The regulatory landscape for Alternative Investment Fund Managers (AIFMs) in the UK is set for significant change in 2026 and 2027, with the repeal and replacement of the Alternative Investment Fund Managers Directive (AIFMD). This move seeks to streamline the regulatory framework for investment managers, making it more flexible and tailored to the specific needs of UK markets. This article examines the proposed changes, the UK Government’s consultation, and what investment managers can expect from the new regulatory landscape.
Background: The AIFMD and Its Impact on the UK Market
The AIFMD was introduced by the European Union to regulate managers of alternative investment funds (AIFs), including private equity, hedge funds, and real estate funds. Its primary goals were to increase transparency, reduce systemic risk, and protect investors by imposing stringent reporting and operational requirements on fund managers.
However, since Brexit, the UK has been able to diverge from EU regulations, and many UK-based investment managers have found the AIFMD framework to be cumbersome and not always well-suited to the unique characteristics of the UK market. The directive imposed complex reporting requirements and extensive oversight, which led to a burdensome compliance environment for managers, limiting their ability to be competitive on a global scale.
The Government’s Consultation on Simplified Regulations: What We Know So Far
In April 2025, HM Treasury published its consultation paper, Regulations for Alternative Investment Fund Managers, proposing a new, streamlined regulatory framework to replace the AIFMD derived regime in the UK. The draft document outlines several high-level objectives, including reducing regulatory burdens and enabling a more proportionate and competitive environment for UK AIFMs. 1
Key objectives of the consultation include:
- Removing detailed, legislative AIFMD requirements and shifting them into FCA rule‑making where appropriate, enabling more adaptability.
- Simplifying authorisation and reporting obligations across different fund types and risk profiles.
- Reduction in some of the more complex reporting and operational requirements would make it easier for investment managers to comply and focus more on managing funds and growing assets.
- Tailoring Frameworks to UK Needs: The new regime will be designed with the UK’s market in mind, taking into account the distinct characteristics of the financial services industry post-Brexit.
The consultation is now closed, and the Treasury has indicated that it plans to consult on draft legislation in early 2026, alongside the FCA.
The FCA’s Proposed Approach Under the New Framework
The Financial Conduct Authority (FCA) also published a Call for Input in response to the government’s consultation. The FCA’s proposed regulatory approach reflects a desire to make the regime more adaptable to different types of funds and investment strategies.2
The key themes from the FCA’s proposals include:
- Risk-Based Regulation: The FCA suggests adopting a risk-based approach to regulation, which would focus regulatory efforts on higher-risk investment activities while reducing burdens on less risky ventures.
- Proportionality in Regulation: The FCA proposes tailoring regulatory requirements to the size and nature of the investment fund. This means smaller or less complex funds could face lighter regulatory burdens than larger, more complex ones.
- Increased Use of Technology: The FCA is considering how technological advancements can be leveraged to simplify compliance and reporting, helping fund managers stay in line with regulatory demands while improving efficiency.
The FCA explicitly states that this Call for Input is intended to inform future rule development; a consultation on detailed rules is expected in the first half of 2026, subject to responses to both this Call for Input and the Treasury’s consultation.
Repeal and Replacement of AIFMD: What Will Change for UK Investment Managers?
The repeal of AIFMD and its replacement with a UK-centric regulatory framework could provide significant benefits to UK-based investment managers. These include:
- Greater Flexibility for Fund Managers: By removing the stringent requirements of the AIFMD, UK managers will have more freedom to structure and operate their funds according to their needs, rather than adhering to a one size fits all approach. Built around clear risk‑based tiers, with thresholds based on NAV rather than solely on AUM or leverage.3
- Simplified Reporting Requirements: The UK’s new regulatory framework could reduce the complexity of reporting, making it more proportional to the size and risk of the fund. This would decrease the operational burden on investment managers and reduce compliance costs.
- Improved Competitiveness: By tailoring regulations to the UK’s needs, the government aims to create a more attractive environment for global investment. Simplified rules and lower costs could help UK fund managers compete more effectively with European and global counterparts.
The changes would also allow the UK to capitalise on its post-Brexit position by offering a more flexible and nimble regulatory environment, providing opportunities for growth and innovation within the sector.
Speculation: Key Changes on the Horizon for UK-Based AIFMs
While the final shape of the regulatory framework is still uncertain, several key changes can be speculated based on the ongoing consultations:
- Easier and Faster Authorisation: One of the most anticipated changes is the simplification of the authorisation process. Investment managers would benefit from quicker approvals, allowing them to launch funds faster and reduce time to market.
- Changes to Reporting and Disclosure: Expectations are that reporting requirements could be simplified, especially for smaller funds.
- Enhanced Investor Protections: Despite the focus on streamlining regulation, investor protection remains a priority. The new regulatory framework could introduce additional measures to improve transparency and ensure that investors are better informed.
- Lower Costs for Fund Managers: The simplified regulatory framework is expected to reduce compliance-related costs, which could free up capital for investment managers to reinvest in their operations.
With the proposed regulatory changes on the horizon, investment managers must prepare for the transition
- Stay Engaged with the Consultation Process
- Update Compliance Frameworks
- Prepare for Draft Legislation
The proposed changes to AIFMD offer an exciting opportunity for UK-based investment managers to thrive in a more flexible, competitive, and growth-oriented environment. By streamlining regulation and tailoring it to the UK’s needs, the government aims to create an environment that attracts both domestic and international investment.
The changes will also enable innovation in the sector, fostering new fund structures and investment strategies. In the long run, the UK could solidify its position as a leading global financial hub, with a regulatory framework that is nimble and adaptable to the ever-changing financial landscape.
Investment managers should stay engaged with the consultation process, update their compliance frameworks, and be ready to embrace the changes that will shape the future of investment regulation in the UK.
How can Leo Help?
As the UK moves towards a more proportionate, risk-based regulatory framework, investment managers will need to reassess whether existing compliance processes remain fit for purpose. Manual tools and fragmented systems may struggle to support increased regulatory flexibility, supervisory scrutiny, and the need for clear audit trails.
This were we come in, Leo RegTech can support your firm by centralising compliance monitoring, due diligence, attestations, and reporting within a single, configurable framework. Leo’s platform is prepared to help you automate your routine controls and maintain structured evidence of compliance activity.
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- https://www.gov.uk/government/consultations/alternative-investment-fund-managers-regulations-consultation ↩︎
- https://www.fca.org.uk/publications/calls-input/future-regulation-alternative-fund-managers ↩︎
- https://www.regulationtomorrow.com/eu/hmt-consultation-regulations-for-aifms/ ↩︎
