ESMA’s Draft RTS on Open-Ended Loan-Originating AIFs-AIFMD II in Practice

Oct 27 2025

On 21 October 2025, the European Securities and Markets Authority (ESMA) published its draft Regulatory Technical Standards (RTS) on open-ended loan-originating alternative investment funds (AIFs). This marks a key step in the implementation of Directive (EU) 2024/927 (AIFMD II), which updates the Alternative Investment Fund Managers Directive (AIFMD) and Undertakings for Collective Investment in Transferable Securities (UCITS) frameworks to strengthen rules on delegation, liquidity risk, supervisory reporting, depositary services, and loan origination.

Operationalizing AIFMD II: What Fund Managers Need to Know

The RTS sets out several key requirements for AIFMs managing open-ended loan-originating AIFs:

Robust liquidity management frameworks must cover subscriptions, redemptions, and loan repayments.
Dynamic liquidity assessments should reflect redemption frequency, investor concentration, notice periods, and expected cash flows.
Annual liquidity stress testing tailored to strategy and market conditions.
Redemption policies aligned with investor base, loan maturity, and liquidity tools.
At least two liquidity management tools (LMTs) must be selected and justified under Article 16(2b).
Expected loan cash flows are recognized as liquid assets, a pragmatic shift for loan-originating strategies.

These measures aim to ensure that open-ended loan-originating AIFs can meet redemption obligations without compromising investor protection or financial stability.

What Changed Following Consultation

The final draft reflects several adjustments made in response to industry feedback:

The requirement for a fixed proportion of liquid assets has been removed in favor of a more flexible, risk-based approach.
Stress testing frequency has been reduced from quarterly to annually, unless more frequent testing is warranted.
The RTS now refers to AIFMs that “manage” (rather than “intend to manage”) open-ended loan-originating AIFs, clarifying that pre-authorization is not required under EU law, though national rules may still impose such requirements.
ESMA has deleted the clause allowing AIFMs to classify other assets as liquid if they could be liquidated within the notice period, citing a lack of normative clarity.

Navigating Regulatory Divergence: Spotlight on Luxembourg

While the RTS outlines the elements AIFMs must consider, it does not specify how firms are expected to demonstrate that a fund qualifies as open-ended under AIFMD II. This lack of procedural guidance leaves room for interpretation by national regulators and may result in divergent supervisory expectations across member states.

For instance, how should a fund manager model future loan repayments when investor concentration is high and redemption frequency is monthly? Should assumptions be based on historical loan performance, or will regulators expect granular cash flow projections tied to individual loan maturities? These are practical questions that remain unanswered.

In Luxembourg, the draft bill implementing AIFMD II, published in October 2025, largely mirrors the directive without gold-plating. However, it does not yet clarify how AIFMs should evidence compliance with the open-ended structure requirements. The CSSF is yet to issue detailed guidance on documentation standards, liquidity modelling, and the use of LMTs.

Luxembourg’s implementation also reflects certain jurisdictional nuances:

Lending to consumers remains prohibited, despite AIFMD II allowing it under certain conditions.
The CSSF has not formally restricted LMTs to those listed in ESMA’s RTS. Subject to proper justification and alignment with investor protection principles, broader application may be possible, though further guidance is expected.
There is no formal guidance yet on how expected loan cash flows should be validated as liquid assets in supervisory filings, though this may be addressed in future circulars or FAQs.

What to Expect from National Regulators

Further clarification is expected from national regulators across the European Union, likely in the form of circulars, FAQs, or supervisory statements. These may address:

How AIFMs should demonstrate that a fund meets the open-ended criteria under AIFMD II;
The scope and justification of LMTs; and
Supervisory expectations around stress testing and liquidity forecasting.

Until such guidance is available, fund managers should engage proactively with their respective regulators and adopt a cautious, well-documented approach to interpreting the RTS requirements.
At K&L Gates, we are closely monitoring these developments and advising clients on how best to prepare for the evolving regulatory landscape under AIFMD II. Our team is available to support fund managers in assessing readiness, engaging with regulators, and interpreting emerging guidance.

Timeline

The draft RTS has been submitted to the European Commission for adoption.
As a nonessential Level 2 measure, it is not expected to be adopted before 1 October 2027.
The RTS will not apply from 16 April 2026. That date refers to the application of AIFMD II itself, not the RTS.