By Neil Robson, financial services regulatory partner at Katten Muchin Rosenman
Investors were pretty downbeat about seeing any meaningful regulatory reforms in the UK, but long-term scepticism has waned slightly since the FCA and the government launched their Alternative Investment Fund Managers Regulations open consultation in early April.
Initial pessimism was by no means unfounded and was shared by the vast majority of people in the financial services industry. When the UK’s regulators met with the chancellor at Downing Street last month to discuss how regulation could be made more “proportionate and risk based”, compliance “less onerous”, and how to cut red tape, there was a growing sense of foreboding: more lip-service and very little actual change.
The Action Plan was said to set out “the strategic vision and actions that will be taken to create a regulatory system that drives growth while continuing to protect millions of people”.
Unfortunately, the plan itself lacked any real meaningful substance – in fact the only real promising element for the sector was found in just three pledges relating to Labour’s promise to cut the administrative cost of regulation to business.
They were to review the contactless payment limits (including removing the £100 limit on individual payments), accelerate a review of capital requirements for specialised trading firms, and reduce regulatory reporting requirements for firms.
The rest of the pledges read as meaningless soundbites and a simple nod to markets.
Many were left scratching their heads wondering what had happened to the sensible, “once in a generation”, post-Brexit reforms promised in the form of the Edinburgh Reforms. These were announced back in 2022 and seemed to present many much-needed pragmatic updates to the UK financial services sector rules.
The reforms included 31 measures to revamp and revitalise UK capital markets. However, two and a half years on, and only around 13 of these measures appear to have been completed.
These included much needed changes to the UK’s prospectus rules, reforms to the UK Securitisation Regulation, and amending the UK Short Selling Regulation, among others.
Though these measures were merely only tweaks rather than robust reforms, they still present more substance than the new Action Plan. We seem to have a significant missed opportunity here. And if the government, FCA and the PRA are serious about cutting red tape, there’s already a sensible roadmap in place – it just needs to be followed through.
So, with all this head shaking, tutting, frustration and cynicism, imagine the industry’s surprise when on Monday 7th April the FCA and the government issued releases about a new Alternative Investment Fund Managers Regulations consultation open until June.
Seemingly coming out of nowhere, we usually have a sense of impending changes through media leaks or chatter within the industry, the consultation sets out the government’s proposal to amend the key regulations applied to managers of Alternative Investment Funds.
Together, they announce a potentially new, less onerous post-Brexit regime for UK-based asset managers with between €100m and £5bn of assets under management, which is, apparently, intended to save them time and money and enhance the UK’s position as the dominant hub for private equity and hedge funds in Europe.
With much of the UK’s asset management regulation deriving from EU legislation, including the Alternative Investment Fund Managers Directive (AIFMD), the Treasury has proposed to bring into effect provisions to repeal may of the AIFMD’s firm-facing legislation and the FCA has said that it will be reviewing its existing requirements for firms.
The FCA is consulting on the proposal until 9th June and says it will then consult on detailed rules in the first half of 2026, subject to feedback and to decisions by HM Treasury. If successful, these proposals could make it more straightforward for institutional asset managers to operate in the UK with fewer regulations and less cumbersome reporting.
While it is still far too soon to say if this is a real change or if it’ll all end up as a ‘damp squib’, there may yet be hope for the UK’s much needed and highly anticipated meaningful regulatory changes to be made – though we will have to see if the Government and FCA can hold their nerve and follow though.