The AIFMD II reform
The AIFMD II reform (Directive (EU) 2024/927) brings significant updates to the AIFMD and UCITS Directive, strengthening the regulatory framework for AIFs and UCITS.
AIFMD II targets critical areas such as liquidity risk management, delegation requirements, supervisory reporting, depositary services, and loan origination by AIFs. The implementation deadline for AIFMD II is set for 16 April 2026. Management companies should now shift from awareness to action – reviewing their operations, updating fund documentation and internal policies, and preparing for increased regulatory scrutiny.
This article focuses on the key areas of AIFMD II that are most relevant to AIFMs.
Loan origination: A dedicated framework for AIFs
One of the most impactful updates under AIFMD II is the introduction of a harmonised framework for loan-originating AIFs. This is the first time the EU has established clear, binding rules around the activity of originating loans within AIFs, responding to regulatory concerns about shadow banking, financial stability, and investor protection.
The new rules aim to ensure consistency across Member States while allowing loan originating AIFs to continue playing a constructive role in financing the real economy.
Key action points:
- Map all current and planned loan origination activities across AIFs.
- Assess alignment with new risk management, leverage, and retention requirements under AIFMD II.
- Update fund documentation, investor disclosures, and internal policies.
Liquidity management tools: No longer optional for open-ended funds
AIFMD II imposes mandatory liquidity management tools (LMTs) for all open-ended AIFs. You must now select at least one LMT from a standardised EU-wide list (e.g., swing pricing, redemption gates, side pockets) and embed it into your operational framework.
Critically, national regulators will have the authority to require activation of these tools during periods of stress – aligning supervisory intervention across Member States.
Key action points:
- Review current liquidity tools and identify any gaps.
- Update fund documentation, investor disclosures, and internal policies.
- Test internal governance for activating and deactivating LMTs.
- Monitor RTSs and Guidelines issued by ESMA.
Delegation: Greater scrutiny, especially beyond the EU
While AIFMD II stops short of imposing hard delegation limits, it introduces enhanced transparency and regulatory oversight – particularly for functions delegated to third-country entities, such as portfolio or risk management.
AIFMs will be required to notify national competent authorities (NCAs) of delegation arrangements and significant changes. ESMA will also maintain a centralised database to monitor market-wide delegation patterns. This move reflects a clear supervisory priority: ensuring that delegation does not fall beyond regulatory reach.
Key action points:
- Map all delegation arrangements – particularly those involving the UK, US, and other non-EU jurisdictions.
- Review compliance policies in light of potential notification triggers.
Regulatory reporting: A new level of granularity
Annex IV reporting will undergo a significant overhaul. AIFMs should expect more granular data fields, covering areas such as:
- delegation structures;
- liquidity management practices;
- depositary arrangements.
Reporting templates are set to be revised through Level 2 technical standards from ESMA. Early system readiness will be key.
Key action points:
- Monitor ESMA’s progress on the updated reporting templates, RTSs, and ITSs.
- Assess current systems and plan for necessary adjustments.
Cross-border depositary services: A step forward, but not a full passport AIFMD II allows individual EU Members States to let depositaries provide services to AIFs across borders. A depositary based in one Member State can be appointed to an AIF in another Member State. While this is a positive change, it is not the full EU-wide depositary passport that many expected and advocated. These provisions of AIFMD II are subject to national implementation and to prior approval by the AIF’s national competent authorities.
Key action points:
- Consider potential implications for depositary selection and cross-border structuring.
- Monitor the progress at an EU level and within individual Member States.
UCITS: Convergence with AIFMD, with some key distinctions
AIFMD II brings the UCITS Directive closer to AIFMD in key areas, including delegation, depositary requirements, supervisory reporting, LMTs, and ESG integration. Some changes are UCITS-specific. Notably, UCITS remain prohibited from loan origination. For money market funds (MMFs), only one LMT must be selected.
Key action points:
- Review delegation, substance, and governance arrangements.
- Formalise LMT selection and activation processes for UCITS and MMFs.
- Monitor RTSs and Guidelines issued by ESMA.
Conclusion: What now? Prepare with purpose, not pressure
Preparing in advance will help firms avoid last-minute pressure and potential compliance risks. Our Investment Services & Funds Team is tracking developments carefully and remains available to assist with any queries.
