AIFMD II Tightening Fund Regulation in 2026: Little Impact on the Majority of PE/VC Funds

Authors: Henri Ruotsalainen, Kadri Vatman, and Julia Tabell Read time: 8 min

What you need to know

• The amendments to AIFMD II, which updates the EU Alternative Investment Fund Directive, must be implemented in Finland by 16 April 2026 at the latest.
• This is an EU project that aims to reduce regulatory differences between Member States and strengthen the internal market for funds by, among other things, harmonising regulation, increasing transparency, and creating more uniform rules for fund management.
• Key changes:
  • Open-ended funds: Mandatory introduction of at least two liquidity management tools. The aim is to improve liquidity risk management, including preparedness for waves of simultaneous redemptions and other liquidity mismatches.
  • Loan-originating funds: An EU-level regulatory framework to harmonise restrictions on loan-originating funds.
  • Delegation: The reporting requirements for delegation arrangements will be expanded (no longer divided into “significant and other activities”).
  • Disclosure requirements: Especially regular reporting will increase.
  • Ancillary services: Fund managers will be able to offer a wider range of other services (benchmark administration, credit servicing, IT, HR, ESG reporting, etc.) — an opportunity to diversify sources of income.
• Other considerations: No significant impact on close-end private equity funds.

The Finnish Parliament is currently discussing the update of the EU fund regulation (AIFMD II). The changes must be incorporated into national legislation by 16 April 2026 at the latest, and new requirements are expected particularly for open-ended funds. However, the reform should not have a significant impact on the traditional operating model of private equity funds. Loan-originating funds will be explicitly regulated in the future, but we do not expect the regulation to have a significant impact on domestic loan-originating funds.

The reform is based on the EU’s plan for a single market for capital and an assessment of the original AIFMD Directive, which identified a need to harmonise the regulation of loan-originating funds in particular. The Finnish Parliament is currently considering a government proposal on the implementation of the Directive in Finland.

Why Will the New Regulation Have Little Impact on Private Equity and Venture Capital Investors?

One of the key objectives of the Directive is to improve the liquidity management of open-ended funds. In traditional buyout, venture capital, and growth funds, investors typically commit to the fund for ten years without redemption rights, and their exit only occurs when the fund is liquidated (or through secondary market transfers). As these funds are closed-ended funds, the reform does not directly affect them.

Although the regulation is based on a distinction between open-ended and closed-ended funds, the concepts are not formally defined in legislation. According to the government proposal, a closed-ended fund is one in which redemption is not possible before the end of the term. However, in practice, the definition is subject to interpretation: for example, a single redemption option in a specific situation should not necessarily make the fund open-ended. In practice, the distinction is understood to be based on investors’ subscription and redemption rights, but in hybrid structures the drawing the line is not necessarily easy.

In practice, the only changes to traditional private equity funds will be in the reporting of delegation to the Finnish Financial Supervisory Authority (the “FIN-FSA”) and some clarifications to disclosure requirements and investor reporting, for which the requirements are more detailed. Even in this case, it should be more a matter of documentation than actual changes in operating practices. The new disclosure requirements apply to all operators. However, the requirements and restrictions on delegation apply only to authorised alternative fund managers. This means that they do not apply to the majority of domestic private equity and venture capital investors.

New Requirements for Open-Ended Funds

Managers of open-ended funds should prepare for a significant change. In the future, every open-ended fund will have to select and adopt at least two predefined tools for managing liquidity. These shall be included in the fund rules and reported to the FIN-FSA.

The range of tools includes suspension of subscriptions and redemption, extension of notice period, redemption fees, swing and dual pricing, and certain other mechanisms aimed at managing sudden waves of redemptions and other liquidity mismatches. The aim of the change is to protect funds from having to sell their assets at forced sale prices if investors suddenly want to withdraw their money at the same time.

