Proposed reforms to the UK AIFM regime by the FCA signal a move to a proportionate and flexible regulatory framework that could affect how firms are classified, authorised, and supervised. Sophia Ioannou explores what this means for firms.
The FCA has proposed a number of reforms to be applied to the operations of Alternative Investment Fund Managers (AIFMs) that are intended to reduce costs for firms and tailor regulatory requirements better to them. The proposals are intended to enhance the UK AIFM regime by creating a more proportionate and flexible regulatory framework, ensuring clear standards are set out. Areas of reform will be most favourable for smaller firms, with all rules being tailored to a firm’s size.
The consultation closes on the 14th October 2026. The Treasury is running a parallel consultation on changes to the underlying legislation. The implementation date currently envisaged for the new regime is 2028.
The Key Proposed Reforms
1. A new three-tier regulatory framework
The FCA is proposing a new three-tier regulatory framework for classifying AIFMs, with regulatory requirements tailored to the size and risk profile of each firm. The aim is to create a more flexible regime that supports smaller firms while ensuring larger firms with greater market impact are subject to stronger governance and oversight requirements. Firms would now be classified as Small, Medium or Large AIFMs based on the aggregate net asset value (NAV) of alternative investment funds they manage. The threshold for moving from the small to the medium category would be £750 million NAV, while firms managing more than £5 billion NAV would be classified as large AIFMs. The FCA also aims to move away from leverage-based calculations and to use NAV as a simpler and more transparent measure. When a firm crosses a threshold, whether to a larger or smaller size category, it will not have to apply for any change in authorisation status, permissions or requirements. Instead, the FCA expects firms to notify it that they have crossed the threshold.
2. A new Alternative Investment Funds Sourcebook
The FCA is proposing a new Alternative Investment Fund Sourcebook called ALTS to consolidate rules for managers of unauthorised alternative funds. Similar to the existing FUND sourcebook, ALTS will be structured thematically, including the classification and governance requirements. The FCA intends most of the AIFM regime to sit within FCA rules, ensuring greater flexibility.
3. Addressing the issue of small registered firms
The Treasury intends to remove the AIFM registration regime, except for Registered Venture Capital Funds and Social Enterprise Funds. Under the existing regime, some small AIFMs can choose to be registered and do not need to be authorised, which means that they are not subject to the full authorisation requirements. The proposed changes would result in most small registered AIFMs applying for full FCA authorisation.
The FCA expects that most small registered AIFMs will transition to the authorised regime following the removal of registration requirements. However, it is anticipated that 10% of firms may not become authorised, as they may choose to exit the market rather than apply for authorisation or because they are unable to meet the required regulatory standards.
4. Risk Management
For firms that manage AIFs other than closed-ended, unleveraged AIFs, the FCA proposes to require the AIFM to establish and maintain a risk management function. It also proposes rules requiring that function to be hierarchically and functionally independent from the portfolio management function, subject to proportionality for small firms, and to have systems, processes and controls that enable it to identify, measure and monitor material risks in relation to each AIF it manages.
5. Delegated Activities
The FCA is proposing to change how AIFMs report their delegated activities. For operational ease, it proposes to remove the pre-notification requirement. Instead, each AIFM must provide the information via a notification as soon as practicable after the delegation becomes effective.
What This Means for Firms
The proposed reforms aim to ensure that smaller AIFMs are subject to requirements that reflect their size and risk profile. The proposals aim to enhance the UK AIFM regime by creating a more proportionate and flexible regulatory framework. The proposed reforms are intended to increase clarity through strengthening the regulatory framework standards and providing a more consistent framework.
How Thistle Initiatives Can Help
Thistle Initiatives works alongside advice firms to help them respond confidently to regulatory expectations, whether they are growing, restructuring or refining their proposition. We can help you understand what the consultation and the proposed changes mean in practice and support the enhancement of a firm’s framework, ensuring consistent standards are applied throughout the business and market.
Get in touch at info@thistleinitiatives.co.uk or call 0207 436 0630 to speak with our team.
Meet the Expert
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Sophia Ioannou, Consultant 
Sophia recently joined Thistle as a Consultant in the Investment Wholesale team. She holds a Bachelor of Science in Psychology from the University of Nottingham and brings a strong foundation in investment compliance. Before joining Thistle, she worked at a hedge fund where she supported regulatory development projects and contributed to policy reviews, giving her practical insight into how firms adapt to emerging requirements. She has also completed the CISI Introduction to Securities and Investment and Global Financial Compliance modules, which further strengthened her technical knowledge.