UK Proposes Easing Regulations for Smaller Investment Companies

In a strategic move to enhance the UK's appeal as an investment hub, the Financial Conduct Authority (FCA), in collaboration with HM Treasury, has initiated a consultation aimed at overhauling regulations governing alternative investment fund managers (AIFMs). Announced on April 7, 2025, the proposal seeks to significantly raise the threshold for 'full-scope' regulatory requirements from the current £100 million (approximately $128 million) to £5 billion (approximately $6.4 billion) in assets under management.

This substantial increase is designed to alleviate the regulatory burden on smaller private equity firms and hedge funds, thereby fostering growth and encouraging more dynamic investment activities within the UK. By redefining many firms as mid-sized, the proposal would exempt them from stringent requirements such as appointing depositories and obtaining additional FCA permissions.

Emma Reynolds, the UK's Economic Secretary to the Treasury, emphasised the government's commitment to removing unnecessary barriers to investment, stating, "We want to bring security to working people by going further and faster to drive growth through our Plan for Change." ​

The FCA's interim executive director of markets, Simon Walls, echoed this sentiment, highlighting the goal of tailoring rules to better suit UK investment managers. He noted that such changes could enable firms to operate more efficiently, thereby supporting competition, competitiveness, and economic growth.

This initiative aligns with the government's broader strategy to streamline financial regulations post-Brexit, aiming to make the UK a more attractive destination for asset management. The consultation is open for feedback until June 9, 2025, after which detailed rules are expected to be formulated, with implementation projected for the first half of 2026. ​

Industry stakeholders have largely welcomed the proposal. Michael Moore, Chief Executive of the British Private Equity and Venture Capital Association, remarked, "This consultation is an important step in securing the UK's status as one of the world's leading private capital hubs." ​

However, some consumer advocates have expressed concerns about potential deregulation leading to a 'race to the bottom' in regulatory standards. The FCA has acknowledged these concerns and indicated that the consultation will carefully consider the balance between easing regulatory burdens and maintaining robust consumer protections. ​

This move comes at a time when the UK is seeking to revitalise its financial services sector, which has experienced slower growth compared to European counterparts since Brexit. By creating a more accommodating regulatory environment for smaller investment firms, the UK aims to stimulate market activity and attract a broader range of investment managers to its financial ecosystem.