Many Finnish special investment funds already use similar tools. However, the change requires updating internal guidelines and reviewing fund documentation. In addition, the FIN-FSA will monitor the use of these tools more closely and will be given additional powers with regard to subscriptions, repurchases, and redemptions. The European Commission has published technical regulatory standards to specify the details, and the European Securities and Markets Authority (ESMA) will publish more detailed guidelines on the selection of tools.

Private Credit Gets an EU-Level Regulatory Framework

For the first time, the EU is creating a uniform regulatory framework for funds that grant direct corporate loans. The regulation applies brings shareholder loans, among other things, within the scope of the regulation, albeit with certain exceptions. Leverage limits are set at a maximum of 300 per cent for closed-ended funds. The limits seem to be high, and for example, equity bridge facilities covered by the undrawn commitments of the investors should not be counted as leverage.

The impact on Finnish AIFMs will be minor. The regulation does not significantly restrict current activities, but it does create clarity for cross-border business.

Delegation Subject to Broader Supervision

Delegation reporting requirements will be tightened, but the change only applies to authorised alternative fund managers. In Finland, the majority of private equity and venture capital fund managers are only registered (not authorised) so the requirements do not apply to them. Whereas previously the FIN-FSA only had to be notified of the delegation of “significant activities”, in the future it will have to be notified of delegation arrangements more broadly. In Finland, all delegation has practically already been notified to the supervisory authority, so the situation will not change in this respect. The expansion of regular reporting will likely somewhat increase the administrative workload.

The concept of delegation is also subject to interpretation. The distribution of interests in alternative investment funds is not considered as delegation if the distributor markets the fund on its own account in accordance with the Investment Services Act or the Act on the Provision of Insurance, and it is not fully clear what this means in practice. In the case of traditional closed-end funds, it may also be questioned whether it would be reasonable to classify the engagement of a placement agent as delegation at all, since it is impossible to invest in the fund without the approval of the alternative investment fund manager of the relevant fund.

In addition, the reform clarifies the management of conflicts of interest in situations where the fund manager acts on behalf of a third party (so-called white labelling) and delegates, for instance, portfolio management to said party. In Finland, such activity is not yet common in relation to alternative investment funds.

Disclosure Requirements for Both Investors and Authorities Clarified

Disclosure requirements will also be expanded. The information provided to investors must include more detailed descriptions of liquidity management tools, fund expenses, and possible delegation arrangements. The content of regulatory reporting will be expanded, particularly with regard to delegation and risk management. However, some of the new reporting obligations will not take effect until 2027.

The Directive Also Creates New Opportunities

Despite the tightening of regulations, the new directive also creates opportunities. Alternative investment fund managers will now be able to offer a wide range of ancillary services, from HR to IT, ESG reporting, and operational services. The only requirement is that conflicts of interest are managed appropriately. For fund managers, the change opens opportunities to diversify their sources of income. Many fund managers have built up strong expertise in these areas for the needs of their own funds, and now this can also be exploited commercially.

Other Changes

 In addition, the use of foreign depositaries will become possible under certain conditions, which may improve the availability of services in Finland.

The provisions concerning real estate funds under the current Real Estate Funds Act will be transferred almost unchanged to the AIFM Act, which has been justified by the need to clarify the legislation. There are currently no real estate funds in Finland that comply with the Real Estate Funds Act, and the usability of this structure would require a comprehensive reform of the regulations.

You Should Start Preparations Now

In part, AIFMD II can be considered as product regulation (mandatory liquidity management tools and loan-originating funds) rather than regulation of the manager, which is against the original idea of the AIFMD. The need for this is growing in line with the trend of extending the investor-base towards smaller investors. No such protection mechanisms should be needed for professional investors. It will be interesting to see how the regulation develops in the future and whether product regulation will be increased.

The legislative changes will enter into force in Finland by 16 April 2026 at the latest. Managers of open-ended fund in particular should start preparing now, if they have not already done so. Much will depend on how the FIN-FSA interprets the new regulations and how ESMA specifies the details in its future guidelines.