EU AIFMD II: Implications and actions for firms in the Channel Islands

Executive Summary

In recent months, many Channel Islands firms have expressed concern over the potential effects of AIFMD II on locally based funds marketing to EU investors. In practice, while the directive introduces additional administrative and reporting demands, the overall impact for most firms is expected to be manageable. The article below outlines the key areas where attention will be required.

AIFMD II preserves Jersey and Guernsey’s access to EU professional investors through NPPRs, as both jurisdictions continue to meet the EU’s tax transparency and AML criteria. For AIFMs in the Channel Islands, the impact is targeted and largely positive. Most operational requirements apply only to EU AIFMs, so Channel Islands managers will mainly be impacted by two areas: (1) expanded investor disclosures and (2) significantly enhanced Annex IV regulatory reporting. These will require upgraded systems, better data capture, improved fee transparency, and more granular disclosures around leverage, liquidity management and delegation.

Private credit managers may also face new obligations where funds originate loans. Firms should prioritise upgrading reporting systems, updating disclosure templates and monitoring JFSC and GFSC updates that will align local Codes of Practice with AIFMD II.

Introduction

Following years of research, industry consultation and debate, the European Union (EU) signed off on AIFMD II in early 2024, securing European Parliament and Council approval of the final text in February 2024 and publishing it on 26 March 2024. This set in motion the most significant shift in alternative investment regulation since 2011, the effects of which are still unfolding in 2026.

AIFMD II amends the original AIFMD (Directive 2011/61/EU), which sets out the rules governing alternative investment fund managers and the marketing of alternative investment funds across the EU and EEA.

Most requirements, discussed further in this article, become effective from 16 April 2026, two years after AIFMD II entered into force on 15 April 2024, with an extended three‑year period for the enhanced regulatory reporting obligations (notably around delegation).

This article explores some of the incoming changes and next steps for firms in the Channel Islands.

Key amendments

AIFMD II introduces wide ranging updates across governance, liquidity management, reporting and investor protection. (see the full detail in the amending directive here). The most substantive changes will apply to EU AIFMs, particularly those managing loan originating funds.

Loan origination funds: AIFMD II defines loan originating funds for the first time and sets requirements relating to:

Effective Governance policies and conflict management.
Concentration limits and Leverage limits (175% for open-ended AIFs and 300% for closed-ended AIFs).
A 5 % risk retention for loans originated and portfolio composition disclosures.
Liquidity management and stress testing to be further defined by ESMA.

Fund liquidity risk management: AIFMs must select at least two liquidity management tools (LMTs) in addition to suspension and maintain supporting policies. Regulators must be notified when certain tools are activated or deactivated. ESMA will issue guidance on selection and calibration.

Delegation and Substance: AIFMs must demonstrate due care in selecting delegates and provide more information to regulators, including pre delegation notifications and detailed reporting on delegation arrangements. Retail AIFMs are encouraged to have at least one independent non-executive director, and EU AIFMs must maintain a minimum substance of two FTE.

Investor protection: AIFMs will need to identify fees and charges allocated to AIFs, with corresponding disclosure and periodic reporting including an annual disclosure to investors of all fees, charges and expenses directly or indirectly borne by them.

AIFMs' functions and arrangements: Permitted ancillary activities are expanded to include benchmark administration and credit servicing. Host AIFMs face enhanced conflict of interest requirements and must report detailed conflict management information to competent authorities.

Depositaries: EU AIFMs may appoint a depositary in another Member State where suitable domestic services are unavailable, subject to the necessity principle. Enhanced cooperation between competent authorities is required.

Marketing non-EEA AIFs in the EU: References to jurisdictions on FATF's non-cooperative list will be replaced with references to the EU's own high-risk list, and references to non-cooperative tax jurisdictions are widened. Non‑EEA AIF and their manager must also be domiciled in a jurisdiction with an OECD Article 26 compliant tax information exchange agreement.

Regulatory reporting: Annex IV reporting is materially expanded, removing materiality thresholds and requiring:

Reporting on all markets, instruments, and exposures.
Information on all assets and exposures, removing materiality thresholds, more granular leverage information, and Identifiers such as LEIs, ISINs, and UPIs.
More detailed leverage reporting.
Full transparency on delegation including delegate identity, location, functions delegated, oversight arrangements and assets under delegation.

Which AIFMD II changes will impact Channel Islands AIFMs?

Both Guernsey and Jersey are a ‘third country’ from an EU perspective and provide excellent third country access to the EU’s investors through National Private Placement Regimes (NPPR).

The directive introduces stricter jurisdiction‑level conditions for NPPR use- the manager’s or fund’s home jurisdiction must not appear on the EU list of non‑cooperative tax jurisdictions, must have an OECD Article 26‑compliant tax‑information exchange agreement with the relevant Member State, and must not be designated an EU high‑risk third country for AML purposes.

The Channel Islands meet these criteria, their strong track record on tax transparency and regulatory cooperation, positioning them well to maintain reliable and uninterrupted access to EU investors.

