Delegation Under AIFMD II: Practical Implications For AIFMs

Background

Directive (EU) 2024/927 ("AIFMD II") amending Directive 2011/61/EU ("AIFMD") came into force on 15 April 2024, requiring EU member states to implement it into their national laws by 16 April 2026. AIFMD II introduces several changes for alternative investment fund managers ("AIFMs") managing alternative investment funds ("AIFs") including new rules on delegation, reporting, and authorisation. The recitals to AIFMD II expressly recognise the importance of delegation in asset management and it does not fundamentally change the delegation model under AIFMD. However, it does expand the scope of the AIFMD delegation requirements and introduces additional requirements in respect of supervision of and reporting on delegates.

Expanded scope of AIFMD delegation requirements

AIFMD II expands the scope of the AIFMD delegation requirements to capture not only the delegation of all functions listed in Annex I to AIFMD but also the MiFID 'top-up' services referred to in Article 6(4) of AIFMD.

The list of functions in Annex I comprises the following (6 and 7 in bold are added by AIFMD II):

1. portfolio management;
2. risk management;
3. administration;
4. marketing;
5. activities related to the assets of AIFs (such as facilities management and real estate administration);
6. originating loans on behalf of an AIF; and
7. servicing securitisation special purpose entities.

The MiFID 'top-up' and other ancillary services under Article 6(4) comprise (5, 6 and 7 in bold are added by AIFMD II):

1. individual portfolio management;
2. investment advice;
3. safe-keeping and administration of shares and collective investment undertakings units;
4. reception and transmission of orders relating to financial instruments;
5. any other function or activity which is already provided by the AIFM in relation to AIFs that it manages, or in relation to services that it provides in accordance with AIFMD, subject to any conflicts of interest being appropriately managed;
6. benchmark administration under the EU Benchmarks Regulation; and
7. credit-servicing under the EU Credit Services Directive.

Accordingly, AIFMs will need to ensure that they review a potentially expanded universe of what are considered to be their delegates for AIFMD II purposes. They will then need to confirm that appropriate due diligence has been undertaken on those delegates, any required regulatory notifications have been made in connection with the appointment of those delegates and that any relevant contracts comply with the AIFMD II requirements.

Application of the AIFMD delegation requirements to non-EU delegates

AIFMD II requires AIFMs to ensure that the performance of the functions referred to in Annex I and the provision of the services referred to in Article 6(4) comply with AIFMD II. This obligation applies irrespective of the regulatory status or location of any delegate or sub-delegate of the AIFM. The position pre-AIFMD II was that AIFMs were required to ensure that delegated functions were performed "effectively and in compliance with applicable law and regulatory requirements". This left some ambiguity as to whether the AIFM was required to ensure a delegate complied with the letter of all provisions of AIFMD itself. The fact that a delegate is regulated in its home jurisdiction will not relieve AIFMs of the obligation under AIFMD II to verify ongoing adherence to AIFMD standards applicable to the function or service provided. In September 2025, the European Securities and Markets Authority ("ESMA") published the following Q&A on this topic, and a response is awaited from ESMA to provide further clarity on this:

"It follows from Article 1(9)(b) and Article 2(4)(b) AIFMD II that the AIFM or UCITS management company shall ensure that the performance of the functions in Annex I or II of the respective directives, as well as the provision of the services referred to in Articles 6(4) or 6(3), complies with the requirements of AIFMD II. Considering that portfolio management and risk management may be delegated to entities located in the EU or to regulated entities located in third countries, to which extent are delegates or subdelegates of AIFMs or UCITS management companies subject to the AIFMD and UCITS Directive."

AIFMs will need to monitor any responses to this Q&A from ESMA and related guidance from member state regulators to determine what, if any, changes will need to be made to contractual and oversight arrangements with delegates.

Exception from AIFMD delegation requirements for arrangements with certain distributors

AIFMD II provides that an AIFM is not considered to be delegating functions when entering into marketing or distribution agreements with third parties authorised under MiFID II or the EU Insurance Distribution Directive, irrespective of any distribution agreement between the AIFM and the distributor. It is hoped that the Central Bank will align its Cross Industry Guidance on Outsourcing with this approach so that such arrangements will not be considered a delegation of functions for the purposes of the Central Bank guidance. AIFMs should review their relationships with EU-based distributors, placement agents and other similar service providers to determine what, if any, changes might need to be made to contractual arrangements to reflect this position.

Additional information on delegates to be provided at authorisation stage for AIFM

At authorisation stage, AIFMs must provide their NCA with additional information in relation to their delegation arrangements, including:

• details of the delegates:
  • the legal name and relevant identifier;
  • jurisdiction of establishment;
  • where relevant, supervisory authority of the delegate.
• a description of the human and technical resources the AIFM uses to:
  • perform day-to-day portfolio and risk management tasks;
  • monitor the delegated activity.
• for each new AIF they intend to manage:
  • a brief description of the delegated portfolio and risk management functions;
  • whether such delegations amount to a full or partial delegation;
  • a description of the periodic due diligence measures used to monitor the delegated activity (collectively, the "Authorisation Delegate Information").

Although the Authorisation Delegate Information is limited to AIFMs applying for authorisation under AIFMD II, AIFMs that have delegated one or more of the Annex I functions or Article 6 services should assess whether the Authorisation Delegate Information requires more or different disclosure than what was previously provided to the Central Bank and remediate any gaps identified so that they can, if requested, provide the Central Bank with the same level of information that would be required of a new applicant in respect of the Authorisation Delegate Information.

Additional Annex IV reporting obligations

From 16 April 2027, AIFMs must include the following additional information about their resourcing and delegation arrangements in their periodic Annex IV reports to their NCA as follows:

• the full-time equivalent number of employees performing day-to-day portfolio or risk management within the AIFM;
• information about their delegates, including:
  • whether they have close links to the AIFM;
  • whether they are authorised or regulated entities for the purpose of asset management; and
  • their supervisory authority (if any).

ESMA will publish regulatory technical standards ("RTS") relating to these AIFMD II reporting obligations in due course.

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.