Law report: Biggest reform of EU fund rules in a decade – AIFMD II & UCITS VI

The European Union continues to review the regulation of the financial sector, tightening provisions   for investment structures and management companies. The latest package of changes is regarded as the most significant reform of the sector in recent years and affects the operations of alternative investment funds, asset managers and cross-border transactions. For businesses, this means they need to assess in advance how the new provisions will affect their internal processes and the services they use. ELI United Kingdom supports clients in analysing European regulations, helping them to assess risks and prepare for the changes without breaching existing requirements.

Why is this reform considered one of the most far-reaching?

The AIFMD II update aims to modernise the existing directive in light of changes in the European financial market. The document clarifies the requirements for the delegation of functions, the rules governing the granting of loans by investment funds, and issues relating to liquidity, reporting and interaction with national regulators. At the same time, work is continuing on the development of the UCITS VI rules, which are intended to bring the regulation of traditional investment funds more into line with modern market conditions. We explain to clients that this is not a matter of isolated amendments, but of a comprehensive shift in supervisory approaches. ELI United Kingdom analyses such changes in relation to specific business structures, as virtually no two situations are ever exactly the same in practice.

Reform Area	Key Changes	Practical Impact
AIFMD II	Stricter requirements for the delegation of functions	Fund management activities must be conducted under the effective supervision and genuine control of the management company, which remains responsible for all key decisions.
Loan-Originating Funds	Introduction of additional rules on risk management and the use of leverage	Internal policies and risk management procedures may need to be reviewed and updated
Liquidity Management	Greater reporting accountability and more detailed regulatory disclosures	Companies should adapt their risk management frameworks and liquidity procedures
Reporting	Enhanced reporting and regulatory disclosure requirements	Greater emphasis is placed on accurate reporting and robust internal compliance processes
UCITS VI	Further modernization of the regulatory framework for investment funds	Firms should assess the potential impact of upcoming changes on their operations and documentation

Key changes for management companies

One of the key areas of the reform has been the regulation of mechanisms for the delegation of powers. European authorities retain the option of delegating certain functions to third parties, but are tightening controls to ensure that the management company actually manages the fund, rather than merely fulfilling a formal role. A separate set of changes concerns the activities of loan-originating funds. Additional provisions are being introduced for these funds regarding risk management, portfolio diversification and the use of borrowed funds. During consultations, we are often asked whether existing corporate structures will need to be reviewed. The answer depends on the management model, the jurisdiction of registration and the nature of the investments.

Practical implications for international business

These changes affect more than just European companies. The new requirements may impact organisations from third countries if they work with European investors or utilise mechanisms for placing funds within the EU. The importance of internal controls, process documentation and the quality of corporate governance is increasing. Our experience shows that it is important for clients to know in advance which provisions must be met, and which will depend on the national legislation of the specific EU Member State. ELI United Kingdom assesses such matters comprehensively, including an analysis of the group structure, contractual documentation and existing risk management procedures.

What to look out for right now

Companies working with investment funds should not delay their preparations for the new provisions. First and foremost, it is recommended that they carry out a legal audit of their current management model, check that internal policies comply with future requirements, and assess the impact of the reform on contractual relationships with counterparties. In such cases, we advise clients to start preparing in good time, as adapting internal procedures can take a considerable amount of time. It should be borne in mind that each case is unique, so there is no one-size-fits-all checklist for all market participants.

The AIFMD II reform and the further development of UCITS VI are shaping a new regulatory framework for the European investment market. The main aim of these changes is to enhance transparency, strengthen risk management and establish uniform approaches to the activities of management companies. There is no one-size-fits-all solution, but sound legal preparation can significantly reduce regulatory risks and help avoid problems when dealing with supervisory authorities. If you are interested in a more detailed analysis of the new provisions, an assessment of their impact on your business structure, or support in bringing your operations into line with EU legislation, the specialists at ELI United Kingdom are ready to provide professional legal support and tailor a solution to the specific needs of your project.

FAQ

Do existing funds need to change their structure?

Not necessarily. The need for change depends on the management model, the arrangements for delegating functions, internal procedures and the provisions of national legislation. In each case, it is advisable to carry out a separate legal analysis.

When should you start preparing for the new provisions?

It is advisable to start preparing well in advance. This allows you to carry out an internal audit, update documents, adjust management procedures and avoid difficulties once the new provisions come into force.