AIFMD II Liquidity Management Tools: What Changes April 2026

ByOfficer

Last updated: April 2026

On 16 April 2026 the new AIFMD II liquidity management tools framework goes live across the EU. Every Luxembourg AIFM running an open-ended AIF, and every UCITS management company, needs a written LMT policy, at least two selected tools from the harmonised list, a calibration that ties back to the fund’s liquidity profile, and a CSSF notification workflow that actually works on the day a gate has to be pulled. If that policy is not in the drawer on the morning of 16 April, the fund is out of line with Luxembourg law the moment it opens its dealing calendar.

This is not a small prospectus amendment exercise. AIFMD II and the parallel UCITS VI changes under Directive (EU) 2024/927 rewrite how liquidity risk management is structured, documented, calibrated and supervised. Some Member States never allowed certain LMTs at all. Others allowed everything but gave no guidance. From April 2026 there is one EU list, one set of characteristics, one notification regime and one ESMA guidelines document that the CSSF will use to read your policy back to you.

I have been watching the prospectus and procedure queues fill up on this for a few months now. The cleanest projects are the ones where the fund teams treated the selection of the two tools as the last step, not the first. The messy ones are the ones where someone picked “swing pricing and a gate” in a meeting and tried to write a policy backwards from that.

Related reading: Liquidity reporting for Luxembourg banks: LCR, NSFR and AMM

What AIFMD II actually changes for liquidity management

Directive (EU) 2024/927, normally called AIFMD II, amends the original AIFMD (Directive 2011/61/EU) and the UCITS Directive (Directive 2009/65/EC). It was published in the Official Journal on 26 March 2024 and entered into force on 15 April 2024. Member States have until 16 April 2026 to transpose it into national law and to apply most of its measures from the same day.

On liquidity management specifically, the directive does four things that matter operationally:

  1. It inserts a harmonised list of liquidity management tools into a new Annex V to the AIFMD and a mirror Annex IIA to the UCITS Directive. These tools must be available to managers in every Member State, not just those where national law used to permit them.
  2. It requires each AIFM managing an open-ended AIF, and each UCITS management company, to select at least two LMTs from the list (one for money market funds), and to do so after considering the fund’s investment strategy, redemption policy and liquidity profile.
  3. It creates a notification duty towards the national competent authority when tools are activated or deactivated outside the ordinary course of business, and a separate prior notification for side pockets.
  4. It gives ESMA and the Commission the mandate to specify the characteristics of the tools through regulatory technical standards (RTS) and to issue guidelines on selection and calibration.

The Level 1 drafting stays principle-based. The real operational bite sits at Level 2 (the Commission’s delegated regulations adopted on 17 November 2025) and Level 3 (the ESMA guidelines originally published on 15 April 2025 and amended on 18 December 2025). None of this is optional. The RTS is directly applicable as a Commission delegated regulation; the guidelines are comply-or-explain for Luxembourg, and the CSSF has already indicated alignment.

The harmonised LMT list under Annex V

The new Annex V to the AIFMD (and Annex IIA to the UCITS Directive) sets out nine items. Two of them must always be available as a baseline. The other seven are the ones the AIFM or UCITS manager chooses from.

The two always-available tools

The temporary suspension of subscriptions, repurchases and redemptions sits at the top of Annex V. Every open-ended fund has to be able to use it in exceptional circumstances. This is not a “selected” tool and does not count towards your minimum of two. The RTS ties the suspension of the NAV calculation to the suspension of dealing, which has caused some discussion in semi-liquid structures where teams would prefer to uncouple them.

Side pockets are the other always-available item, at the bottom of Annex V. They exist to ring-fence assets whose economic or legal features have changed significantly or become uncertain because of exceptional circumstances. The RTS expects a side pocket to be managed with the sole objective of liquidating the segregated assets and distributing the cash. Reintegration back into the main portfolio is not on the table by default, which is a point semi-liquid funds that use class-tracking or distressed work-out structures should read carefully.

Where teams often get this wrong: treating side pockets as a selected LMT, or assuming a class-tracking arrangement that has always been part of the fund strategy is now an “Annex V side pocket” and therefore inside the new notification regime. The directive defines side pockets in terms of exceptional circumstances. A class that always tracked a specific asset pool because the strategy was built that way is a product design feature, not an LMT. Keep the language in the fund documentation clean enough that the CSSF can see the difference.

