The regulatory weather forecast for UK asset managers in 2025 presents a mixed picture but with some bright spells. We present our take on the Financial Conduct Authority's expected activities this year. Asset managers can best shelter themselves from adverse regulator interest by paying early attention to known priority areas of regulator focus.
Reducing the burden of regulation for Alternative Investment Fund Managers
We begin with a bright spell.
On 7 April 2025 HM Treasury launched a consultation on removing elements of the legislative framework for Alternative Investment Fund Managers ("AIFMs") to enable the FCA to introduce a more graduated and proportionate approach to regulation. The consultation paper is available here.
On the same date the FCA published a Call for Input (available here), which indicates its approach to regulating AIFMs. A three-tiered approach is proposed by the FCA, with only the largest firms being subject to a regime similar to the current rules for full-scope UK AIFMs. A new middle-tier of firms would be subject to regulation covering all the same areas as the current regime but without many of the prescriptive detailed requirements (in particular flowing from assimilated AIFMD Level 2 Regulation), so allowing greater flexibility. Small firms would be subject to core baseline standards.
The FCA proposes to set the threshold for large firms as those with £5 billion or more Assets Under Management and for small firms as those with less than £100 million under management. The ability for small firms to be registered without FCA authorisation would be removed. The FCA may also streamline requirements for some different types of activities such as listed closed ended investment companies and managing venture capital, to reflect the differences in their business models.
The consultation period will close on 9 June 2025. Existing UK AIFMs should pay close attention to these proposals and, where appropriate, respond to them, whether on an individual basis or through industry bodies.
Culture and governance
Culture or cultures will always be there within asset management firms, whether by intention or not and whether good or bad. Good governance and healthy firm culture will continue to be an area of focus in the FCA's supervisory interactions with asset managers this year, in particular how effectively individual senior accountability is assigned for key risks, effectiveness of oversight by governance bodies and good management information.
Risk management, liquidity management and operational resilience
The regulators' work to understand the behaviour of non-bank financial institutions at times of market shock continues. The FCA has stated that it will focus its surveillance of firms on prudent risk management, liquidity management and operational resilience. This will involve a data-led approach to identifying firms and funds that are outliers – such as high leverage, illiquidity or concentrated investment strategies - and supervisory dialogue with those firms to understand and improve risk management. Supervision will also focus on operational resilience and collateral management, including oversight of services outsourced to third parties.
Financial crime
There is a perennial call to arms for robust anti-financial crime controls in the asset management sector -as there is across all financial services sectors. This year this comes with a private assets flavour with a warning about the risks arising from complex ownership structures and a signalled supervisory focus on anti-money laundering controls in private markets funds.
An additional important development for firms to take into account is the new corporate criminal offence of failure to prevent fraud committed by an associated person for the benefit of the firm or its customers, which comes into force from 1 September 2025. A firm that has reasonable prevention procedures in place will have a defence. Firms should be conducting a risk assessment and gap analysis against existing controls and developing appropriate mitigating processes and procedures where material gaps are identified. See our recent client note on this topic here.
Market abuse
Effectiveness of anti-market abuse controls continues to be near the top of the list of FCA supervisory priorities for the sector. The regulator continues to seek to understand the mismatch in STOR reporting between asset managers and their brokers. There seems to be a developing recognition at the regulator that issuer practices around handling inside information need to improve. Issuers have been taking a narrower approach to categorising information as inside information than the broad definition against which buy side firms must hold themselves to account by restricting trading.
Private market valuation practices
In March 2025 the FCA published the findings of its multi-firm review of valuation processes for private market assets (available here). Firms for which this is relevant should review the findings and assess whether they have any material gaps in their own approach that should be mitigated. Attention should be paid to the robustness of valuation processes, the governance framework and the audit trail. Boards and valuation committees should be given regular, sufficient information on valuations to ensure effective oversight.
Conflicts of interest at firms managing private assets
Flowing on from the multi-firm review of private assets valuation processes, the FCA is commencing a new multi-firm review specifically focussed on conflicts of interest at firms managing private assets. The FCA will examine how firms ensure effective oversight of their conflict-of-interest framework through governance bodies and reviews by the three lines of defence, to ensure investor outcomes are not compromised. The FCA is looking for conflict management procedures to have been reviewed and updated to take account of emerging conflict risks.
Sustainability-related products
The FCA will engage with firms with sustainability-related products, assessing how they are implementing the labelling, naming, and marketing rules. Supervisory attention will be focussed on outlier firms in terms of their implementation approach.
The FCA has delayed publishing a policy statement extending the sustainability disclosure requirements to managed portfolios. This had been planned for Q2 2025 but no indicative timeline is now given. The reason given for the delay is to allow the FCA further opportunity to reflect on the consultation feedback received.
Outcomes for retail consumers
The FCA has a number of active workstreams relevant to the asset management sector. One is a (partially) bright spell: the FCA is reviewing feedback to its consultation (CP 24/30) on a new product information regime for "consumer composite investments", moving away from the rigid templates imposed by EU derived UCITS and PRIIPs regulation. On 16 April 2025 the FCA has issued a second consultation paper (CP25/9) with further proposals of detail, including on cost disclosure and calculation of transaction costs. The original proposals have not been universally well-received and the FCA expects further collaborative engagement with stakeholders to finalise its approach ahead of publishing final rules late in 2025. There would then be an expected transitional period of 18 months.
The FCA is continuing its review of the provision of unit-linked funds, assessing price and value across the value chain. The FCA plans to publish its findings, including examples of good practices, later this year.
A new workstream is commencing, with the FCA launching its multi-firm review into how the Consumer Duty is being applied by Managed Portfolio Service providers. Once that work is completed the FCA plans to publish good practice examples.
How we can help?
Our specialist regulatory team is actively advising clients on a number of the priority areas discussed above. Please contact us if you need further details about any of the matters discussed.
