The Alternative Investment Fund Managers Directive 2.0 represents the most significant update to European alternative fund regulation in a decade. Entering into force in April 2024 with an April 2026 implementation deadline, AIFMD II introduces requirements that will force operational changes across the industry. From stricter delegation oversight to mandatory liquidity management tools, fund managers operating in Europe—or marketing to European investors—must reassess their operating models. The complexity compounds when considering AIFMD II's interplay with SFDR, MiFID II, and emerging national implementations.
AIFMD II: What Changed and Why It Matters
The original AIFMD, implemented in 2013, established the regulatory framework for alternative investment fund managers in Europe. AIFMD II builds on a decade of implementation experience, addressing gaps and modernizing requirements for current market realities. The European Commission's impact assessment identified several areas requiring strengthening: delegation practices that effectively outsourced substantive functions outside the EU, inconsistent liquidity risk management across funds, and insufficient reporting for effective regulatory supervision.
Delegation Rule Changes
Perhaps the most significant change involves delegation oversight. Under AIFMD II, EU AIFMs must demonstrate that delegated activities don't result in the manager becoming a "letter-box entity"—one that exists primarily on paper while substantive operations occur elsewhere. This impacts managers who delegate portfolio management to non-EU affiliates or third parties, a common structure for global investment organizations.
Managers must now provide detailed justification for delegation arrangements, demonstrate appropriate oversight capabilities, and prove that sufficient substance remains within the EU entity. This may require relocating personnel, expanding EU-based resources, or restructuring delegation arrangements that previously passed muster under AIFMD I.
Liquidity Management Tools
AIFMD II mandates that EU AIFMs select and use at least two liquidity management tools (LMTs) for each open-ended fund they manage. ESMA delivered regulatory technical standards specifying available tools in April 2025. Options include redemption gates, notice periods, redemption fees, swing pricing, and anti-dilution levies.
The requirement recognizes lessons from market stress events where redemption pressures created forced selling and fair value concerns. By requiring pre-established LMT frameworks, AIFMD II ensures managers can respond to liquidity stress without scrambling to implement untested tools during crisis conditions.
Loan Origination Framework
For the first time, AIFMD II creates a comprehensive framework for loan-originating AIFs. This addresses the growth of private credit funds within the alternative investment space. Requirements include diversification limits, retention rules, and specific risk management obligations for funds engaging in direct lending activities.
Implementation Timeline and Status
AIFMD II is an EU directive requiring transposition into national law by April 16, 2026. As of late 2025, implementation progress varies across member states. Some jurisdictions have published draft legislation; others remain in early consultation phases. This variation creates planning challenges for managers operating across multiple EU jurisdictions.
In October 2025, the European Commission announced it would not adopt non-essential Level 2 acts before October 1, 2027—creating regulatory uncertainty around detailed implementing rules. Managers must prepare for the directive's core requirements while awaiting clarification on technical standards and implementing guidance.
SFDR Interplay and ESG Compliance
AIFMD II compliance cannot be isolated from the Sustainable Finance Disclosure Regulation (SFDR). Any company managing alternative funds faces the challenge of simultaneous compliance with AIFMD II, MiFID II, SFDR, and CRS requirements. This regulatory layering creates complexity that demands integrated compliance approaches.
The European Commission launched a sweeping Call for Evidence in May 2025 to potentially overhaul SFDR's architecture, signaling possible replacement of Article 6, 8, and 9 fund categories with a more intuitive labeling system. Managers must monitor these developments while preparing for current requirements—a moving target that complicates compliance planning.
ESMA's Common Supervisory Action on sustainability disclosures concluded in June 2025, finding "room for improvement" in managers' compliance with SFDR and related AIFMD requirements. Luxembourg's CSSF followed with a September 2025 feedback report noting "generally satisfactory compliance" but identifying specific enhancement areas. These supervisory findings provide guidance on regulator expectations as AIFMD II implementation approaches.
UK Regulatory Divergence
Post-Brexit, the UK transposed original AIFMD into national law but has no plans to implement AIFMD II. This creates regulatory divergence for managers operating across both markets. A fund management structure compliant with UK requirements may not satisfy AIFMD II obligations, and vice versa.
For UK managers marketing to EU investors under national private placement regimes, AIFMD II changes may impact market access. EU member states retain discretion over third-country manager access, and AIFMD II implementation may prompt some jurisdictions to tighten requirements. UK managers must monitor individual member state implementations rather than relying on harmonized EU rules.
The FCA published consultation on revisions to UK SDR and investment labels regime in late 2024, with further delays announced in 2025. This separate UK sustainability disclosure framework adds another compliance dimension for managers operating in both markets.
Operational Preparation Priorities
Delegation Arrangement Review
Conduct comprehensive assessment of existing delegation arrangements against AIFMD II requirements. Identify arrangements that may not satisfy the enhanced "letter-box" tests and develop remediation plans. This may require organizational restructuring, personnel relocations, or arrangement terminations.
Liquidity Management Framework
Select appropriate LMTs for each open-ended fund, documenting the rationale for tool selection. Update fund documentation to incorporate LMT provisions. Establish operational processes for LMT activation, including governance approvals and investor communication protocols.
Reporting Enhancement
AIFMD II expands Annex IV reporting requirements with additional data points on leverage, liquidity, and loan origination activities. Ensure data collection and reporting systems can generate required information. Consider whether current fund administration arrangements support enhanced reporting obligations or require augmentation.
Depositary Arrangements
Review depositary agreements for AIFMD II compliance. The directive clarifies depositary responsibilities and liability provisions, potentially requiring agreement amendments. For funds using third-country depositaries, assess whether arrangements satisfy AIFMD II equivalence requirements.
Key Takeaways
Key Takeaways
- •AIFMD II entered into force April 15, 2024, with national implementation required by April 16, 2026—creating a compliance deadline that demands immediate preparation.
- •Stricter delegation rules require managers to demonstrate EU substance and oversight capabilities, potentially forcing organizational restructuring for global groups.
- •Mandatory selection of at least two liquidity management tools for open-ended funds introduces new operational requirements with ESMA technical standards finalized in April 2025.
- •AIFMD II interacts with SFDR, MiFID II, and CRS, creating layered compliance obligations that require integrated approaches rather than siloed responses.
- •UK regulatory divergence means managers operating in both markets face dual compliance regimes without the benefit of harmonization.
Navigating European regulatory complexity requires robust compliance infrastructure and reporting capabilities. Polibit's platform supports multi-jurisdiction compliance validation across 300+ international watchlists while generating the documentation AIFMD II reporting demands. Schedule a Demo to see how our compliance automation supports European fund operations.
Sources
• Sidley Austin (2024). EU AIFMD2 - Implications of the Final Text - Directive analysis and implementation guidance
• ESMA (2025). Final Report on Liquidity Management Tools - Technical standards for LMT requirements
• ESMA (2025). Common Supervisory Action Report on Sustainability Disclosures - Compliance findings
• IFC Review (2025). Fund Management: A Global Regulatory Overview - Multi-jurisdiction regulatory landscape
• Paul Hastings (2025). SFDR Update: A Step Up in Scrutiny - ESG disclosure integration