Quantitative LMTs (points 2 to 4)

Three of the seven selectable tools are quantitative: they directly limit or slow redemption volumes.

Redemption gates cap the amount that can be redeemed on a given dealing date or over a specified period. Under the RTS as adopted by the Commission in November 2025, an AIF gate can be expressed as a proportion of NAV, a monetary value, a percentage of the liquid assets referred to in Article 50(1) of the UCITS Directive, or a combination of those. A UCITS gate must be a proportion of NAV (UCITS cannot use the monetary or liquid-asset variants). Open-ended AIFs got an extra flexibility in the final Commission text: investor-level gates, on their own or combined with fund-level gates, for AIFs with no retail investors and a limited number of professional investors, to mitigate first-mover advantage.

Extension of notice periods allows the manager to push the notice period for redemption beyond what the fund documentation normally requires. The RTS frames this as a temporary extension activated in exceptional circumstances, not a permanent redrafting of the redemption terms.

Redemptions in kind allow the fund to meet a redemption by transferring assets instead of cash. AIFMD II restricts this tool tightly: it can only be activated for professional investors, and it must correspond to a pro rata share of the AIF’s assets. The RTS clarifies that the transfer can happen through intermediaries, and that the routine delivery of underlying securities by an ETF to an authorised participant or market maker in ordinary dealing is not an “activation” of a redemption in kind as an LMT. That ETF carve-out was added in the final Commission text and matters for Luxembourg’s ETF sponsors.

Anti-dilution tools (points 5 to 8)

The other four selectable tools are anti-dilution tools, or ADTs. Their purpose is not to limit redemptions but to pass the cost of liquidity onto the investors transacting on that day, so that remaining investors are not diluted.

Redemption fees are paid by the redeeming investor and retained by the fund. Swing pricing adjusts the NAV itself on a dealing day where net flows cross a threshold, moving the NAV up for large inflows or down for large outflows. Dual pricing publishes separate subscription and redemption prices. Anti-dilution levies charge a transacting investor a separate amount that is retained in the fund.

The Commission’s final RTS made one important calibration point. ADTs must always reflect explicit transaction costs, meaning costs that are directly borne by the fund, stable in amount and quantifiable in advance, such as brokerage fees, trading levies, taxes and settlement fees. Implicit transaction costs, such as the bid-ask spread and market impact, should only be taken into account where appropriate to the fund’s investment strategy, and when used they must be estimated on a best-efforts basis. ESMA’s guidelines were amended on 18 December 2025 to line up with that wording.

Where teams often get this wrong: a semi-liquid fund with an existing “anti-dilution levy” in its prospectus that was never calibrated on any particular cost base. From April 2026 the calibration has to be documented and defensible. The levy cannot be a round number plucked from a 2019 board paper.

The selection rule and the money market fund carve-out

An AIFM managing an open-ended AIF must select at least two LMTs from points 2 to 8 of Annex V. A UCITS management company must do the same from Annex IIA. Two constraints apply to the choice:

  • You cannot select only swing pricing and dual pricing. The two ADTs that adjust the price cannot be your entire toolkit.
  • A fund authorised as a money market fund under Regulation (EU) 2017/1131 only has to select one tool from points 2 to 8.

ESMA’s guidelines then overlay a policy-level recommendation on top of that minimum. Where appropriate, managers should pick at least one quantitative-based LMT (gate, notice period extension, redemption in kind) and at least one ADT (fee, swing, dual or levy). The idea is to have something that bites under stressed conditions and something that works under normal conditions. ESMA does not impose that split, but it is now the benchmark the CSSF will measure a thin selection against.

What ESMA and the Commission settled in 2025

The Level 2 and Level 3 process ran through 2025 and closed at the end of that year. The sequence matters because several papers reference each other:

  • 15 and 16 April 2025: ESMA publishes its Final Report on the draft RTS on LMTs and its Final Report on the Guidelines on LMTs of UCITS and open-ended AIFs.
  • 17 November 2025: the European Commission formally adopts the two Commission Delegated Regulations containing the RTS for AIFs and UCITS respectively.
  • 18 December 2025: ESMA publishes its Report on amended Guidelines on LMTs, aligning the Guidelines text with the amendments the Commission made to the RTS.

