Ocorian: Smaller funds most affected by FCA paper on the AIFM sector
The Financial Conduct Authority (FCA) has launched a sweeping consultation to radically shake up the UK Alternative Investment Fund Managers (AIFM) sector, and Ocorian says those working across the EU and UK, new entrants, boutique asset managers, and sub-threshold real estate vehicles will be most impacted by the proposed changes.
Ocorian says the regulatory proposal, detailed in Consultation Paper CP26/28 is designed to modernise the regulatory architecture of the UK AIFM sector. By streamlining existing processes and removing unnecessary administrative bottlenecks, the FCA hopes to create a far more proportionate and predictable framework for fund managers operating within the UK. The new regime aims to replace a binary system with a graduated scale, allowing growing asset managers to scale seamlessly without facing abrupt regulatory barriers.
Ten years on since the Brexit referendum, these proposals mark a divergence from the EU with the UK setting its own regulatory requirements. Streamlining processes will reduce the overall regulatory burden on firms solely operating in the UK. However, Ocorian highlights the potential future need for firms operating across both the UK and EU to ensure they are adhering to both UK AIFM regulation and EU AIFMD II – and similarly a potential future requirement for them to file both UK FRAME and EU Annex IV returns.
New entrants and mid-tier managers facing the greatest impact:
While the proposed framework promises long-term simplicity, Ocorian highlights that new entrants, small-registered managers, and rapidly growing firms will be the most heavily affected by the transition.
In particular, managers of real estate vehicles and other niche fund structures that currently rely on the ‘small registered AIFM’ regime face an immediate strategic shift. Under the new rules, this registered tier will be eliminated entirely, except for firms operating under Social Entrepreneurship Funds (SEF) or Registered Venture Capital Funds (RVECA) structures. Consequently, a large volume of sub-threshold managers will be forced to transition into the more strictly regulated Small UK AIFM category for the first time.
Furthermore, sub-threshold firms that are actively expanding will see their operational and capital planning significantly impacted. The uncertainty of how the FCA will bridge the gap between the legacy rules and the 2028 implementation timeline means that firms approaching existing thresholds must carefully navigate a moving regulatory target.
Strategic recommendations for fund managers
Despite the fact that the new regime is not expected to take full effect until 2028, Ocorian says fund managers cannot afford a policy of passive waiting. It says firms currently considering regulatory authorisation for the first time should evaluate moving forward under the current rules. While transitional arrangements have yet to be announced, entering the regulatory pipeline early could be a competitive advantage, as early authorisations are likely to benefit from transitional relief and implement grandfathering windows designed to soften the blow of new, higher capital and liquidity rules.
