The European Union is set to implement what is widely regarded as the most significant overhaul of its investment funds framework in over a decade, through the introduction of AIFMD II and the parallel updates to the UCITS regime (commonly referred to as ‘UCITS VI’), under Directive (EU) 2024/927 which amends the existing AIFMD and UCITS frameworks, with both reforms largely scheduled to apply from 16 April 2026 (subject to transposition into local laws by that deadline).
Although these developments may, at first glance, be viewed as part of the EU’s ongoing process of regulatory refinement within an already mature framework, they in fact reflect a more substantive shift in regulatory priorities, driven in large part by the evolution of financial markets, the rapid growth of private credit and the increasing complexity of cross-border fund structures.
In practice, these reforms are already driving fund managers and service providers to revisit their operating models, not only from a legal perspective, but also from a governance and risk management standpoint.
A targeted but meaningful recalibration
The original Alternative Investment Fund Managers Directive was introduced in the aftermath of the global financial crisis, with the objective of establishing a harmonised regulatory regime for managers of alternative investment funds across the European Union, while also addressing concerns relating to systemic risk and market transparency.
However, in the years that followed, market developments exposed certain limitations within that framework, particularly in areas such as loan origination by funds, delegation arrangements and the consistency of supervisory practices across Member States.
AIFMD II seeks to address these points through a series of targeted amendments which, when considered collectively are likely to have a material impact on how fund managers structure and conduct their activities, particularly in more specialised or higher-risk segments of the market.
One of the most notable developments in this respect is the introduction of a harmonised regime for loan-originating funds, which effectively formalises the ability of certain alternative investment funds to engage in direct lending activities, subject to a defined set of safeguards.
From a practical perspective, this is likely to require managers to engage more closely with the underlying structuring of their funds at an earlier stage, particularly in order to ensure that leverage, concentration and risk retention requirements are appropriately reflected not only in offering documentation but also in the day-to-day operation of the fund.
These safeguards include, among other things, limits on leverage, diversification requirements and risk retention obligations, all of which are intended to ensure that such activities are conducted within a controlled and transparent framework, thereby reducing the potential build-up of systemic risk.
While introducing such a regime may appear to be a natural response to the growing role of funds in financing the real economy, it also reflects an EU‑level acknowledgment that, without adequate regulation, these activities could generate risks similar to those traditionally associated with the banking sector.
Renewed focus on liquidity within funds
The proposed updates to the AIFMD and UCITS frameworks also place increased emphasis on liquidity risk management, reflecting lessons drawn from recent periods of market stress, during which certain funds experienced challenges in meeting redemption requests in an orderly manner.
In this regard, fund managers will be required to adopt a broader and more sophisticated range of harmonised liquidity management tools and to integrate liquidity considerations more explicitly into their overall risk management processes, including through enhanced stress testing and contingency planning.
In practice, this is likely to shift liquidity management from a largely technical or back-office consideration to a more central element of board-level discussion, particularly in circumstances where funds invest in less liquid asset classes or operate with tighter redemption terms.
Although UCITS funds in particular – have historically been regarded as a highly regulated and resilient products, these developments suggest a recognition that, in an environment characterised by increased market volatility and interconnectedness, even well-established frameworks must continue to evolve in order to remain effective.
Implications for Malta
From a Maltese perspective, these reforms should not be viewed solely through the lens of compliance, but rather as part of a broader strategic landscape in which jurisdictions are increasingly assessed not only on the flexibility of their legal frameworks, but also on the robustness and credibility of their regulatory environments.
The Malta Financial Services Authority has already initiated the process of aligning the local framework with the forthcoming EU requirements, including anticipated updates to rules relating to fund managers, depositaries and delegation arrangements and has engaged with industry stakeholders in order to facilitate a smoother transition.
Certain elements of the reforms may present opportunities for Malta, particularly in areas such as the potential use of cross-border depositary services, which could provide additional flexibility in a market where the availability of local depositary providers remains relatively limited.
From a structuring perspective, this could make Malta a more viable option for certain types of funds which, in the past, may have encountered practical constraints when establishing operations locally.
At the same time, it is reasonable to expect that the enhanced requirements in relation to reporting, governance and liquidity and risk management will result in increased operational and compliance costs, and that these costs may be more acutely felt by smaller managers or those operating with more limited resources.
In practice, this may lead managers to reassess the jurisdictions in which they operate, not only from a cost perspective, but also in terms of regulatory expectations and supervisory engagement.
A more harmonised regulatory landscape
A further implication of AIFMD II and UCITS VI lies in their contribution to a more harmonised regulatory environment across the European Union, particularly in areas which have historically been subject to divergent national approaches or varying degrees of supervisory intensity.
While such harmonisation may reduce opportunities for regulatory arbitrage, it may also facilitate cross-border activity by providing greater legal certainty and consistency for market participants operating in multiple jurisdictions.
From an advisory perspective, this is likely to result in a greater focus on substance over form, with less scope for relying on technical distinctions between jurisdictions and greater emphasis on the underlying governance and operational framework of the fund and its fund manager.
In this context, Malta’s competitive positioning is likely to depend increasingly on factors such as efficiency, responsiveness and the overall quality of its regulatory and professional services ecosystem, rather than on flexibility alone.
Increasing supervisory expectations
It is also important to consider these reforms within the broader context of evolving supervisory practices at both EU and national level, which have, in recent years, been characterised by a shift towards more active and at times more intrusive, forms of supervision.
Regulators are placing greater emphasis on substantive compliance, governance standards and risk management practices and are increasingly making use of data and reporting tools to identify potential risks at an earlier stage.
The MFSA has reflected this trend in its own supervisory approach and it is likely that the implementation of AIFMD II and UCITS VI will be accompanied by a corresponding increase in supervisory engagement, particularly in areas such as delegation, valuation, liquidity management and the oversight of third-party service providers.
For fund managers, this means that compliance will need to be demonstrable in practice, rather than simply reflected in policies and procedures.
Concluding remarks
Taken as a whole, AIFMD II and UCITS VI represent more than a technical update to existing rules; they reflect an ongoing recalibration of the EU’s approach to the regulation of investment funds and their fund managers, with a greater emphasis on risk management, transparency and consistency across Member States.
For Malta, the effective and proportionate implementation of these reforms will be of particular importance, not only in ensuring compliance with EU requirements but also in maintaining and, where possible, strengthening its position as a credible and well-regulated fund and fund manager jurisdiction within an increasingly competitive European landscape.
From a practical standpoint, the key challenge for market participants will be to translate these regulatory developments into workable solutions, ensuring that legal requirements are appropriately reflected in operational processes, governance structures and investor disclosures.
As the April 2026 deadline approaches, fund managers and service providers would be well advised to assess the potential impact of these changes at an early stage, to identify any necessary adjustments to their operating models and to engage with ongoing EU implementing measures, including Level 2 measures and guidance issued by ESMA and to align with MFSA consultations and rulebook updates as these develop, in order to ensure a smooth and effective transition to the new regime.
Disclaimer: Ganado Advocates is responsible for contributing to this law report but was not in any way involved as legal advisor for the parties in the judgement being covered in this law report. This article was first published in ‘the Independent’ on 25/03/2026.