The final Commission text kept ESMA’s structure but made targeted changes. The two most important were the introduction of investor-level redemption gates for open-ended AIFs and the recalibration of the explicit-versus-implicit transaction cost rule for ADTs. Both of those are described above. There was also a clarification that ETF deliveries of underlying securities to authorised participants or market makers in the course of regular dealing are outside the scope of “redemption in kind” as an LMT.

The Commission Delegated Regulations apply from 16 April 2026 alongside the directive. Funds created before that date have a 12-month transition period, so existing funds must comply by 16 April 2027. The ESMA guidelines apply on the same dual timetable: 16 April 2026 for new funds, 16 April 2027 for existing funds.

Selection and calibration: what your LMT policy must show

AIFMD II and the UCITS Directive both require the manager to develop detailed policies and procedures for the activation and deactivation of the selected LMTs, and to communicate those policies to the national competent authority. In Luxembourg that is the CSSF for both AIFMs and UCITS management companies. This is the LMT policy.

The policy is not a one-pager. From my reading of the final RTS and the amended guidelines, a CSSF-grade LMT policy needs to cover at least the following, per fund (or per fund family where strategies are genuinely identical):

  • The two (or more) selected LMTs and the reasoning that ties them to the fund’s investment strategy, liquidity profile, redemption terms and investor base.
  • Calibration details. For quantitative tools, the activation thresholds and how they were derived. For ADTs, the cost components (explicit always, implicit where appropriate and on a best-efforts basis), the swing factor or levy formula, and the review frequency.
  • The activation and deactivation governance: who is authorised to take the decision, the committee or delegated body, the quorum, the decision record, the audit trail.
  • The deactivation logic, which is the part most policies under-document. An LMT that was activated has to be switched off once conditions return to normal. The policy should say how that is assessed.
  • The operational and administrative arrangements. This means the fund administrator, the transfer agent, the depositary and the NAV chain have all been told how the tool will flow through their systems. A gate is not just a prospectus clause. It changes the dealing instruction flow, the NAV cut-off, the cash projection and the investor statement.
  • Investor disclosure. The prospectus, rules or instruments of incorporation and periodic reports have to describe the possibility of activation, the conditions and the consequences.
  • The notification workflow to the CSSF, including who drafts, who signs and within what deadline.
  • Stress testing linkage. The LMT policy has to sit alongside the AIFM’s or UCITS’s liquidity risk management framework, not in a separate binder.

Where teams often get this wrong: copying an old “liquidity management policy” from the 2013 AIFMD toolkit and calling it the new LMT policy. The 2013 document is about liquidity risk monitoring. The new document is about specific tools, their calibration and their decision workflow. They overlap but they are not the same document.

Activation, deactivation and the CSSF notification regime

The notification rules under AIFMD II are more granular than most people remember from the Level 1 text. There are three distinct duties.

First, the AIFM must notify the CSSF without undue delay when it activates or deactivates the suspension of subscriptions, repurchases and redemptions. This is the Annex V point 1 tool. The notification is not conditional on “exceptional” framing. Every activation triggers it.

Second, the AIFM must notify the CSSF without undue delay when it activates or deactivates any of the LMTs in Annex V points 2 to 8 “in a manner that is not in the ordinary course of business as envisaged in the AIF rules or instruments of incorporation”. This is the condition teams miss. A fund that advertises swing pricing in its prospectus, uses it every day, and occasionally moves the swing factor inside its pre-defined grid is operating “in the ordinary course of business” and does not have to notify each time. A fund that activates a redemption gate for the first time in three years because a large institutional investor put in a notice is operating outside the ordinary course, and a notification is due.

Third, for side pockets, the AIFM must notify the CSSF within a reasonable timeframe before it activates or deactivates a side pocket. This is a prior notification, not an after-the-fact one. The “reasonable timeframe” language is deliberately soft, but the CSSF will expect the notification early enough that a dialogue can happen before the decision is executed.

