Luxembourg launches transposition of Directive EU 2024/927 (AIFMD II)

Luxembourg launches transposition of Directive EU 2024/927 (AIFMD II) : Draft Bill No. 8628 introduced to Parliament

Background

Luxembourg has officially commenced the process of transposing Directive (EU) 2024/927, commonly known as AIFMD II, into its domestic legal framework. On 3 October 2025, Draft Bill No. 8628 (“the Bill”) was submitted to the Luxembourg Parliament, marking a key milestone in the implementation of the revised regulatory regime for alternative investment fund managers (AIFMs) and UCITS management companies (UCITS ManCos).

The Bill amends both the Law of 17 December 2010 on undertakings for collective investment (UCI Law) and the Law of 12 July 2013 on alternative investment fund managers (AIFM Law). It broadly mirrors the provisions of AIFMD II, incorporating them into Luxembourg law on a one-to-one basis without gold-plating, while also introducing several clarifications and flexibilities.

Key amendments and clarifications

1. Expanded list of permitted services including ancillary services

The Bill extends the range of services that AIFMs and UCITS ManCos may provide while offering useful clarifications regarding the services that can be provided to third parties. In particular:

• New authorised services include credit servicing (for AIFMs) and benchmark administration (for both AIFMs and UCITS ManCos).
• Management companies will also be able to offer, as ancillary services to third parties, the same functions they perform for the funds they manage—such as risk management, portfolio management, administration, or marketing—provided they have adequate conflict-of-interest frameworks in place.

The commentary to the Bill adopts a broad interpretation of both the functions covered and the potential “third parties” who may receive these services.

• Covered activities include operational and business support such as IT, HR, corporate, AML, and marketing services.
• The concept of “third party” extends beyond other AIFs or UCITS to include intermediate and co-investment vehicles, carried interest structures, and even pension, securitisation, or insurance vehicles, including entities managed or advised within the same group.

2. Loan origination and consumer loan restrictions (only relevant for AIFs)

AIFMD II introduces harmonised rules for loan-originating AIFs, including requirements on diversification (20%), risk retention (5%), and leverage limits. An AIF will be considered as a “loan-originating AIF” if its investment strategy is mainly to originate loans or if it originated loans that have a notional value that represents at least 50% of its net asset value. The Bill incorporates these provisions and clarifies their interpretation in the Luxembourg context, ensuring alignment with the country’s existing regulatory practice.

However, Luxembourg has opted to prohibit AIFs from granting consumer loans to Luxembourg consumers, and from servicing such loans within the territory, reflecting a public interest safeguard. Nevertheless, Luxembourg AIFs may still engage in consumer lending activities in other EU Member States where such practices are permitted.

3. Substance and delegation

The Bill and its commentary also provide important interpretive guidance on substance and delegation requirements. While AIFMD II strengthens the rules on delegation, the Bill and the related commentary emphasize that these standards should not materially affect local market participants, as such substance expectations are already embedded in Luxembourg’s administrative and supervisory practice.

4. Liquidity management tools

A notable enhancement in Luxembourg’s implementation is the authorisation for both AIFs and UCITS to employ additional liquidity management tools (LMTs) beyond those explicitly listed in AIFMD II. This measure gives managers greater flexibility in managing redemptions and liquidity events, particularly under stressed market conditions. It should be noted that Luxembourg funds generally already have a robust liquidity management framework.

5. Depositary framework (only relevant for AIFs)

While AIFMD II allows Member States to permit AIFs to appoint depositaries located in another Member State, Luxembourg has opted not to apply this measure.

However, the Bill confirms that Luxembourg-based depositaries may serve AIFs established in other EU jurisdictions that have exercised this cross-border flexibility, under certain conditions.

6. Auditor report exemption for contributions in kind

To boost the competitiveness of the UCITS sector—particularly UCITS ETFs—the Bill introduces a new exemption from the requirement to obtain an independent auditor’s report when issuing units or shares in exchange for contributions in kind, provided that unitholders are treated fairly.

The commentary clarifies that this exemption applies not only to SICAV UCITS but also to common funds (FCPs) UCITS, as well as to redemptions in kind. This change is expected to streamline operational processes for ETF primary market transactions, which frequently involve in-kind creations and redemptions.

Legislative process and entry into force

The Bill will now proceed through the parliamentary legislative process and may be subject to further amendments. Once adopted, the law is expected to enter into force on 16 April 2026, in line with the AIFMD II transposition deadline.

However, the reporting obligations introduced by the Directive will apply from 16 April 2027.