AIFMD II Liquidity Management Tools: What Applies Now and What Comes in April 2027

The revised Alternative Investment Fund Managers Directive (AIFMD II) entered into force on 15 April 2024, and Member States were required to transpose it into national law by 16 April 2026. From that date, alternative investment fund managers (AIFMs) of open-ended AIFs and UCITS management companies have had to comply with the new liquidity management requirements.

That first deadline has passed, but the framework is not finished. Funds established before 16 April 2026 could use a one-year transitional period for the detailed characteristics of their selected tools, and those requirements apply from 16 April 2027. For many managers, that is the deadline still ahead.

This article sets out what the rules require, which liquidity management tools are available, what policies and procedures must be in place, what the transitional arrangements cover, and how CySEC has implemented these requirements in Cyprus.

1. The Requirement: At Least Two LMTs Per Fund

AIFMD II requires fund managers of open-ended AIFs and UCITS to select at least two liquidity management tools (LMTs) for each fund they manage. The selection must be made from the prescribed list set out in the annexes to the revised directives: Annex V, points (2) to (8), of Directive 2011/61/EU for AIFs, and Annex II of Directive 2009/65/EC for UCITS.

For a money market fund (MMF) authorised under the Money Market Funds Regulation, one LMT is sufficient.

In determining the appropriate LMTs, fund managers must consider the investment strategy, the nature and characteristics of the underlying assets, and the fund's redemption policy.

What this means in practice: Fund managers cannot take a one-size-fits-all approach. The selection of LMTs must be tailored to each individual fund based on its specific characteristics. A fund with illiquid underlying assets will need different tools than a fund holding liquid listed securities.

2. The Available Liquidity Management Tools

The LMTs available to fund managers of open-ended funds under the directive are:

1. Suspension of subscriptions, repurchases and redemptions
2. Redemption gates
3. Extension of a notice period
4. Redemption fees
5. Swing pricing (full and/or partial)
6. Dual pricing
7. Anti-dilution levy
8. In-kind redemptions
9. Side pockets

There are two important restrictions to note. First, it is not permitted to select only swing pricing and dual pricing together. That combination alone does not satisfy the minimum requirement. Second, suspension of subscriptions and side pockets are available by operation of law and can be used by any fund, but they do not count towards the required minimum of two LMTs. These two tools may only be used in exceptional circumstances where justified by the circumstances and in the interests of the fund's investors.

Fund managers may also select additional LMTs beyond those in the prescribed list. However, any such additional tools do not count towards the statutory minimum.

Both the prescribed LMTs and any additional instruments selected must be set out in the offering documentation as well as in the fund rules, terms, or instruments of incorporation.

3. Policies and Procedures Are Mandatory

Selecting the tools is not enough. For each selected LMT, fund managers must establish detailed policies and procedures. These must address the selection, activation, deactivation and calibration of the chosen LMTs. They must also set out the operational and administrative arrangements necessary for the effective application of these tools.

These policies must form an integral part of the fund's broader liquidity risk management framework.

What this means in practice: Regulators are not just checking that you have named two tools. They expect to see documented procedures covering when each tool would be activated, under what conditions it would be deactivated, how it would be calibrated in different market scenarios, and who has authority to make those decisions.

4. Notification Requirements

Fund managers must notify their national competent authority of the selected LMTs and must provide the corresponding detailed policies and procedures. They must also report when LMTs are activated or deactivated.

The Dutch Authority for the Financial Markets (AFM),whose March 2026 supervision guideline on AIFMD II covered these rules, established an adjusted notification procedure for LMT-related notifications through the AFM Portal. The notification requirements differ depending on the type of LMT:

Suspension of subscriptions, redemptions and repayments: must be notified without delay.

Side pockets: must be notified in advance, within a reasonable period.

All other selected LMTs: activation or deactivation must be notified without delay, to the extent that the LMT is activated or deactivated in a manner that does not fall within the ordinary course of business as provided for in the fund rules. Fund managers must have a substantiated explanation of what constitutes circumstances outside the ordinary course of business.

5. Transitional Arrangements and the April 2027 Deadline

By 16 April 2026, fund managers had to have selected at least two LMTs for the open-ended funds they manage and to have established the detailed policies and procedures governing the activation and deactivation of the selected tools.

However, AIFs and UCITS established before 16 April 2026 may make use of a one-year transitional period, solely for specifying the detailed characteristics of the selected LMTs. These characteristics are described in the Commission Delegated Regulation (EU) 2026/465 for AIFs and the Commission Delegated Regulation (EU) 2026/466 for UCITS, as well as the ESMA guidelines on LMTs. These Level 2 and Level 3 requirements apply from 16 April 2027.

What this means in practice: The selection itself and the core policies had to be in place by 16 April 2026. Fund managers of existing funds have until 16 April 2027 to finalise the detailed characteristics under the delegated regulations. That is the deadline still in front of most managers, and the detail it demands is considerably heavier than the selection exercise was.

6. CySEC's Implementation for Cyprus Fund Managers

CySEC implemented these requirements at the national level ahead of the deadline. On 19 December 2025, it issued Circular C743, addressed to UCITS management companies, self-managed UCITS, AIFMs managing open-ended AIFs, and self-managed open-ended AIFs. The circular is only available in Greek.

Circular C743 sets out the same core obligation: fund managers must select at least two LMTs from the harmonised list introduced by Directive (EU) 2024/927, include them in the fund rules or constitutional documents, and be in compliance by 16 April 2026. The circular mirrors the restrictions in the directive. The combination of swing pricing and dual pricing alone does not satisfy the minimum. Suspension and side pockets are available by law in exceptional circumstances but do not count towards the two-tool requirement. For money market funds, one LMT is sufficient.

CySEC set an earlier administrative deadline. Fund managers were asked to submit their applications or notifications for amending fund rules and constitutional documents by 27 February 2026. These submissions had to include a confirmation that the suitability of the selected LMTs had been assessed in relation to the fund's investment strategy, liquidity profile and redemption policy, along with the applicable fee.

The legislative framework was transposed through amendments to the Alternative Investment Fund Managers Law (N.56(I)/2013) and the Open-Ended Collective Investment Schemes Law (N.78(I)/2012).

What this means in practice: Cyprus fund managers should already have their selected tools reflected in fund rules and constitutional documents. The work that remains is the detailed characteristics under the delegated regulations, which apply from 16 April 2027.

7. A Personal Note

I set up my own alternative investment fund manager several years ago. It did not work out. I had to shut it down. But I learned every corner of the AIFM directive in the process. The operational weight of running a fund management company, the governance requirements, the regulatory reporting, the relationship with the depositary, these are things you understand differently once you have lived through them.

That experience is why I pay close attention when new rules like these land. The LMT requirements may look like a compliance checkbox exercise from the outside. In practice, they require fund managers to think carefully about how they would respond to redemption pressure, what tools are appropriate for each fund's profile, and whether their internal procedures can actually support activation in a crisis scenario. That is not a paper exercise. It is an operational readiness question.

Sources

AFM Supervision Guideline:New European Rules for Liquidity Management (March 2026)

CySEC Circular C743:Application of Directive (EU) 2024/927 requirements on Liquidity Management Tools (19 December 2025, available in Greek only)

Legal references: Directive 2011/61/EU (AIFMD), Annex V. Directive 2009/65/EC (UCITS), Annex II. Directive (EU) 2024/927. Commission Delegated Regulations (EU) 2026/465 and 2026/466. ESMA Guidelines on Liquidity Management Tools.

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