One further point worth flagging. The directive also gives competent authorities a reserve power: in exceptional circumstances, and in the interest of investors or financial stability, and after consulting the AIFM, the CSSF can require the AIFM to activate or deactivate the suspension of subscriptions, repurchases and redemptions. That power applies to EEA AIFMs managing EEA AIFs and non-EEA AIFs, and to non-EEA AIFMs marketing into the EEA. It is not new in spirit, but it is now clearly written into the Level 1 text.

Where teams often get this wrong: treating the notification as a compliance email sent after the fact by whoever happens to be in the office. The notification is a formal act. The CSSF will read it as a data point on how the fund is run. Build a template, route it through the conducting officers, and timestamp it. I have had conversations where the whole operational question was “who hit send at 17:42 on a Friday and why”. Do not be that fund.

UCITS VI: the same framework, with tighter tool characteristics

The UCITS side of Directive (EU) 2024/927, sometimes called UCITS VI in shorthand, inserts an Annex IIA into the UCITS Directive that mirrors the AIFMD Annex V. The same nine items, the same two always-available tools, the same minimum of two selected LMTs (one for money market funds), and the same prohibition on selecting only swing pricing and dual pricing.

The differences are narrow but real. UCITS redemption gates can only be expressed as a proportion of NAV. They cannot be monetary or based on liquid assets, and they cannot be investor-level. The redemption-in-kind restriction to professional investors also effectively rules that tool out for most UCITS, whose client base is retail by design. In practice UCITS managers will choose between gates, notice period extensions and ADTs, with the RTS constraints described above.

The UCITS Delegated Regulation on LMT characteristics was adopted by the Commission on the same date (17 November 2025) and runs on the same 16 April 2026 application date, with a 12-month transition period for existing funds to 16 April 2027.

Luxembourg transposition: Bill 8628 and what the CSSF will expect

Luxembourg transposed AIFMD II and UCITS VI through Bill of law 8628, submitted to Parliament on 3 October 2025. The bill amends the Law of 17 December 2010 on undertakings for collective investment (the UCI Law) and the Law of 12 July 2013 on alternative investment fund managers (the AIFM Law). On 12 February 2026 the Luxembourg Parliament adopted the amendments, putting Luxembourg among the first Member States to complete transposition ahead of the 16 April 2026 deadline.

The Luxembourg approach has been described as pragmatic and without significant gold-plating. Two points stand out for LMTs specifically. First, the Luxembourg draft expressly permits managers to use additional liquidity management tools beyond the Annex V list, which gives some operational headroom for semi-liquid structures that already have bespoke features in their terms. Second, the reporting obligations tied to the enhanced Annex IV regulatory reporting apply from 16 April 2027, a full year after the LMT framework itself.

Separately, on 19 December 2025 the CSSF issued Circular 25/901, which consolidates and modernises the regulatory framework for Specialised Investment Funds (SIFs), investment companies in risk capital (SICARs) and Part II UCIs. Circular 25/901 is not the LMT circular, but it is the companion piece. It formalises ramp-up and wind-down periods, updates risk-spreading and borrowing rules for professional and retail segments, and requires sales documents to include disclosures on liquidity management tools. A SIF prospectus refresh for April 2026 has to deal with both the Annex V LMT list and the 25/901 disclosure obligations in the same pass.

ALFI published updated member Q&A guidance on AIFMD II and UCITS VI implementation in December 2025. The CSSF has not yet issued a dedicated LMT circular at the time of writing, but the direction of travel is clear: the CSSF will read a Luxembourg LMT policy against the ESMA amended guidelines of 18 December 2025 and the Commission Delegated Regulations of 17 November 2025, and it will expect the governance and notification workflow to match a Luxembourg AIFM’s existing conducting officer and risk management architecture.

What Luxembourg fund teams should be doing now

With the application date already in force for newly created funds and a 12-month runway for existing funds until 16 April 2027, this is not a wait-and-see situation. The list below is what I see on the work plans that are actually on track.

