In late April, the UK’s Financial Conduct Authority (FCA) signalled a major shift in its approach to regulating alternative investment fund managers (AIFMs). Seeking to enhance competitiveness and support innovation in the UK’s asset management industry, the FCA has proposed a suite of reforms to reduce compliance burdens for smaller and mid-sized firms. Importantly, among these proposals is the dramatic increase in the threshold for full-scope regulatory requirements from £100 million to as much as £5 billion.
But in a less prescriptive regulatory environment, who ensures that firms maintain robust governance and compliance? With regulatory oversight softening, the answer may lie in a new model of operational leadership, the outsourced (more independent) Chief Operating Officer (COO).
What’s changing?
The FCA’s reform agenda includes repealing the EU-derived Alternative Investment Fund Managers Directive (AIFMD) and replacing it with a more flexible, proportionate and, most importantly, UK-specific framework. This approach removes regulatory ‘cliff edges’ that disproportionately affect boutique and specialist firms, offering them a smoother pathway to scale their operations.
The overarching goal is to enhance the attractiveness of the UK for fund managers, encouraging innovation without compromising investor protection. However, by granting firms more discretion in how they meet regulatory outcomes, the FCA is also shifting greater responsibility onto individual fund managers.
The opportunities and risks of deregulation
There are undeniable advantages to deregulation. Reduced compliance costs, greater flexibility, and removing bureaucratic hurdles can actively encourage innovation and attract new market entrants. Smaller firms, in particular, benefit from a less rigid regulatory regime.
However, on the flip side, without detailed, prescriptive frameworks, firms must independently interpret high-level principles to develop their own compliance strategies. This increases the risk of inconsistency, gaps in governance, and exposure to reputational or operational failures.
The strategic role of the outsourced COO
Outsourced COOs are possibly the most cost effective solution in instances like this, unlike in-house COOs, whose salaries may be prohibitive for sub-threshold or emerging managers. Outsourced COOs offer flexible, scalable access to senior-level operational and compliance expertise.
They bring with them a unique blend of regulatory fluency, industry experience, and cost efficiency. Outsourced COOs are not simply interim solutions. They serve as integral partners in company shaping governance, aligning operations with business growth, and ensuring ongoing compliance.
Navigating regulatory and compliance expectations
Fund managers must determine their pathways as the FCA shifts away from rigid rulebooks. This places a premium on expertise in regulatory interpretation.
Outsourced COOs are well-placed to provide this insight given their widespread market exposure and experience. They help firms decode evolving regulatory expectations, develop proportionate control frameworks, and integrate domestic and international compliance standards. This ensures that firms remain investor-ready and regulator-friendly, even as the rulebooks change.
Risk management without a rulebook
A move towards principle-based regulation means that traditional safeguards, often embedded in detailed obligations, are becoming more abstract. This risks potential governance failures, investor disputes, or even regulatory sanctions if firms lack robust internal controls.
An outsourced COO can provide top down risk management tailored to a fund’s size, investment strategy, and stakeholder profile. With access to multidisciplinary teams, they offer comprehensive oversight that covers everything from operational resilience and compliance monitoring to data governance and reporting accuracy.
Fund HQ’s outsourced COO offering
Fund HQ specialises in delivering fully integrated, outsourced COO functions designed specifically for the needs of alternative investment fund managers. We offer a scalable model that grows with your firm, from regulatory liaison and compliance oversight to corporate governance and risk management.
Our approach ensures that firms can confidently navigate the shifting regulatory landscape without compromising operational efficiency or investor trust. Whether you’re a start-up manager or an established player adjusting to the new thresholds, our tailored COO services help you stay up to date or even ahead of change.
Operational stewardship in a new era
The FCA’s reforms represent a significant milestone for the UK’s asset management sector. The FCA is opening new doors for innovation and market participation by promoting agility and reducing regulatory red tape. However, operational excellence cannot be taken for granted in a deregulated market.
To appeal to new investors, Fund managers must actively invest in governance and compliance structures that adapt to evolving expectations. The outsourced COO model provides strategic leadership, regulatory insight, and operational robustness in a cost-effective format.
Firms must ensure they are not left adrift as the regulatory tide recedes. With Fund HQ on board, they have a seasoned navigator to help steer the ship through uncharted waters. Find out more here.
