Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates

AIFMD II Roundup: Key Reforms, EU Implementation and the UK Alternative

Skadden Publication / Investment Management Alert

Greg Norman Abigail B. Reeves William K. Hardaway Maximilian Willis

Executive Summary

  • What’s new: EU member states are obliged to transpose the Alternative Investment Fund Managers Directive (AIFMD II) into national law by 16 April 2026. However, in October 2025, the European Commission (EC) announced a delay in the adoption of nonessential Level 2 regulatory measures until after 1 October 2027.
  • Why it matters: EU AIFMs are now subject to stricter rules for loan origination, delegation and liquidity management across all EU member states. Meanwhile, the delay in the implementation of Level 2 measures under AIFMD II could lead to inconsistent application of the rules across EU jurisdictions, increased operational uncertainty and regulatory divergence between EU member states as national authorities interpret and implement the rules differently.
  • What to do next: In addition to ensuring compliance with the stricter rules related to loans and liquidity as adopted by each EU member state, EU AIFMs should monitor developments regarding delayed Level 2 regulatory measures, observing the possibility of “gold-plating” at the national-level. In parallel, UK AIFMs should track upcoming proposed changes to the UK framework, with responses expected in the first half of 2026.

__________

The Current Landscape

The second iteration of the AIFMD II introduces new requirements for EU alternative investment funds (AIFs) and their managers (AIFMs). AIFMD II came into force on 15 April 2024, and EU member states are required to transpose AIFMD II into national law by the date of the publication of this article, 16 April 2026. However, in October 2025, the EC announced a delay in the adoption of nonessential Level 2 regulatory measures until after 1 October 2027.

In contrast to EU member states, the UK is currently consulting in relation to proposed changes to the UK’s regulatory framework applicable to alternative investment fund managers. The degree that the framework will diverge from the EU’s more prescriptive approach is yet to be confirmed, but the UK government aims to adopt a more flexible, proportionate and business-friendly framework.

AIFMD II: Key Reforms

AIFMD II introduces a series of targeted, albeit significant, changes for EU AIFMs and Undertakings for Collective Investment in Transferable Securities (UCITS) managers.

The main areas of reform are as follows:

  • Loan origination by AIFs: AIFMD II introduces a harmonised regime for loan-originating AIFs (LO AIFs), including:
    • Leverage caps. Leverage must not exceed 300% for closed-ended AIFs and 175% for open-ended AIFs.
    • Risk retention. AIFs must retain an economic interest of at least 5% of the notional value of loans they originate and sell.
    • New diversification requirements to mitigate concentration risk.
  • Delegation and local management: AIFMD II introduces enhanced oversight of delegation arrangements, requiring AIFMs to present a clear rationale for delegated management arrangements and to carry out robust monitoring. The directive also requires that AIFM teams include at least two EU-resident individuals fully dedicated to senior management activities to strengthen local substance requirements.
  • Liquidity management: Open-ended AIFs and UCITS must select at least two liquidity management tools (LMTs) from a harmonised list; these tools aim to enhance protection and transparency for investors, and better enable relevant funds to retain operational readiness and flexibility in stressed market conditions. AIFMs and UCITS managers must disclose the adopted LMTs to the relevant investors.

These tools include:

    • Redemption gates: partial and temporary “gates” on investor redemptions during short-term liquidity crises. This represents a more modest alternative to comprehensive redemption freezes or suspensions.
    • Swing pricing: a mechanism to adjust a fund’s net asset value (NAV), thereby passing on transaction costs to the investor, rather than the fund absorbing these costs.
    • Redemption fees: fees within a predetermined range that cover the cost of liquidating assets, which the redeeming unitholder pays to the fund (thereby ensuring remaining unitholders are not disadvantaged by the asset redemption).
  • Transparency and reporting: AIFMD II includes expanded disclosure and reporting obligations (including detailed information on fees, delegation, liquidity and loan portfolios) to competent authorities. The pre-investment disclosures to investors required under AIFMD II cover information about LMTs and loan origination activities.

Delay of Nonessential Level 2 Acts by the EC

On 6 October 2025, the EC announced it will not adopt certain regulatory and implementing standards for financial services legislation (i.e., nonessential “Level 2” rules) before 1 October 2027.1 These Level 2 rules supplement or specify the corresponding “Level 1” Regulations and Directives.

EC’s Rationale

The EC argued that adopting measures under 115 mandates could lead to high compliance costs and regulatory complexity. By postponing these Level 2 measures, the EC aims to implement EU policies more effectively and efficiently. This decision aligned with the EC Communication addressing implementation and simplification, “A Simpler and Faster Europe,” wherein the EC outlined its commitment to “radically lightening the regulatory load for people, business and administrations in the EU.”2

Scope of Delay

The postponement affects not just AIFMD II, but a wide range of technical standards across financial regulations, including (but not limited to): the Markets in Financial Instruments Directive and Regulation (MiFID II/MiFIR); the European Market Infrastructure Regulation (EMIR); the Central Securities Depositaries Regulation (CSDR); and the Sustainable Finance Disclosures Regulation (SFDR).

