On 3 October 2025, the Luxembourg government submitted Bill of law N°8628 (the “Bill of law”) to Parliament, which aims to transpose Directive (EU) 2024/927, and its targeted amendments to both the AIFMD (Directive 2011/61/EU) and the UCITS Directive (Directive 2009/65/EC).

This single directive often referred to in industry commentary as “AIFMD II” and “UCITS VI” forms part of the European Commission’s broader Capital Markets Union (CMU) reform package and introduces significant changes relating to delegation oversight, liquidity risk management, loan origination by AIFs, depository arrangements, and regulatory reporting.

The Bill of law proposes targeted amendments to:

  • The Law of 12 July 2013 on alternative investment fund managers (AIFM Law), and
  • The Law of 17 December 2010 on undertakings for collective investment (UCI Law).

The Bill of law’s primary objective is to ensure the transposition of Directive 2024/927 by the 16 April 2026 deadline, while preserving the flexibility of Luxembourg’s fund industry and aligning national legislation with updated EU requirements.

Key legal innovations introduced by the Bill of law

1. A dedicated regime for loan-granting AIFs

One of the most substantial changes is the introduction of a dedicated legal framework for alternative investment funds that originate loans (articles 14 and 15 AIFM Law).

Under the Bill of law, AIFs engaged in loan origination must implement effective policies and procedures for credit assessment, risk management, and loan administration, as part of their authorisation and organisational requirements. A minimum risk retention of 5% applies to loans that are transferred to third parties, subject to defined exceptions. The granting of loans to consumers within Luxembourg is expressly prohibited. Leverage is limited to 175% of NAV for open-ended AIFs and 300% for closed-ended AIFs, measured according to the commitment method.

The Bill of law also introduces a concentration limit applicable to loan-granting AIFs: loans to any single financial undertaking, AIF, or UCITS must not exceed 20% of the fund’s capital. This limit is subject to transitional rules, allowing compliance within 24 months of the fund’s launch, with temporary suspensions and limited extensions available under specific conditions.

While Luxembourg has already authorised loan origination strategies under its flexible AIF regime, this formal legislative framework aligns with EU-level harmonisation goals and enhances legal certainty for managers and investors.

2. Delegation oversight and reporting

The Billl of law amends the delegation rules applicable under both the AIFM Law (articles 18 and 22) and UCI Law (articles 110 and 111). The delegation framework under the AIFM and UCITS regimes remains intact but is subject to new oversight and transparency obligations. Under the Bill of law, AIFMs must notify the CSSF of delegation arrangements involving substantial functions, particularly where delegates are located in third countries. The CSSF is, in turn, required to inform ESMA of such arrangements.

The Bill of law also clarifies disclosure obligations regarding delegation in fund documents and reinforces the AIFM’s responsibility to oversee delegates and avoid becoming a “letter-box entity.” These measures are designed to enhance supervisory convergence across the EU without disrupting Luxembourg’s established delegation models.

3. Harmonised liquidity management tools (LMTs)

The Bill of law introduces into national law a harmonised list of Liquidity Management Tools (instruments de gestion de la liquidité), which can be used by open-ended AIFs (new article 15-1, Annex V AIFM Law) and UCITS (articles 12, 28 and 52-1, Annex III UCITS Law).

The listed tools include:

  • Swing pricing;
  • Anti-dilution levies;
  • Redemption gates;
  • Side pockets (poches latérales).

Managers will be required to:

  • Incorporate appropriate LMTs into their fund documentation;
  • Establish internal procedures governing their activation and monitoring;
  • Notify the CSSF prior to activating certain tools, as specified by regulation.

This aligns Luxembourg’s framework with best practices already adopted in the market, while ensuring uniform application across EU jurisdictions.

4. Cross-border depositary appointments

Directive 2024/927 introduces the possibility for AIFs to appoint a depositary in another EU Member State, provided certain conditions are met (amendment of article 19 AIFM Law). However, Luxembourg has opted not to permit its domestically domiciled AIFs to designate a non-Luxembourg depositary

That said, the Bill of law ensures that Luxembourg-based depositaries can still act for foreign AIFs domiciled in Member States that have implemented this cross-border option, subject to regulatory approval in the AIF’s home jurisdiction.

The Bill of law also introduces additional safeguards for depositaries established in third countries, requiring that they not be located in jurisdictions listed as high-risk under EU AML rules or as non-cooperative for tax purposes. Should a third country become listed after designation, the AIF must replace the depositary within two years.

The Bill of law is now before the Luxembourg Parliament and is expected to follow the standard legislative process. The transposition deadline for Member States is 16 April 2026. Luxembourg’s approach to transposing AIFMD II and UCITS VI through this Bill of law is measured and pragmatic, balancing EU regulatory alignment with the preservation of established market practices. In particular:

  • The loan-granting AIF regime formalises an existing practice while promoting investor protection and risk management discipline;
  • The reinforced delegation oversight adds transparency without jeopardising Luxembourg’s role as a centre for cross-border asset management;
  • The codification of liquidity tools and enhanced reporting frameworks reflects a broader European push for convergence and resilience.

Managers and service providers will need to anticipate documentation updates, internal governance reviews, and reporting system upgrades to ensure smooth compliance by 2026.

If you are reviewing the impact of the draft legislation on your fund structures or considering updates to your operating model, our Investment Management team is available to provide clear, practical guidance. Please feel free to reach out for tailored advice on how the forthcoming changes may affect your structure or operations.