AIFMD II lands in Luxembourg: thoughtful steps forward

The Law of 3 March 2026 transposing AIFMD II into Luxembourg law will take effect on 16 April 2026. This significant development introduces several governance and oversight updates affecting investment fund managers (IFMs) and depositaries.

Looking ahead, enhanced reporting requirements will apply from April 2027, marking the next phase of implementation.

For depositary banks, the changes will bring tighter expectations around oversight of AIF delegation chains, loan-originating AIFs (LOAIFs), liquidity management tools (LMTs), custody processes, and third-country exposures.

Depositaries will remain subject to strict liability for financial instruments held in custody under all circumstances.

By Marilyn Rinck, Head of Banking Regulation, Financial Markets and ESG, and Hélène Lange, Head of Business Coordination (ABBL)

Governance and organisational requirements

AIFMD II strengthens organisational and staffing expectations for IFMs.

Each IFM must maintain adequate human and technical resources to perform its functions and supervise its delegates effectively. At least two reputable and appropriately qualified persons must be full time employees or directors of the IFM, committed exclusively to its business.

For AIFMs marketing AIFs to retail investors, the governing body must include at least one independent non executive director on the governing body to support effective oversight and conflict of interest management.

Depositary arrangements

AIFMD II introduces a cross-border depositary option at EU level, but Luxembourg is not expected to benefit from this mechanism for Luxembourg-domiciled AIFs because the local market exceeds the relevant EUR 50 billion threshold. In practice, Luxembourg AIFs should therefore continue to appoint a depositary established in Luxembourg.

For Luxembourg depositaries serving foreign AIFs, the relevant point is that cross-border depositary arrangements remain subject to the applicable home- and host-state framework. The new rules are better understood as a controlled exception to the general local-depositary principle, rather than as a blanket “host-state authorisation” requirement for all outbound services.

Delegation and CSD oversight

The amended framework reinforces delegation governance and oversight expectations, including where securities settlement and CSD-related arrangements are involved. A more accurate description is that AIFMs should maintain robust ongoing oversight of delegates and ensure that delegation chains are properly controlled, rather than assuming that ex ante due diligence is fully waived in all cases.

The treatment of issuer CSDs should be presented carefully and as an operational distinction, not as an absolute legal rule, unless the exact transposed text is being quoted. Members should expect stronger monitoring of delegate reporting, particularly where custody, settlement, or holding data is passed through complex chains.

Loan-originating AIFs

The new loan-origination regime is one of the most material changes.

For loan-originating AIFs, Luxembourg’s implementation reflects the AIFMD II leverage limits of 175% of NAV for open-ended funds and 300% of NAV for closed-ended funds, together with concentration and risk-retention requirements. This regime applies specifically to loan-originating AIFs, not to all AIFs generally.

Existing funds benefit from transitional treatment until 16 April 2029 for the relevant legacy rules. That date should be treated as the final transition deadline, while earlier internal review dates can be used for planning and remediation.

Liquidity management tools

Open-ended AIFs must select and operationalise at least two liquidity management tools from the harmonised list, subject to the applicable exclusions and calibration requirements. Examples include redemption gates, swing pricing, and notice periods, but specific percentages or calibration factors should only be stated where they are fund-specific and properly documented.

The focus should be on implementation, monitoring, and disclosure, with escalation and notification procedures in place where required. It is better not to state in absolute terms that there is “no activation veto”; the safer formulation is that the AIFM should ensure the selected tools are appropriate, documented, and used in line with the governing framework.

Other operational duties

The new regime also brings broader operational expectations, including stronger oversight of third-country delegates, better data readiness for reporting, and tighter internal governance around custody and liquidity-related information flows.

References to consumer lending restrictions should be made cautiously and only where the relevant strategy and local legal constraints are actually in scope.