AIFMD II Impact

Under the AIFMD, LO AIFs must generally be closed-ended, unless the fund’s AIFM can demonstrate that the LO AIF has a robust liquidity management system compatible with its investment strategy and redemption policy.3 However, the detailed requirements for this demonstration (specifically, (i) the regulatory technical standard (RTS) covering liquidity management systems, (ii) the availability of liquid assets, (iii) stress testing and (iv) appropriate redemption policies) are delayed following the EC’s announcement.4 Officials originally expected to finalise the RTS by October 2025. However, at present, when the European Securities and Markets Authority (ESMA) will deliver the final draft measures for open-ended LO AIFs is unclear.

Implications for EU-Based Clients

The delay means that, for now, EU market participants will need to comply with the Level 1 text of AIFMD II and related directives, without the additional detail and prescription that Level 2 measures would provide. This may offer some operational breathing room, but also creates uncertainty regarding future technical requirements. It is particularly conceivable that without specific guidance regarding compliance metrics for maintaining open-ended loan-originating AIFs, national-level interpretations will differ across the EU, facilitating potential market fragmentation in the absence of a clear, standardised process.

UK Position: Consultation on a New AIFM Regime

The UK government has, in parallel, been leveraging post-Brexit flexibility to reshape its AIFM regulatory framework (see Skadden’s previous client alert “HM Treasury and the FCA Consult on Proposed Changes to the UK Regulatory Regime for Alternative Investment Fund Managers.”) On 7 April 2025, HM Treasury launched a consultation on proposals to streamline the AIFM regime in the UK, with the Financial Conduct Authority (FCA) issuing a parallel “Call for Input.” The consultation period closed on 9 June 2025.

Key features of the FCA’s and the UK government’s proposals are as follows:5

  • Regulatory perimeter and thresholds: The UK proposes to remove the current legislative AUM-based thresholds that trigger full-scope AIFM requirements. Instead, the FCA’s preference is to base determinations on NAV — i.e., an AIFM’s assets minus its liabilities. This approach is intended to prevent firms from managing their AUM to avoid regulatory triggers, and to smooth transitions between size-based regulatory categories (as outlined below).
  • Regulatory categories: Firms will be classified as large (NAV £5 billion+), midsize (£100 million–£5 billion) or small (under £100 million). Large firms will remain subject to a regime similar to current full-scope requirements, while midsize and small firms will benefit from more proportionate, less prescriptive rules. Firms can voluntarily comply with higher standards if required by their clients.
  • Simplified transitions and authorisation: Firms will no longer need to apply for a variation of permission when moving between categories, although notification to the FCA may be required.
  • Treatment of specific firm types: The proposals address (i) venture capital and growth capital funds, (ii) unauthorised property collective investment schemes, (iii) internally managed companies and (iv) listed closed-ended investment companies (LCICs). The FCA is exploring tailored regulatory regimes for each.
  • Depositaries: The FCA intends to maintain the current depositary framework for large and midsize AIFMs, and does not propose requiring small authorised AIFMs to appoint a depository.
  • Private equity notifications: The UK government has stated that it is considering whether to remove the requirement for UK AIFMs and above-threshold overseas AIFMs.

With the consultation now closed, HM Treasury expects to publish draft legislation, and the FCA will consult on its proposed rules in the first half of 2026.

Conclusions and Outlook

While EU member states are required to move forward with AIFMD II implementation, the UK is reviewing its regulatory framework for asset managers, marking a potential divergence between the UK and EU regimes.

The European Commission’s decision to delay nonessential Level 2 acts until at least October 2027 means that further technical detail and compliance obligations under AIFMD II will not be available in the near term, reducing immediate regulatory complexity but prolonging uncertainty for the industry.

Fund managers in the UK and EU should continue to monitor legislative developments and prepare for phased changes as the new frameworks take shape.

_______________

1 European Commission, Letter to the ESAs on the De-prioritisation of Level 2 Acts in Financial Services Legislation (October 2025).

2 European Commission, “Communication on Implementation and Simplification” (July 2025).

3 European Parliament and the Council, Directive (EU) 2024/927, Article 16(2a) (March 2024).

4 European Parliament and the Council, Directive (EU) 2024/927, Article 16(2f) (March 2024).

5 Financial Conduct Authority, “Call for Input – Future Regulation of Alternative Fund Managers” (April 2025).

This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.

BACK TO TOP