Wa alaykum as-salamu wa rahmatullah

In the Name of Allah, the All-Merciful, the Mercy-Giving

All praise is due to Allah. Peace and blessings be upon our Prophet Muhammad.

No, this is not permissible at all because he is marriageable to her. You need, on the one side, to teach your son the Islamic code of conduct toward marriageable members of the other sex and how to refuse such a hug politely on Islamic grounds. On the other hand, you need to talk to your brother to tell his wife that your son has become adult and that she can no longer hug him, even if the age difference is a big one.

Allah Almighty knows best