FCA to review AIFMD rules and retail fund regulation

Chair Ashley Alder addressed feedback on regulator’s discussion paper for updating and improving the UK asset management sector


FCA chair Ashley Alder has outlined three main priorities for reform following the regulator’s discussion paper on updating and improving the UK asset management sector, including making the regime for alternative fund managers more proportionate; updating the regime for retail funds; and supporting technological innovation.

The discussion paper launched in February following the authority being granted responsibility for updating regulation following the UK’s exit from the EU, which the FCA said presents an opportunity to modernise and tailor rules to the needs of UK markets and consumers.

The paper closed to feedback on 22 May.

See also: FCA seeks input as it plots asset management regulation overhaul

However, Alder said in a speech at the Investment Association’s Annual Dinner on 12 October that some proposals would not be taken forward.

He said: “Among these was a suggestion to consolidate the rules for different types of asset managers, as well as a thought that we might develop a category of basic authorised funds to help retail investors navigate the market.

“Many of you saw benefits if we were to pursue these proposals, but argued that they shouldn’t be a priority. Simplifying our handbook, with which firms are very familiar, should come after targeted reforms intended to make a tangible, positive difference to the environment in which asset managers and investors operate.

“So, feedback made it clear that there are three main priorities for reform. They are simple in concept: First, making the regime for alternative fund managers more proportionate. Second, updating the regime for retail funds, and third, supporting technological innovation.”

Regime for alternative fund managers

Alder said the regulator would like to retain the core framework of the Alternative Investment Fund Managers Directive (AIFMD) while tailoring it to include all alternative managers. The current framework only applies to firms above a certain assets under management threshold.

He added: “Respondents also highlighted that AIFMD prevents full-scope alternative fund managers from carrying out other activities within the same legal entity. Given the complexities this can result in, we are also considering modifications in this area.

“As to regulatory burdens, AIFMD currently requires managers to report to regulators when a fund is newly established, when there are any material changes to a fund, when there’s an acquisition or disposal of major holdings and in relation to the control of non-listed companies.

“We are considering if changes could be made to ease some of these requirements on the basis that the cost of compliance may not be proportionate to the benefits of this type of reporting.”

The FCA will consult further on amending AIFMD rules in 2024.

Updating the regime for retail funds

The regulator has also considered feedback on updating the way in which retail funds are regulated.

“This points to a far clearer distinction between the requirements we apply to managers of authorised retail funds and managers of alternative investment funds,” Alder said.

“The result should simplify the retail rules for non-undertaking for collective investment in transferable securities (UCITS) funds.

“There was also feedback on whether non-UCITS funds might be rebranded to help rationalise the regime, and if so, how best to do this. We will continue to explore this option, and welcome further dialogue on branding options.”

Supporting technological innovation

The Financial Conduct Authority (FCA) chair also revealed the regulator has been working with the Technology Working Group to establish a blueprint for making fully digitised funds available to the public.

The working group is set to publish a blueprint for fund tokenisation later this year.

On supporting technological innovation, Alder said: “Many firms see use cases for distributed ledger technology (DLT), even if direct marketing of tokens may be some time off. So, we’ve already held a tech-sprint with the industry to test policy initiatives and the rule changes needed to support work on fund tokenisation.

“We’re also building in extra capacity to support innovation as we set out our plans for regulatory reform, well aware of the pace of change. This includes more work on other initiatives, including the Direct2Fund proposal that could make the UK fund dealing model and interactions with investors far more efficient.”


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