Upcoming changes to AIFM valuation rules: multiple frameworks to achieve the same outcome

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.

Valuation has been a hot regulatory topic for a while. For those who have followed the FCA’s multi-firm review on private market valuations, the proposed changes to the valuation rules under the UK AIFM Regulation should be no surprise.

While the regulators are willing to make the AIFM regulations less prescriptive and more proportionate, valuation remains a non-negotiable priority in terms of upholding market integrity, managing conflicts of interest and protecting investors.

This means for the first time all AIFMs, regardless of size, will be required to have valuation policies and procedures in place and keep them under review from time to time. Beyond that, medium and large AIFMs will have additional requirements.

The proposed rules will probably come into effect in 2028 but it’s never too early to understand the direction of travel and identify what needs to be improved to future-proof your governance and compliance framework around valuation.

What is changing?

A principles-based framework with proportionate application

The FCA is not proposing to prescribe specific valuation methodologies. Instead, the focus is on outcomes. Under the proposed framework, firms will be expected to ensure valuations are performed:

• In good faith;

• Impartially and objectively;

• With appropriate governance and oversight;

• Subject to effective conflict management; and

• Supported by appropriate records and documentation.

The FCA also expects firms to consider whether ad hoc valuations are required when market conditions or asset-specific developments indicate that existing valuations may no longer reflect fair value.

While these principles apply across the industry, the practical requirements vary significantly depending on whether a firm is classified as a small, medium or large AIFM.

Small AIFMs: have you established your valuation policies and procedures?

Small authorised AIFMs are currently not subject to the existing UK AIFMD regulatory framework. Under the proposed AIFM regulations, small AIFMs (firms whose NAV is less than £750 million) must maintain and periodically review valuation policies and procedures, ensure valuation decisions are appropriately documented and establish processes capable of delivering fair and objective outcomes.

Medium AIFMs: governance becomes increasingly important

For medium AIFMs, whose NAV is between £750 million and £5 billion, the FCA has set out additional requirements for their valuation policies and procedures. Medium AIFMs will need to describe how each type of asset and liability is valued, and the methodologies and the underlying assumptions of valuation if a market price is not available.

In addition, medium AIFMs must set out their governance processes for valuation, how third-party valuers are appointed and used, and how changes to valuation methodologies and the underlying assumptions and inputs are made. 

Large AIFMs: the highest standards apply

Large AIFMs, whose NAV exceed £5 billion, will be subject to a framework that is broadly consistent with current expectations. Large AIFMs should continue to expect significant scrutiny around:

• Valuation governance structures;

• Independent oversight;

• Valuation committees;

• Conflict management arrangements;

• Model validation and review processes; and

• Detailed record-keeping requirements.

A notable aspect of the proposals is the FCA's approach to independent valuers.

Rather than relying on prescriptive statutory requirements, the FCA proposes a more flexible framework allowing firms to appoint independent valuers where appropriate, provided those valuers have sufficient expertise, resources and independence.

Importantly, the appointment of an independent valuer will not remove an AIFM's responsibility for valuation outcomes. Accountability remains firmly with the manager.

This reflects a broader theme running throughout FCA’s consultation on changes to the AIFM regulatory regime: greater operational flexibility accompanied by continued management responsibility. For firms considering whether independent valuation support could strengthen governance or help demonstrate objectivity, Ocorian can support managers in meeting their ongoing responsibilities in the use and oversight of independent valuers.
 

What should I do now?

2028 seems to be a long way off. However, it will take time for firms to assess their classifications under the proposed AIFM regulatory framework and identify the valuation rules that will apply to them. From there, firms will need to consider what changes are needed and how they can be implemented. Firms should ask themselves the following:

• What are our existing valuation policies and procedures? When were they last reviewed?

• Is there adequate evidence of independent challenge and oversight?

• Are valuation decisions and assumptions appropriately recorded?

• Do current governance arrangements align with the firm's likely future AIFM categorisation?

• Are conflict management arrangements sufficiently robust?

• Is there a clear framework for responding to valuation events or market dislocations?

The FCA’s proposed principles-based approach allows firms to consider proportionality when designing their valuation framework. Having fewer prescriptive requirements means more flexibility but that requires careful thought. 

Ocorian can help you review and determine whether your approach is in line with your peers or whether any changes need to be made to accommodate your firm’s particular circumstances.

About the authors

Abi Reilly is a Partner at Ocorian. She advises a broad range of regulated firms, including asset managers, on regulatory compliance and governance. With over 20 years holding senior in-house risk and compliance roles and 40 years in financial services, Abi has significant experience in helping firms navigate complex regulatory requirements with practical commercial advice.

Martin Weir is a Principal Consultant in Ocorian’s Regulatory & Compliance team. He advises investment firms on regulatory oversight, governance and risk management across regulated fund structures. Drawing on experience at PwC, the FCA and in-house compliance, he helps firms strengthen control frameworks, manage regulatory risk and enhance operational resilience, with expertise spanning fund valuation, accounting and compliance monitoring.