AIFMD II preserves NPPR access for Jersey and Guernsey, allowing Channel Islands AIFMs to continue marketing non‑EU AIFs to EU professional investors, subject to each Member State’s conditions. ESMA’s 6 January 2026 report on “Marketing requirements and marketing communications under the Regulation on cross boarder distribution of funds” highlights that a full pan‑-EU passport may offer limited additional‑ value for many AIFMs. The report shows that Germany, Italy, France, Netherlands and Luxembourg each receive over 4,000 inbound AIF notifications, indicating that cross‑border marketing activity remains highly concentrated in a few key markets. Meanwhile, Luxembourg and Ireland continue to dominate outbound notifications all cross‑border fund notifications respectively. This distribution highlights that cross‑border AIF marketing is focused on specific markets, raising questions about the practical value of pursuing a full EU passport when the NPPR route can efficiently access the main AIF‑receiving jurisdictions. These insights are particularly relevant for Jersey and Guernsey AIFMs assessing which EU markets are the most commercially meaningful.

Main changes for Channel Islands AIFMs

AIFMD II leaves the operational requirements (loan origination regime, EU‑AIFM substance, depositary changes, LMT adoption rules) applicable only to EU AIFMs.

The main changes for a non-EU AIFM of non-EU AIF will be in respect of the additional reporting requirements and more granular investor disclosures. They are as follows:

Article 23 - Initial and ongoing Disclosure requirements to Investors

New pre-investment disclosure requirements require disclosure around:

The name of the AIF.
The conditions and possibility of using LMTs.
A comprehensive list of fees, charges, and expenses those that the AIFM bears in connection with the operation of the AIF and that are directly or indirectly charged to the AIF.

New ongoing disclosure requirements require disclosure around:

Composition of any originated loan portfolio (material for private credit / loan origination funds).
Annual disclosure of all fees, charges, and expenses borne by investors.
Annual disclosure of parent companies, subsidiaries, and SPVs used in relation to the AIF’s investments.

Article 24 - Reporting obligations to competent authorities

AIFMD II meaningfully expands Annex IV‑style regulatory reporting around:

All traded instruments – not just “main instruments”.
All exposures and assets – removing the previous materiality threshold.
Identifiers for instruments and entities (e.g. LEIs, ISINs, UPIs where relevant).
Total amount of leverage used by the AIF – greater granularity expected.
Delegation arrangements – especially for portfolio and risk management including where functions are delegated, and to whom.

AIFMs what Jersey and Guernsey AIFMs should do now

Scope the relevant NPPR changes

Identify which new AIFMD II conditions apply specifically to marketing non‑EU AIFs into the EU under Article 42 NPPR.
Scoping
Determine how AIFMD II affect your regulatory footprint as a Jersey or Guernsey AIFM:
- Determine which activities are impacted mainly through enhanced disclosures and Annex IV reporting when marketing into the EU.
- Monitor upcoming amendments to the Jersey/Guernsey Code of Practice, driven by the need to reflect AIFMD II changes, though impacts are expected to be limited.
- Confirm whether both EU and UK investors are targeted, diverging rules may require dual jurisdictions’ disclosures.
Gap Analysis
Assess existing policies and systems against expected regulatory updates:
- Review investor disclosure templates—AIFMD II requires more information, including fee allocation, leverage details, liquidity risk management, loan‑portfolio composition, and any SPV or parent‑undertaking structures.
- Evaluate Annex IV reporting processes, as this is expected to be the main area of increased regulatory burden for Channel Islands AIFMs.
- Map responsible teams and owners for areas likely to require enhancement (risk, compliance, portfolio oversight).
Reporting Capabilities
Upgrade systems and workflows for enhanced reporting:
- Prepare for extended Annex IV data fields, especially around fee transparency.
- Assess technology solutions capable of producing consistent, high‑quality regulatory reports. ESMA’s focus on data quality frameworks highlights the need for accuracy and control. [esma.europa.eu]
- Define which departments (compliance, risk, operations) will own reporting end‑to‑end.
Monitoring Local Regulatory Transposition
Although full EU transposition occurs by 16 April 2026, Channel Islands firms must also follow:
- JFSC consultations: Jersey has already indicated imminent amendments to the AIF Code to reflect AIFMD II. The JFSC noted the EU and UK AIFM regimes are diverging, with the EU’s changes already finalised while the UK’s new approach remains under development. The JFSC AIF Code will split to reflect the (i) EU AIFMD II requirements by April 2026 (‘EU AIF Code’) and (ii) final agreed UK AIFM proposals (‘UK AIF Code’) in due course.
- GFSC updates: Guernsey is expected to follow a similar path, maintaining its competitive third‑country regime while ensuring NPPR access remains unaffected.
- Divergence between EU and UK rules-UK reforms may differ meaningfully, requiring firms with dual investor bases to manage two regulatory pathways.

There has been some uncertainty in the market around whether AIFMD II introduces a new reliance on double tax treaties (DTTs). However, the regime continues to focus on effective regulatory and tax cooperation through tax information exchange agreements (TIEAs), rather than the presence of DTTs. For Channel Islands funds and managers, this should come as reassurance rather than concern.

Matt Thomas

Director, Tax

Guernsey

While there has been understandable concern around the implications of AIFMD II, in practice we expect the impact for most Channel Islands firms to be manageable.

Mark Ashburn

Partner, Advisory

Jersey