ESMA Publishes Final Report And Draft RTS On Open-Ended Loan-Originating AIFs

KEY TAKEAWAYS

• In a welcome development, ESMA published its proposed Level 2 measures on the conditions for the operation of open-ended loan-originating alternative investment funds (OE LOFs) pursuant to the AIFMD II mandate.
• The RTS set out a harmonised principles-based framework that AIFMs should address when seeking a derogation to offer OE LOFs.
• Pending RTS adoption, it remains unclear whether EU national competent authorities (NCAs) will rely on the parameters set down by ESMA when assessing AIFM derogations from the closed-ended LOF requirement.

On 21 October 2025, ESMA published its final report to the European Commission (the Commission) with draft regulatory technical standards (RTS) under Directive 2024/927/EU (AIFMD II) on open-ended loan-originating alternative investment funds (OE LOFs), following its consultation as outlined in our December 2024 briefing.

AIFMD II establishes a harmonised framework for loan-originating activities across the European Union (EU) by 16 April 2026, being the date on which the loan origination framework must be transposed into the national laws of each EU member state, (see Part 1 of our AIFMD II 101 series).

AIFMD II allows NCAs to grant derogations from the requirement that loan originating AIFs are structured as closed ended. Consistent with the mandate of the Level 1 text, the RTS set out a harmonised principles-based framework tailored to OE LOFs. AIFMs should address the following elements, when demonstrating eligibility of an open ended structure to their home NCA:

1. a sound liquidity management system;
2. the availability of liquid assets and stress testing;
3. an appropriate redemption policy having regard to the liquidity profile of OE LOFs; and
4. a list of factors that AIFMs must consider when determining the redemption policy and assessing the liquidity of OE LOFs.

Key changes following consultation

Notably, arising from the feedback received to its consultation ESMA has decided not to introduce additional elements for AIFMs to consider in order to evidence the soundness of liquidity management for OE LOFs.

ESMA has made several key changes to the draft RTS in response to feedback received:

1. Removing the requirement for AIFMs to determine a target appropriate amount of liquid assets

Respondents raised concerns about the requirement for AIFMs to determine a fixed proportion of liquid assets to meet redemption requests, noting that liquidity in OE LOFs primarily arises from the loans granted. A fixed buffer obligation could impair fund performance. ESMA has removed this requirement and the RTS now stipulate that AIFMs must ensure sufficient liquidity to meet redemption requests.

2. Frequency of liquidity stress testing

To preserve manager discretion, ESMA has amended the draft RTS to require stress testing at least annually (rather than quarterly), unless fund characteristics warrant more frequent assessments.

3. Clarification of certain provisions

The phrase "AIFMs that intend to manage OE LOFs" was seen as potentially implying a pre-authorisation requirement. ESMA has revised this phrase to "AIFMs that manage OE LOFs" to avoid misinterpretation. ESMA also clarifies that AIFMD II does not specifically harmonise fund authorisation, and certain OE LOFs may still be subject to pre-authorisation under national laws. Irish AIFMs managing non-Irish OE LOFs should consider any such local pre-authorisation requirements.

Next steps

ESMA has now submitted the draft RTS to the Commission for adoption. However, the Commission has recently de-prioritised a raft of Level 2 measures including these RTS determining they are non-essential for the effective functioning of the Level 1 legislation and for the achievement of EU policy objectives. As a result, adoption as a delegated regulation is not expected before 1 October 2027 at the earliest.

In the period following transposition into national laws of the loan origination framework under AIFMD II and pending the entry into force of the RTS it remains to be seen how far EU NCAs will rely on the parameters set out by ESMA when assessing derogations from the closed-ended requirement.

Key consideration – At the date of publication, it remains unclear what specific procedures the Central Bank of Ireland will look to impose regarding the management of OE LOFs (both Irish-domiciled and non-Irish domiciled). Further consideration will need to be given to such steps in OE LOF approval timelines, pending adoption of the RTS as a delegated regulation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.