AIFMD II takes effect at last

After a lengthy legislative process, the deadline for local transposition of AIFMD II (Directive (EU) 2024/927) (which amends both the existing AIFMD (Directive 2011/61/EU) and the UCITS Directive (Directive 2009/65/EC) has finally arrived. 

This is a significant milestone, and it brings with it a range of changes for fund managers and the vehicles which they manage.  Among other things, EU AIFMs are now subject to stricter rules for loan origination, delegation and liquidity management across all EU member states.  It is worth remembering that in October 2025, the European Commission (EC) announced a delay in the adoption of non-essential Level 2 regulatory measures until after 1 October 2027 – until these rules are finalised, there remains scope for regulatory divergence and operational uncertainty as in scope firms are required to comply with the Level 1 text without the additional detail of Level 2.

Key changes that apply from 16 April 2026

• Loan origination: AIFMD II introduces a harmonised regime for loan-originating AIFs with AIFMs undertaking loan origination activities or managing loan originating AIFs subject to restrictions including:

  • a prohibition on managing an AIF that originates loans solely for the purpose of selling them to third parties

  • leverage caps on a commitment-method basis: leverage must not exceed 300% for closed-ended AIFs and 175% for open-ended AIFs.

  • Requirement on AIFs to retain at least 5% of the notional value of any loan originated and sold

For loan-originating AIFs established before 15 April 2024, transitional provisions are available.

• Delegation and local management: AIFMD II introduces an enhanced delegation regime that looks beyond portfolio and risk management.  Alongside robust monitoring, AIFMs are expected to document a clear rationale for delegation and ensure that at least two full-time natural persons domiciled in the EU are responsible for day-to-day management.

• Liquidity Management:  AIFMs managing open-ended AIFs are now required to select at least two liquidity management tools from a harmonised EU list and disclose these to relevant investors. A one year grace period applies for pre-existing open ended AIFs. 

• Enhanced investor disclosure 

Certain measures will not apply until 16 April 2027 – this includes enhanced regulatory reporting (Annex IV obligations) – this is also the case for UCITS supervisory reporting. 

What should firms be doing now?

Firms will already have been undertaking the work to ensure that their investor disclosures, governance frameworks and LMT arrangements are in alignment with the new requirements.  It is now time to also begin looking ahead to the April 2027 deadlines.  It will also remain imperative that firms continue to monitor developments with respect to the delayed level 2 measures.

What’s happening in the UK

The UK’s regime for alternative investment funds is based on the EU AIFMD. Since Brexit, UK AIFMD has remained broadly unchanged. 

The UK does not intend to overhaul UK AIFMD, but there is a general consensus within HM Treasury and the FCA that it would be beneficial to simplify the regime so that it works more effectively for AIFMs operating and marketing in the UK. They recognise that some requirements are not proportionate for different segments of the market or for smaller firms. 

Consistent with the broader approach to EU-derived financial services law, the proposals would move more of UK AIFMD into the FCA Handbook. 

The current proposals are high level, reflecting the FCA’s intention to gather initial views through a call for input rather than a full consultation at this stage. The main proposal is to recategorise UK AIFMs into three tiers, which would replace the current framework of full-Scope AIFM, small authorised AIFM and small registered AIFM categories. Instead, all UK AIFMs would be subject to different categories of FCA authorisation which aim to be “proportionate and appropriate”. Thresholds for categorisation would be determined based on NAV, with large firms (over £5bn NAV) subject to a regime similar to the current rules applicable to full-scope AIFMs today, whilst mid-tier (between £100m and £5bn NAV) and small firms (under £100m NAV) would be subject to proportionately more comprehensive regimes. Firms would not need to apply for a variation of permission as they change size category, but the FCA could require firms to notify it of their size category, including whether they choose to opt-up to a higher category. 

The FCA are also considering (among other things): 

• Leverage: The FCA plans to evaluate the adequacy and effectiveness of current UK AIFMD provisions in addressing risks from leverage. 

• UK AIFM marketing notifications: Because AIFs are marketed predominantly to professional investors, the government sees no need for AIFMs to notify the FCA 20 working days prior to marketing. 

• Private equity (control) notifications: The government is considering whether to remove the requirement for firms to submit these types of notifications to the FCA, or whether this information should be notified elsewhere, given that in practice this activity is not wholly relevant to the FCA’s statutory objectives. 

• AIFM business restriction: Some firms have raised concerns that restrictions which prevent AIFMs from conducting non-AIFM activities from within the same legal entity add unnecessary costs and inefficiencies. The government and the FCA will consider this. 

The proposals closed for comment on 9 June 2025, and the current expectation is that draft rules implementing the proposals will be published for consultation in H1 2026