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Council of Europe publishes final text on AIFMD II

The Council of the European Union has recently published the final text of the political agreement reached in relation to the revised Alternative Investment Fund Managers Directive (“AIFMD”), also known as AIFMD II. This update aims to adapt regulatory measures in light of evolving market trends, to bring regulation in line with modern corporate realities and expectations. Addressing such legislative gaps will ensure a higher level of investor protection and safeguard financial stability within the industry.

The long-anticipated text comes almost two years after the European Commission’s original proposal in 2021 to amend AIFMD and the Undertakings for Collective Investment in Transferable Securities Directive (“UCITS”), which has also been revised in parallel, to align its requirements with those of AIFMD II.

Most of the updates in this legislative initiative apply to EU full-scope AIFMs and do not apply to relevant EU sub-threshold AIFMs. In this respect, AIFMs should start analysing their current frameworks to ensure that they allow for any potential adjustments which may be required in their business practices and procedures.

The text introduces provisions on inter alia:

  • Depositaries;
  • Authorisation & Harmonised Supervisory Reporting;
  • Loan Origination by Alternative Investment Funds (“AIF”);
  • Stricter Delegation Arrangements;
  • Liquidity Management Tools (“LMT”);
  • Flexibility on Depositary Accounts;
  • Conflict of Interest for Third-Party AIFMs;
  • Equal Treatment of all Custodian Entities;
  • Disclosure & Increased Transparency; and
  • Ancillary Activities for AIFMs.


Critically, AIFMD II also eases requirements on depositaries. The new revisions allow for increased flexibility for such service providers which will now not necessarily need to be established in the same member state as the relevant AIF, where certain requirements have been met. This has been perceived as a beneficial step forward because of the limited market of available depositaries in certain jurisdictions.

The aforementioned criteria includes that there is no appropriate depository service in the home member state and that an assessment was carried out by the national competent authority on a case-by-case basis. Opening up this possibility also comes with increased supervisory expectations, meaning that depositaries will not only be required to comply with rules issued by their own competent authorities but also those of the AIF and AIFM.

Authorisation and reporting

When applying for authorisation, investment fund managers will be required to furnish additional information, including further disclosure concerning substance. Managers applying in Malta will need to provide the Malta Financial Services Authority (“MFSA”) with more comprehensive information about human and technical resources that the management company will employ in the execution of its functions and where applicable, how it will supervise delegation arrangements.

Regulation concerning the management of AIFMs will also be enhanced and it will be mandated that such officers must be natural persons residing in the EU and are either full-time employees or executive members of the governing body on a full-time basis.

Liquidity management tools

AIFMD II extends the scope of the original AIFMD, recognising that a harmonised approach is needed for the use of LMTs in the management of open-ended funds. In this regard, AIFMs will be required to select at least two LMTs from a list of LMTs set out in an annex which will allow entities based in Europe to deal with redemption pressures under stressed market conditions.

AIFMs will need to revise their internal policies and procedures to cater to the activation of LMTs and regulate their use. It is expected that the European Securities and Market Authority will develop further guidelines and clarifications about LMTs in the coming months.

Loan origination by Alternative Investment Funds

A loan originating AIF is an AIF (i) whose investment strategy is mainly to originate loans; or (ii) with a notional value of the AIF’s originating loans representing at least 50% of its net asset value.

The text identifies the need for streamlined regulation for funds managing AIFs that originate loans and to clarify requirements for AIFMs that delegate their functions to third parties,  to ensure equal treatment of custodians, improve cross-border access to depositaries, and optimise supervisory data collection across the union. It also regulates the implementation of effective policies and procedures for the granting of loans.

To ensure stability and integrity within the financial system and introduce proportionate safeguards, the text provides that, loan-originating AIFs should be subjected to a leverage limit that varies depending on whether they are open-ended or closed-ended. Given that they may be subjected to higher redemptions, open-ended funds are subject to greater restrictions which can then further be enhanced by the MFSA in its discretion.  It should be noted that said loan-originating AIFs are required to be closed-ended unless the AIFM can demonstrate that its liquidity risk management system is compatible with its investment strategy and redemption policies.

The text contains other requirements for loan-originating AIFs, about managing conflicts of interest and providing assurances that AIFMs have proportionate policies, procedures, and processes in place when it comes to managing risks and exposure.

The text will now be subjected to formal reviews, approvals, and adoption by the EU Parliament and the Council of the EU which are expected by the end of Q1 2024. The proposals are likely to come into effect in 2026.

For more information on AIFMD II and regulations about fund managers please contact Luke Mizzi ( or Tristan Said (

Luke Mizzi

The Council of the European Union has recently published the final text of the political agreement reached in relation to the revised Altern...

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Tristan Said

The Council of the European Union has recently published the final text of the political agreement reached in relation to the revised Altern...

set up a meeting