Regulatory Futures: UK AIFM Regulatory Reform and the Recalibration of Competitiveness

The next phase of UK asset management regulation is about recalibration rather than reinvention.

At Kroll’s Alternatives and Asset Management Conference 2026, experts participating in a panel titled "Regulatory Futures: UK AIFM Reforms and Global Alignment" discussed how the UK’s post-Brexit regulatory agenda for the alternatives sector is entering a more decisive phase. The direction is clear: a regime that is more proportionate, more flexible and more aligned with how alternative strategies operate.

For firms, this represents a strategic shift in how regulation for the sector interacts with business models, risk and global competitiveness.

 

From Inherited Framework to Targeted Reform

The existing UK Alternative Investment Fund Managers (AIFM) regime has largely carried over from the EU framework, with limited structural change since Brexit. The current reform program, initiated with HM Treasury’s consultation and the Financial Conduct Authority’s (FCA) call for input, seeks to address this by aligning regulations more closely with domestic priorities.

Three objectives underpin the reforms:

• Maintaining market integrity and investor protection
• Enhancing the UK’s global competitiveness
• Modernizing the regime to reflect alternative investment models

These objectives reflect a broader transition as regulation for the sector is increasingly a lever of policy, shaping how attractive the UK remains as a global asset management hub.

See below for an overview of what to expect from the FCA and HM Treasury’s new publications on the proposed regime, which have yet to come out.

 

Rethinking Thresholds and Proportionality

At the center of the reform agenda is the redesign of the full-scope AIFM thresholds. The current binary structure creates a pronounced cliff edge where firms crossing the current fixed thresholds of EUR 100 million (for managers of leveraged, open-ended funds) or EUR 500 million (for managers of unleveraged, closed-ended funds) face a sudden increase in regulatory burden. This is widely seen as misaligned with risk.

The proposed new regime is expected to introduce a multitiered threshold framework based on net asset value calculations rather than the more complex asset under management calculations under the current framework.

For smaller firms, the approach is expected to be principles-based, focused on outcomes rather than prescription. Mid-tier firms will be subject to more graduated requirements, and only the larger firms will be subject to the full set of requirements under the new regime.

The industry will welcome this move toward a more tailored framework based on actual risk and operational complexity.

The opportunity is clear, although the challenge lies in execution. Under a principles-based framework, the risk for smaller firms is that, without sufficient clarity around regulatory expectations, firms may default to conservative interpretations on how to comply with applicable requirements.

 

From Prescriptive Rules to Risk-Based Application

Alongside the introduction of proportionality thresholds, a broader philosophical shift is also underway. The FCA is moving toward a more risk-based application of rules, recognizing that different fund structures and strategies carry fundamentally different risks. Factors such as liquidity profile, leverage and fund structure will more clearly dictate the applicability of relevant regulatory requirements.

This shift has practical implications. Requirements designed for liquid, open-ended strategies may no longer be applied uniformly to close-ended, unleveraged funds. The intent is to remove rules that do not materially contribute to risk oversight.

 

Addressing Cost and Structural Frictions

While the direction of reform is broadly supported, several areas remain under debate.

• Depositary requirements are a clear example. For many private fund structures, existing requirements are viewed as duplicative, with oversight already embedded through administrators, legal advisers and investor due diligence.
• Business restrictions under the current AIFM regulatory framework also create friction, particularly where firms must establish multiple entities to undertake complementary activities. This introduces cost and complexity that may not align with underlying risk.
• Valuation frameworks are also evolving, with potential for greater flexibility in the use of external valuers and a reassessment of liability regimes to improve market functioning.

Across these areas, the underlying theme is consistent: The regime is being tested against real-world operating models.

 

Beyond AIFM Regulations: The Need for Coherence

The proposed reforms extend beyond the AIFM regulations. Firms continue to operate across overlapping regimes, including AIFMD, MiFID and prudential frameworks, often facing duplication or misalignment. Industry feedback has consistently highlighted the need for greater coherence.

Areas under review include:

• Remuneration, in which UK and EU regimes are seen as more prescriptive than global peers
• Regulatory reporting, with questions about the value of increasingly granular data requirements
• Prudential rules, particularly their suitability for alternatives and asset management firms
• FCA Handbook structure, with a longer-term goal of creating a unified, consistent framework

Simplification is not merely efficiency-driven; it is increasingly a determinant of competitiveness.

 

Global Alignment: Differentiation Without Fragmentation

A central tension in the reform agenda is how far the UK should diverge from international regimes.

The FCA’s approach seeks to balance:

• Alignment with global standards
• Removal of unnecessary cross-border barriers
• Preservation of high regulatory standards

Cross-border delegation of investment management activities remains a critical pillar. The ability to access global expertise is fundamental to the asset management model, and any reform must preserve this.

At the same time, selective divergence could enhance competitiveness, particularly in areas such as reporting and remuneration. The challenge is to differentiate without creating fragmentation that increases operational complexity for global asset management groups.

 

Private Markets: Evidence Over Perception

Private markets continue to attract regulatory attention, especially in valuation, conflicts, and costs and charges.

However, there is a strong emphasis on evidence-based policy. Ongoing exercises, including the system-wide exploratory scenario exercise on private markets led by the Bank of England, are expected to provide a more data-driven understanding of risk, particularly in private credit.

This approach is critical. Premature intervention risks misalignment with how the market functions. Private capital plays an important role in supporting UK economic activity, particularly through investment in SMEs. Regulation must therefore balance oversight with growth.

 

Toward a Smarter Regulatory Model

Alongside structural reform, the FCA is also evolving how it regulates and supervises firms. Key initiatives include:

• Greater use of technology in supervisory processes
• Expansion of regulatory sandboxes
• Early work on tokenization and digital market infrastructure
• Continued reliance on existing frameworks to oversee emerging technologies, such as AI

The ambition is to become more responsive and data-driven, with a clearer understanding of market dynamics. For firms, this implies more targeted supervision and increased expectations of informed engagement.

 

What Should Firms Prioritize Now?

While the regulatory reform process is ongoing, several priorities are clear:

Reassess business model alignment
Firms should evaluate how their structures and strategies will sit within a more tailored, tiered regime.

Prepare for proportionality in practice
Understanding where the firm is likely to fall within the new framework will be critical.

Review governance and reporting
Ensure that controls and data align with a more risk-based approach.

Engage early with regulators
Consultation and dialogue will play important roles in shaping outcomes.

 

Looking Ahead

The UK’s AIFM regulation reform marks a transition from inherited rules to intentional design, moving toward a more proportionate, risk-sensitive and globally competitive framework.

For firms, the opportunity lies in alignment. Those that adapt early, embedding regulatory change into strategic decision-making, will be best positioned to benefit. In a global market, regulation is a determinant of where business chooses to operate and how global financial services hubs compete for growth.