European Commission adopts new standards on liquidity management tools (LMTs) under AIFMD and UCITS Directive

On 17 November 2025, in a welcome development the European Commission (Commission) adopted its proposed regulatory technical standards (RTS) relating to the use of LMTs by open-ended AIFs and UCITS.

The Delegated Regulations make targeted clarifications to the RTS contained in ESMA’s final report submitted to the Commission in April 2025. 

The following proposed delegated acts, contain RTS supplementing both the Alternative Investment Fund Managers Directive 2011/61/EU (AIFMD) and the UCITS Directive 2009/65/EC:

• Delegated regulation on RTS specifying the characteristics of LMTs under AIFMD, (pursuant to a mandate in Article 16(2)(g) of AIFMD); and
• Delegated regulation on RTS specifying the characteristics of LMTs under the UCITS Directive, (pursuant to a mandate in Article 18(a)(3) of the UCITS Directive) (each a Delegated Regulation).
  

Our Asset Management & Investment Funds group has published an advisory (September 2024) on the new EU framework for LMTs in our AIFMD II 101 advisory series.

Adoption of these Level 2 measures marks a key milestone in implementing the harmonised approach to liquidity management under Directive 2024/927/EU (AIFMD II) and provides greater legal certainty for UCITS and open ended AIFs and their service providers ahead of transposition of AIFMD II into national law. 

Key updates

The adopted RTS are substantially aligned with those draft RTS contained in ESMA’s report and introduce a number of targeted clarifications (in particular, in relation to redemption gates and redemption fee calculations).

Redemption gates 

For AIFs, the threshold for activating a redemption gate may now be set at investor level (an investor level gate), at fund level (a fund level gate), or as a combination of both.

For UCITS, activation remains at the level of the UCITS, and the threshold applies equally to all investors.

Under both regimes, the activation threshold can be assessed either over a specified period (a rolling window) or for a given dealing day.

Redemption fees, swing/dual pricing, anti-dilution levies (ADLs) (collectively anti-dilution tools (ADTs))

Where ADT LMTs are used, estimated explicit transaction costs¹ must be included within the predetermined costs range. They should also include, or take into account of, the implicit transaction costs² where appropriate to the investment strategy. Implicit transaction costs may now also be estimated on a "best-efforts basis". For redemption fees and swing/dual pricing the implicit transaction costs should reflect any significant market impact of asset sales to meet those redemptions or subscriptions (as the case may be).

ESMA’s draft RTS required inclusion of both explicit and implicit transaction costs and did not include a best efforts qualifier.

Redemption in Kind (RiK) 

The Delegated Regulations clarify that RiK means transferring assets held by the fund to redeeming investors instead of cash. The RTS acknowledge that the transfer of such assets to investors may be made directly, or indirectly via intermediaries.

The Delegated Regulations retain ESMA’s primary market carve out for redemption orders linked to the creation/redemption of shares in the course of the regular dealing of exchange traded funds.

Side Pockets 

The Delegated Regulations provide that a side pocket can take one of two forms:

• a dedicated share class of the fund created specifically to implement the accounting segregation of the assets whose economic or legal features have changed significantly or have become uncertain due to exceptional circumstances from the other assets of that fund (“accounting segregation”); or
• a separate fund created specifically to separate the assets whose economic or legal features have changed significantly or have become uncertain due to exceptional circumstances from the other assets of that fund (“physical separation”).

The RTS now clarify that (i) the side pocketed share class or fund should be closed to subscriptions, repurchases and redemptions³; and (ii) the side pocket must be managed in accordance with the fund’s existing investment strategy.

Next steps

The Council of the EU and the European Parliament will now scrutinise the Delegated Regulations. If neither objects during the three month period, they will enter into force 20 days after publication in the Official Journal of the EU and will apply from 16 April 2026.

ESMA will also assess its proposed Guidelines on the selection and calibration of LMTs (April 2025) for any adjustments necessary to ensure full consistency between the RTS and the guidelines.

Timing

The Commission recognises that complying with the Delegated Regulations will require updates to fund documentation, processes and technical infrastructure in order to support the activation of the selected LMTs. Accordingly, both Delegated Regulations allow a one year transitional period for existing AIFs and UCITS (i.e. constituted before 16 April 2026) to comply with the RTS until 16 April 2027. Individual alternative investment fund managers or individual UCITS may choose to be subject to the Delegated Regulations from 16 April 2026, provided the competent authority of their home member state (NCA) is duly notified.

Notwithstanding this flexibility, it is important to note that the liquidity management measures contained in the text of AIFMD II will apply from the effective date of national transposition. Relevant requirements contained in the Level 1 text are set out in further detail at the table below and include the selection of appropriate LMTs, adoption of the LMT policy and procedures, notifications to NCAs regarding the activation or de-activation of LMTs and investor disclosures. Accordingly, it is anticipated that updates to fund documentation may need to be implemented in certain cases and in making such updates it will be prudent to have regard to the Level 2 and Level 3 implementing measures.

If you have any queries on the content of this advisory and/or the impact that it may have on you and your business, please speak to your usual Walkers contact or with any of the key contacts listed below.

^{1 "Explicit transaction costs" are costs directly borne by a fund for its acquisition or disposal of assets that are stable in amount and quantifiable in advance of the transaction. Those costs may include brokerage fees, trading levies, taxes and settlement fees.
2 "Implicit transaction costs" are costs borne indirectly by a fund upon acquisition or disposal of assets, that primarily arise from the bid-ask spread and market impact. Those implicit transaction costs may vary depending on the type of underlying assets and market conditions.
3 In the case of physical separation of a UCITS, the original UCITS shall contain the assets subject to side-pocketing and should be placed in liquidation.
 4 An AIFM/UCITS shall only use a suspension of subscriptions, repurchases and redemptions and side pockets in exceptional cases where circumstances so require and where justified having regard to the interests of the investors.
5 In this regard, it is worth noting that both the ESMA draft LMT guidelines and the Central Bank of Ireland (Central Bank) proposed updates to its AIF Rulebook and Central Bank UCITS Regulations, require that when selecting the two minimum mandatory LMTs the AIFM/UCITS management company should consider, where appropriate, the merit of selecting at least one quantitative-based LMT (i.e.: redemption gates, extension of notice period) and at least one ADT, taking into consideration the investment strategy, redemption policy and liquidity profile of the fund and the market conditions under which the LMT could be activated. ESMA's guidelines also propose that fund managers consider whether to select one LMT to use under normal market conditions and one LMT to be used under stressed market conditions.
5  The Central Bank has proposed clarifying that certain standard administrative charges applied to investor redemptions/repurchases are distinct from the use of harmonised LMTs under AIFMD II. These changes are necessary to ensure, where a fund imposes standard charges as part of its normal redemption process, that it does not inadvertently trigger the requirements under the relevant LMT provisions of AIFMD II. The Central Bank also proposes to differentiate between in-specie/in-kind redemption as an LMT and the exchange of assets in the settlement of redemptions which does not constitute an LMT.
6 The Central Bank has recently confirmed it will facilitate a streamlined process for post-authorisation updates to prospectuses and/or supplements arising from the transposition of changes to the AIFMD as well as proposed amendments to the Central Bank AIF Rulebook/Central Bank UCITS Regulations. The streamlined process will not apply to changes to the investment objective, policy or strategy sections, which are subject to a post-authorisation review in the normal course.
7 Further details on this process are expected in the coming weeks.
8 The manner and timeline for these communications have not been specified, and further guidance is awaited.}