AIFMD II: Navigating the EU’s next phase of fund regulation

Directive (EU) 2024/927 (AIFMD II) formally entered into force on 15 April 2024, and EU member states are required to transpose the majority of its provisions into national law by 16 April 2026, with certain reporting elements following in 2027.

Rather than replacing the original framework, AIFMD II refines it. The European Commission concluded that the core objectives of AIFMD, -  market integration, investor protection, and financial stability – have broadly been achieved, but that targeted intervention was needed in areas such as loan origination, liquidity risk management and supervisory transparency.

Accordingly, AIFMD II should be understood as a corrective and harmonising reform, designed to remove inconsistencies between member states and strengthen oversight where risks have emerged through market evolution.

AIFMD II introduces a series of interconnected reforms that collectively reshape the regulatory expectations placed on alternative investment fund managers (AIFMs). The most important relate to loan origination, liquidity management, delegation, depositary services, and regulatory reporting.

While each of these areas is distinct, they share a common theme: enhancing transparency, governance and consistency across the EU funds market.

AIFMD II introduces a unified regulatory framework for loan-originating funds, an area previously characterised by fragmented national approaches. It formally recognises lending as a permitted activity and subjects relevant AIFs to clearer operational and prudential requirements.

These include leverage caps of 175% for open-ended funds and 300% for closed-ended funds, alongside risk-retention rules and strengthened credit, diversification, and conflict management controls. In addition, loan-originating funds are generally expected to be closed-ended unless liquidity management arrangements can support redemptions.

Overall, the reforms impose a more structured and disciplined framework on private credit strategies, aligning them more closely with traditional lending standards.

AIFMD II moves liquidity management from a discretionary practice to a more prescriptive regulatory requirement. AIFMs managing open-ended funds must now maintain at least two liquidity management tools, supported by formal governance and policies tailored to the fund’s strategy.

Regulators are also given powers to intervene in the use of these tools where necessary to protect investors or financial stability. As a result, liquidity risk management becomes a core prudential function rather than an operational choice.

While delegation remains central to the AIF model, AIFMD II enhances oversight and transparency. The framework reinforces that AIFMs must retain meaningful control and cannot operate as “letter-box” entities.

In practice, firms will need to provide more detailed information on delegation structures, including the scope of outsourced activities and oversight arrangements. This increased reporting is intended to support closer supervisory coordination across the EU, particularly in cross-border models.

AIFMD II introduces limited flexibility in the depositary regime by allowing, in certain cases, the appointment of depositaries located in other member states. This aims to address capacity constraints and improve competition.

At the same time, the directive clarifies custody delegation rules and strengthens information-sharing with regulators, ensuring that asset protection standards are maintained.

AIFMD II significantly enhances reporting and disclosure requirements. AIFMs must provide more granular information to both regulators and investors, including on delegation, leverage, fees and risk exposures.

Updated Annex IV reporting will be central to this framework, with some elements applying from 2027. At the same time, investor disclosures will expand to improve transparency and support more informed decision-making.

For firms, the key challenge will be ensuring that systems, data, and reporting processes can deliver these requirements consistently.

While the EU moves forward with AIFMD II, the United Kingdom is pursuing a notably different approach to regulating alternative investment fund managers.

The UK government and the Financial Conduct Authority are in the process of reshaping the domestic regime, with proposals to replace EU-derived legislation with a more flexible, FCA-led framework. This includes removing rigid thresholds, introducing activity-based categorisation, and maintaining a broadly accessible national private placement regime.

Crucially, the UK is not seeking to replicate AIFMD II’s more prescriptive elements, such as the detailed rules on loan origination and mandatory liquidity tools.

As a result, firms operating across the UK and EU will increasingly face dual regulatory systems, requiring careful coordination of compliance, governance and operational models.

In light of the breadth and depth of the reforms, AIFMD II should be approached as a strategic transformation initiative rather than a discrete compliance exercise. Firms will need to carry out detailed gap analyses to identify where existing frameworks fall short of the new requirements, particularly in relation to lending strategies, liquidity governance, and delegation oversight.

Managers should prioritise developing robust liquidity management frameworks, ensuring that appropriate tools are selected, documented, and operationalised in line with regulatory expectations. At the same time, firms involved in loan origination must establish comprehensive credit policies, monitoring mechanisms, and reporting processes aligned with the new regime.

Equally important is the need to strengthen delegation oversight, ensuring that governance structures clearly demonstrate decision-making substance within the EU and effective supervision of external delegates. Finally, investment in data and reporting infrastructure will be essential to meet enhanced transparency obligations and regulatory scrutiny.

Our regulatory consulting team supports firms in navigating complex and evolving regulatory frameworks such as AIFMD II, translating technical requirements into practical, proportionate implementation strategies. Drawing on deep expertise across EU and UK regulatory regimes, we help firms understand not only what is changing, but how those changes impact their operating models, governance arrangements, and cross‑border structures.

In an environment where regulatory expectations continue to evolve and diverge across jurisdictions, early and structured preparation is critical. Our role is to ensure that firms not only achieve compliance with AIFMD II but do so in a way that strengthens their overall regulatory posture and supports long‑term strategic objectives.