate vehicles that currently rely on the registered regime will, in future, need to become authorised as small UK AIFMs.

For new entrants and growing firms, the consultation arrives at a time of uncertainty. Under the current framework, firms typically engage with the FCA authorisations team when first seeking approval to manage an AIF and again when they approach the full-scope AIFM thresholds of €100 million AUM for leveraged funds or €500 million AUM for unleveraged funds with no redemption rights during the first five years. Crossing these thresholds requires a variation of permission, which can be time-consuming and expensive to prepare and brings with it a dramatic increase in regulatory obligations.
 

Moving away from the regulatory “cliff edge”

The contrast between the two regimes is stark. Small AIFMs benefit from a relatively light-touch framework, including a modest £5,000 capital requirement, a lesser liquidity requirement (and for some firms no liquidity requirement at all) and only annual Annex IV reporting. Full-scope AIFMs, by comparison, face substantially higher capital and liquidity requirements, more frequent regulatory reporting and a broader range of operational obligations. This creates what many in the industry describe as a regulatory “cliff edge”, where a relatively small increase in assets under management can trigger a disproportionate increase in compliance costs.

Full-scope firms must also comply with the wider requirements of the AIFMD, including producing detailed annual reports for each fund and appointing a depositary responsible for safekeeping assets, monitoring cash flows and providing oversight of the fund’s operations.
 

Key proposals

The FCA’s proposed framework seeks to replace the current binary distinction with a more graduated model. Moving between the thresholds would not need any intervention from the FCA. Under CP26/28:

• AIFMs managing less than £750 million of assets across all AIFs would be classified as small AIFMs.

• AIFMs managing between £750 million and £5 billion would be classified as medium AIFMs.

• AIFMs managing more than £5 billion would be classified as large AIFMs.

Importantly, these thresholds would be measured using net asset value rather than assets under management, representing a fundamental change in how firms are categorised.
 

What could this mean for firms?

The proposed changes could make the journey to authorisation more predictable and scalable for growing firms. However, important questions remain around future prudential requirements, capital expectations and liquidity obligations.

While the new framework removes the need to submit a variation of permission when moving between categories, replacing it with a material change notification process, it does not yet eliminate concerns around prudential requirements. The discussion paper indicates that fund managers may ultimately fall within the scope of the FCA’s new Core Prudential sourcebook (COREPRU), potentially introducing variable fixed-overhead capital requirements based on 25% of a firm’s cost base. For many firms, this could represent a significant increase from the current £5,000 to the minimum capital threshold.

Chapter 17 of the consultation also opens a broader discussion on financial resilience. The FCA is considering requirements for all firms to maintain minimum levels of liquid assets and to assess the capital needed to support an orderly wind-down should circumstances require it. Although detailed prudential proposals are not expected until late 2026, these discussions offer an important glimpse into the future direction of travel.
 

Planning ahead

For firms considering authorisation, timing may become a strategic consideration. While no transitional arrangements have yet been announced, it is difficult to envisage a new regime of this scale being introduced without some form of implementation relief. Firms authorised before the reforms take effect may ultimately benefit from transitional measures designed to ease the move towards potentially higher capital and liquidity standards.

Until the new regime becomes reality, firms approaching the current €100 million or €500 million thresholds should continue to plan on the basis of today's rules. This includes complying with full-scope requirements, such as appointing a depositary where required, even if the firm would ultimately qualify as a small AIFM under the proposed 2028 framework.

In some cases, firms may even consider delaying the launch of new funds while awaiting greater clarity. The FCA’s approach to firms caught between the current and future regimes remains uncertain and is likely to be a key theme in responses to the consultation.
 

What’s next?

What is clear is that the regulatory landscape is evolving. For fund managers, the coming years present both challenges and opportunities: the chance to prepare early, shape the conversation and position their business for success under a more modernised AIFM framework.

Our team of experts at Ocorian is closely following these developments. If you are considering launching a fund, seeking authorisation or assessing how the proposed changes could affect your business, we would be delighted to help.

The UK AIFM regime is changing – and for many fund managers, the path to authorisation may soon look very different.
 

Want to understand what the FCA’s wider reforms to asset management regulations could mean for your firm?

Join our upcoming webinar, where our experts will unpack the key proposals across the FCA’s AIFM regulation, fund reporting and remuneration consultations, what they mean in practice and what firms should be considering next. 

Register here.

About the authors

Jackie Domanska is a principal consultant at Ocorian specialising in prudential regulation and risk. She advises investment firms and fund managers of all sizes, providing prudential support and managing complex projects. Her expertise includes IFPR impact assessments, financial modelling, risk management frameworks, prudential consolidation, ICARA, and wind down planning. She also provides regulatory training at all levels from finance teams to boards.

Haydon Thomas is a principal consultant at Ocorian. He advises firms on FCA authorisation, variation of permissions, changes in control and senior management function applications. With over 15 years of consultancy experience, Haydon has significant expertise in helping firms navigate complex authorisation and regulatory requirements, providing practical guidance throughout the application and approval process.