  • Inventory the open-ended funds. Every open-ended AIF, every UCITS, every money market fund. Mark which ones already have LMTs in the prospectus, which ones have none, and which ones have features that look like LMTs but are really product design (class trackers, hardwired quarterly limits, liquidity sleeves).
  • Decide the selection per fund. At least two LMTs from points 2 to 8 (one if the fund is a Regulation (EU) 2017/1131 money market fund). Not only swing pricing and dual pricing together. Consider ESMA’s one-quantitative-plus-one-ADT recommendation.
  • Calibrate the tools. Document how the threshold or swing factor was derived. Explicit costs always, implicit costs only where appropriate to the strategy and on a best-efforts basis. Tie the calibration to stress test outputs.
  • Draft the LMT policy per fund or per strategy group. Include governance, activation logic, deactivation logic, operational arrangements, notification workflow, disclosure, and review cadence.
  • Update the prospectus, fund rules or instruments of incorporation, KIID/KID and periodic report templates. The guidelines expect ex-ante and ex-post disclosure.
  • Walk the notification process end-to-end with the fund administrator, transfer agent and depositary. Pick a test scenario (a gate activation, a swing factor change outside the grid) and run it as a tabletop exercise.
  • Build the CSSF notification template. One for suspension activation, one for LMT activation outside the ordinary course, one for prior side pocket notification. Route through conducting officers.
  • Link the LMT policy to the existing liquidity risk management framework and to the AIFM’s stress testing programme. They have to read as one system, not two.
  • Map the Annex IV reporting uplift for 16 April 2027 separately. The LMT framework is immediate; the data reporting on it is a 2027 workstream.

Where teams often get this wrong: treating the 12-month transition for existing funds as a 12-month postponement. It is not. The policy must be ready on 16 April 2026; the transition gives existing funds time to complete prospectus updates and systems changes, but the CSSF will expect the governance and the written policy to be in place from day one.

Frequently Asked Questions

When do the AIFMD II liquidity management tools rules actually apply?

Directive (EU) 2024/927 has to be transposed by Member States by 16 April 2026. Most of its measures, including the LMT framework, apply from the same day. The Commission Delegated Regulations on LMT characteristics and the ESMA amended guidelines also apply from 16 April 2026. Funds created before that date have until 16 April 2027 to comply with the RTS and guidelines. Luxembourg adopted its transposition law on 12 February 2026 and it enters into force on 16 April 2026.

How many LMTs does an open-ended AIF have to select?

At least two LMTs from points 2 to 8 of Annex V to the AIFMD. The selection cannot consist only of swing pricing and dual pricing. A fund authorised as a money market fund under Regulation (EU) 2017/1131 only needs to select one tool from points 2 to 8. Suspension (point 1) and side pockets (point 9) are always available and do not count towards the minimum.

Is the framework the same for UCITS?

The structure is the same. UCITS VI inserts a mirror Annex IIA into the UCITS Directive with the same nine items, the same minimum of two selected tools, and the same prohibition on selecting only swing pricing and dual pricing. The main differences are that UCITS redemption gates can only be expressed as a proportion of NAV, investor-level gates are not available to UCITS, and redemption in kind remains restricted to professional investors which makes it impractical for most retail UCITS.

When does the AIFM have to notify the CSSF?

Three situations. Without undue delay on activation or deactivation of the suspension of subscriptions, repurchases and redemptions. Without undue delay on activation or deactivation of any Annex V point 2 to 8 tool in a manner that is not in the ordinary course of business as envisaged in the fund rules. Within a reasonable timeframe before activating or deactivating a side pocket. The CSSF also has a reserve power to require activation or deactivation of a suspension in exceptional circumstances.

Do existing Luxembourg funds have to rewrite their prospectus by 16 April 2026?

Existing funds benefit from a 12-month transition period running to 16 April 2027 for the RTS and the ESMA guidelines. Prospectus updates, fund rules changes and system adaptations can happen during that window. The LMT policy itself and the governance framework should be in place for 16 April 2026, because from that date the rules are applicable law and the CSSF will expect a written selection and a functioning notification workflow even for funds still operating on legacy disclosures.

Can a Luxembourg AIFM use LMTs beyond the Annex V list?

Yes. Luxembourg’s transposition bill expressly permits AIFMs to use additional liquidity management tools beyond those on the harmonised list. The harmonised list is a floor, not a ceiling. Any additional tool still has to be disclosed in the fund documentation and fit within the fund’s liquidity risk management framework.

Are ETF deliveries to authorised participants treated as LMT activations?

