The European regulatory framework for alternative investments is undergoing a significant transformation. With the official entry into force of Directive (EU) 2024/927, commonly known as AIFMD II, the industry is preparing for a more harmonized and resilient future. Member States have until 16 April 2026 to adopt the necessary laws and regulations to comply.
In this context, the Malta Financial Services Authority (MFSA) has recently published its Consultation Document on the Transposition and Implementation of the AIFMD II and UCITS VI, outlining the strategic roadmap for the Maltese market. At Framont Management, we believe that regulatory evolution is a catalyst for excellence and investor protection, values that sit at the core of our “Global Partner” approach.
The new frontier: key pillars of AIFMD II
AIFMD II introduces pivotal updates that directly impact how Alternative Investment Fund Managers (AIFMs) operate, with a specific focus on market stability and transparency.
- A harmonized loan origination regime: AIFMD II establishes a specific framework for loan-originating AIFs, defined as funds whose strategy is mainly to originate loans or whose originated loans represent at least 50% of their Net Asset Value (NAV).
- Leverage and risk retention: New leverage limits are introduced: 175% for open-ended and 300% for closed-ended loan-originating AIFs. Additionally, AIFMs must comply with a dedicated risk retention rule of 5% of the notional value of each loan originated.
- Conflict of interest and borrower restrictions: To avoid conflicts of interest, AIFs are prohibited from granting loans to the AIFM or its staff, the fund’s depositary, or entities to which functions have been delegated.
- Liquidity Management Tools (LMTs): AIFMs managing open-ended funds must now select at least two tools from a harmonized list, such as redemption gates, notice periods, or anti-dilution levies, to ensure investor protection during market stress.
- Substance and Governance: Authorizations now require a minimum of two natural persons, domiciled in the EU, who effectively conduct the business of the AIFM and are committed full-time to its activities.
Operational continuity and delegation
One of the most critical aspects of AIFMD II is the focus on delegation transparency. AIFMs must now provide National Competent Authorities (NCAs) with detailed information on delegation arrangements, including the identifiers of delegates (LEI codes), potential conflicts of interest, and the number of full-time equivalent employees dedicated to monitoring these arrangements.
For managers with existing structures, the directive provides essential grandfathering provisions. The MFSA plans to phase out the current local loan funds regime for new AIFs by 16 April 2029. Existing AIFs with redemption dates after this point will need to align with the new regulatory framework in a timely and orderly manner.
A shift in industry dynamics: beyond Compliance
The transition from AIFMD to AIFMD II represents more than a simple update to the rulebook; it signals a fundamental shift in the European asset management “ecosystem.” By standardizing loan origination and liquidity management, the Union is effectively bridging the gap between traditional banking and “shadow banking,” bringing alternative funds into a more central, regulated role within the Capital Markets Union.
This shift will fundamentally alter market dynamics in three ways:
- Institutionalization of private credit: the clear rules on leverage and risk retention will likely attract more institutional capital into the private credit space. Investors who were previously wary of fragmented national regimes now have a harmonized European “stamp of quality”.
- The end of “letterbox” entities: the new requirements for human resources and substance will drive a consolidation of the market. Only AIFMs with genuine operational depth and a physical presence in the EU will thrive, enhancing the reputation of jurisdictions like Malta that have always prioritized high governance standards.
- Algorithmic transparency: the increased reporting on delegation ensures that the “brain” of the investment strategy remains accountable. This reduces systemic risk by preventing the excessive, unmonitored outsourcing of core risk management functions.
Framont Management: your partner in a regulated world
As a multi-service financial hub based in Malta, where the MFSA is currently transposing these directives, Framont Management is uniquely positioned to guide clients through this transition.
- Commitment to substance: our presence in key European financial centers ensures that our clients meet the “natural person” and full-time dedication requirements mandated by the new directive.
- Strategic delegation oversight: we assist managers in meeting the new, rigorous reporting standards for delegated functions, providing the infrastructure to ensure compliance while maintaining operational efficiency.
- Impact assessment and transition: leveraging our local expertise, we help clients evaluate their portfolios against the new 20% concentration limit for loans granted to single financial undertakings, AIFs, or UCITS.
As the landscape becomes more complex, the value of a grounded, expert partner becomes undeniable. At Framont Management, we don’t just help you comply; we help you leverage these new dynamics to build more resilient and attractive investment vehicles for the global market.