Regulatory Guidance

AIFMD II Delegate Oversight: What Conducting Officers Need to Know

Published January 2026

With AIFMD II's enhanced delegate oversight requirements coming into force in April 2026, Luxembourg's Alternative Investment Fund Managers face a significant compliance burden. This guide breaks down what's changing, what's required, and how conducting officers can prepare their organizations for the new regime.

The CSSF Is Already Watching

Luxembourg's financial regulator issued a sharp warning in late 2024 following a thematic review of IFM delegation practices. The review found that 55% of surveyed IFMs reported conflict disclosures from delegates within the prior two years, and identified significant gaps in due diligence, conflict management, and contingency planning. The CSSF expects firms to address these weaknesses ahead of AIFMD II implementation.

What's Changing Under AIFMD II?

While AIFMD II doesn't fundamentally alter the delegation framework, it introduces enhanced reporting requirements and formalizes existing CSSF expectations into binding law. For Luxembourg AIFMs already complying with Circular CSSF 18/698, many requirements will be familiar—but the stakes are now higher.

Key Changes at a Glance

Area	What's New	Reference
Authorization Disclosures	Detailed delegation information required at AIFM authorization, including delegate identities, resources, and due diligence procedures	Art. 7 AIFMD II
Annex IV Reporting	Expanded periodic reporting including delegate names, domiciles, regulatory status, FTE counts for internal vs. delegated functions, and due diligence outcomes	Art. 24 AIFMD II
Substance Requirements	Minimum of two EU-domiciled natural persons conducting business on a full-time basis (now statutory)	Art. 8 AIFMD II
Extraterritorial Compliance	Delegated functions must comply with AIFMD II regardless of the regulatory status or location of the delegate	Art. 20 AIFMD II

The Four Pillars of Delegate Oversight

Based on AIFMD II requirements and the CSSF's thematic review findings, effective delegate oversight rests on four interconnected pillars:

Initial Due Diligence

Comprehensive assessment of delegate capabilities, resources, regulatory status, and operational resilience before appointment.

Ongoing Monitoring

Regular performance reviews with documented KPIs, site visits, and systematic evaluation of delegated activities.

Conflict Management

Detailed conflict registers, protocols preventing conflicted individuals from influencing decisions, and intra-group delegation scrutiny.

Exit Planning

Predefined exit strategies, identified alternative delegates, and documented transition procedures for rapid reassignment.

Enhanced Reporting: What You'll Need to Disclose

AIFMD II significantly expands the information AIFMs must report to their National Competent Authority. For Luxembourg AIFMs, this means providing the CSSF with:

At Authorization

Legal name and LEI of each delegate
Jurisdiction of establishment and supervisory authority (if regulated)
Detailed description of human and technical resources for portfolio and risk management
Description of delegated functions (partial vs. full delegation)
Due diligence measures and monitoring procedures

Ongoing Annex IV Reporting

Number of FTEs performing portfolio/risk management internally
Number of FTEs monitoring delegation arrangements
Names, domiciles, and regulatory status of all delegates and sub-delegates
Percentage of AUM under each delegation arrangement
Contract start and end dates
Dates and outcomes of due diligence reviews
Issues identified and remediation timelines

Note: Reporting Timeline

While AIFMD II must be transposed by April 2026, the new Annex IV reporting measures become effective one year later on 16 April 2027. However, AIFMs should begin collecting and organizing this data now to ensure readiness.

CSSF Thematic Review: Three Areas of Concern

The CSSF's recent thematic review identified specific weaknesses that conducting officers should prioritize:

1. Due Diligence Gaps

Many IFMs rely excessively on self-assessment questionnaires and infrequent site visits rather than comprehensive, documented reviews. The CSSF expects:

Structured initial due diligence beyond questionnaires
Regular on-site assessments of delegate operations
Documented evidence of due diligence activities and findings
Clear escalation procedures for identified issues

2. Conflict of Interest Management

With 55% of surveyed IFMs reporting conflict disclosures—often from intra-group delegations—the CSSF mandates:

Detailed conflict registers covering both IFM and delegates
Protocols preventing conflicted individuals from influencing decisions
Enhanced scrutiny of fund initiator relationships
Regular conflict assessments and board reporting

3. Contingency Planning

The review highlighted inadequate business continuity planning. The CSSF expects:

Predefined exit strategies for each delegation arrangement
Maintained shortlist of suitable alternative delegates
Documented transition procedures
Resource, cost, and logistics assessments for potential transitions

Why This Matters Now

The CSSF's thematic review already addresses AIFMD II requirements that weren't expected to become applicable until April 2026. This signals that the regulator views these as best practices today, not future obligations. IFMs that wait until the transposition deadline risk regulatory scrutiny and potential enforcement action.

Compliance Checklist for Conducting Officers

Required – Mandatory under AIFMD II

Recommended – CSSF best practice

Delegate inventory: Maintain complete register of all portfolio management and risk management delegates, including sub-delegates
Due diligence documentation: Document initial and periodic due diligence for each delegate with dated records and findings
FTE tracking: Calculate and document FTE counts for internal vs. delegated portfolio/risk management functions
Conflict register: Maintain detailed conflict of interest register covering IFM and all delegates
Regulatory status verification: Document regulatory status and supervisory authority for each delegate
KPI framework: Establish clear performance indicators for each delegation arrangement
Alternative delegate shortlist: Identify and pre-assess potential replacement delegates
Exit playbooks: Document transition procedures and resource requirements for each delegation
On-site visit schedule: Establish regular site visit cadence beyond questionnaire-based reviews
Board reporting template: Create standardized delegation oversight reporting for board meetings

Action Timeline

Now – Q1 2026

Gap Assessment

Audit current delegation arrangements against AIFMD II requirements
Review existing due diligence documentation for completeness
Assess conflict of interest frameworks and registers
Evaluate exit planning and contingency procedures

Q1 – Q2 2026

Framework Enhancement

Implement enhanced due diligence procedures and documentation
Establish or update conflict registers
Develop KPI frameworks for delegate monitoring
Create alternative delegate shortlists

Q2 2026

Reporting Preparation

Implement data collection for expanded Annex IV requirements
Establish FTE tracking for internal vs. delegated functions
Test reporting workflows and data quality
Train staff on new procedures

Ongoing

Continuous Compliance

Regular due diligence reviews with documented outcomes
Periodic conflict assessments and board reporting
Annual review of exit strategies and alternative delegates
Timely Annex IV submissions with complete delegation data

The Bottom Line

AIFMD II's delegate oversight requirements represent a significant operational and compliance burden for Luxembourg AIFMs. While the directive formalizes many existing CSSF expectations, the enhanced reporting requirements and extraterritorial scope create new challenges—particularly for firms with complex, multi-jurisdictional delegation arrangements.

Conducting officers who begin preparing now will be better positioned to demonstrate robust governance to the CSSF and avoid the scramble that typically accompanies regulatory deadlines. Those who wait risk both regulatory scrutiny and operational disruption.

"The CSSF expects IFMs to complete their reviews by end of Q1 2025, with particular urgency around conflict management frameworks ahead of AIFMD II implementation in April 2026."

— CSSF Thematic Review on Delegation Oversight

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