No. The Commission’s adopted RTS confirms that delivery of underlying securities by an open-ended exchange-traded AIF or a UCITS ETF to an authorised participant or market maker to satisfy redemption orders in the course of regular dealing activities is not treated as activation of a redemption in kind as an LMT. This carve-out was added in the final text and matters for Luxembourg’s UCITS ETF and AIF ETF sponsors.

How does the LMT policy interact with the existing liquidity risk management framework?

The LMT policy is a sub-component of the overall liquidity risk management framework under Article 16 of AIFMD and Article 51 of the UCITS Directive. Stress testing, portfolio liquidity analysis and investor concentration monitoring continue to sit in the main liquidity risk management framework. The LMT policy covers selection, calibration, governance and activation of the specific tools. The two documents must reference each other and use the same data.

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Key Takeaways

  • Directive (EU) 2024/927 (AIFMD II and UCITS VI) applies from 16 April 2026. Luxembourg adopted its transposition law on 12 February 2026 through Bill 8628.
  • AIFMs of open-ended AIFs and UCITS management companies must select at least two LMTs from the seven tools in Annex V points 2 to 8 (one for money market funds). The selection cannot be only swing pricing and dual pricing.
  • Suspension of subscriptions, repurchases and redemptions and side pockets are always available and do not count towards the minimum of two.
  • The Commission’s Delegated Regulations on LMT characteristics were adopted on 17 November 2025 and apply from 16 April 2026. ESMA’s amended guidelines were published on 18 December 2025 and apply on the same date.
  • Existing funds have a 12-month transition period to 16 April 2027 for the RTS and guidelines, but the written LMT policy and governance must be in place for 16 April 2026.
  • ADT calibration must reflect explicit transaction costs always, and implicit costs only where appropriate to the strategy and on a best-efforts basis.
  • Open-ended AIFs can use investor-level redemption gates alongside or instead of fund-level gates. UCITS cannot.
  • The CSSF must be notified without delay on suspension or on any out-of-ordinary-course LMT activation or deactivation, and in advance of any side pocket activation or deactivation.
  • Enhanced Annex IV supervisory reporting on LMTs applies from 16 April 2027, one year after the LMT framework itself.

Sources and References

  • Directive (EU) 2024/927 of the European Parliament and of the Council of 13 March 2024 amending Directives 2011/61/EU and 2009/65/EC (AIFMD II and UCITS VI): eur-lex.europa.eu
  • Directive 2011/61/EU on Alternative Investment Fund Managers (AIFMD): eur-lex.europa.eu
  • Directive 2009/65/EC on undertakings for collective investment in transferable securities (UCITS Directive): eur-lex.europa.eu
  • ESMA Final Report on draft RTS on LMTs under AIFMD and UCITS Directive (15 April 2025): esma.europa.eu
  • ESMA Final Report on Guidelines on LMTs of UCITS and open-ended AIFs (15 April 2025): esma.europa.eu
  • European Commission Delegated Regulations on LMT characteristics for AIFs and UCITS, adopted 17 November 2025: finance.ec.europa.eu
  • ESMA Report on amended Guidelines on LMTs of UCITS and open-ended AIFs (18 December 2025), reference ESMA34-671404336-1363: esma.europa.eu
  • Luxembourg Bill of law 8628 (transposition of AIFMD II and UCITS VI), submitted to Parliament on 3 October 2025 and adopted on 12 February 2026: chd.lu
  • Law of 17 December 2010 relating to undertakings for collective investment (UCI Law), as amended: cssf.lu
  • Law of 12 July 2013 on alternative investment fund managers (AIFM Law), as amended: cssf.lu
  • CSSF Circular 25/901 of 19 December 2025 on SIFs, SICARs and Part II UCIs: cssf.lu
  • Regulation (EU) 2017/1131 on money market funds: eur-lex.europa.eu
  • ALFI AIFMD II and UCITS VI Q&A guidance (December 2025): alfi.lu

Disclaimer: The information on RegReportingDesk.com is for educational and informational purposes only. It does not constitute legal, regulatory, tax, or compliance advice. Always consult your compliance officer, legal counsel, or the relevant supervisory authority for guidance specific to your institution.

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