The UK is considering lightening rules for smaller PE firms and hedge funds to attract more investments amid weak economic growth.
The Financial Conduct Authority, the UK’s finance ministry, and HM Treasury, the UK’s financial regulator, launched a consultation on Monday to explore increasing the threshold for full-scope regulation from £100 million (around $128 million) of funds under management to £5 billion (around $6.4 billion).
If raised, it would mean many PE firms in the UK would be exempt from several requirements. Under the current regulation—which is derived from the EU’s Alternative Investment Fund Managers Directive—full-scope alternative fund managers have more stringent reporting and disclosure obligations, as well as higher capital requirements.
The FCA and the Treasury also plan to create separate regulatory regimes specific to the needs of VC funds and investment trusts.
The UK hopes the move will stimulate market activity and increase returns for smaller funds by allowing greater flexibility and reducing costs for more firms.
FCA interim executive director of markets Simon Walls said in a statement, “We want rules better tailored to UK investment managers. These could allow them to operate more efficiently, further supporting competition, competitiveness and economic growth.”
The UK is already Europe’s leading PE hub by a significant margin. According to PitchBook data, £114 billion was invested in the UK’s PE market last year compared to Germany’s £63.8 billion. However, the UK’s has grown at a much slower rate compared with many of its peers since Brexit.
For the period between 2016 and 2024, PE deal value increased by 34.1% in the UK, compared with 69.4% in France and 81.8% in Germany.
The proposal is part of the FCA’s wider strategy to support growth in the financial markets and the economy as a whole. Last month, the regulator published a five-year plan to become more efficient through new technology and streamlining regulation.
The consultation is open for feedback until June 9, and the FCA plans to release detailed rules in H1 2026.
Featured image by Andrew Aitchison/Getty Images
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