Hedgeweek.com's Special Report 2016 featured Malta as an Alternative Investment Fund Services jurisdiction, discussing new opportunities with various stakeholders in the sectors. The report also carries an interview with MFSA Chairman Prof Bannister, who gave a detailed introduction of the applicable structures in Malta.

Malta provides a legal framework for securitisation vehicles, primarily through the Securitisation Act which has been in place since 2006, and more recently, the Securitisation Cell Companies Regulations, introduced in 2014. This legal framework has enabled Malta to develop into a jurisdiction of choice for securitisation transactions. The Securitisation Act provides both legal clarity and investor protection whilst enabling flexibility in the structuring of securitisation transactions. Any asset can be securitised including future receivables and the securitisation vehicle may take many different forms, which means that there is a vast scope of options for securitisation structures. Tailored income tax neutrality provisions, statutory bankruptcy remoteness provisions and a network of over 65 double tax treaties increases the attractiveness of the legal framework.

Prof Bannister indicated that following the establishment of the European Wholesale Securities Market, Malta has seen a significant interest in securitisation products from professional investors. The introduction of the Securitisation Cell Companies Regulations has brought an increase in the number of securitisation vehicles structured in Malta.

The Securitisation Cell Companies Regulations were introduced by Legal Notice 411 of 2014. The Regulations provide an effective and legally entrenched framework for segregation of different sets of assets and risk instruments within a single special purpose vehicle, the Securitisation Cell Company, thereby allowing for the launch of multiple securitisation transactions without incurring any risk of cross-contamination between the different sets of creditors and investors. The Securitisation Cell Companies framework can also be adopted for the structuring of reinsurance special purpose vehicles in order to tap into the cross-border opportunities of insurance linked securities since the coming into force of the Solvency II Regime.

Prof Bannister further explained that "the Securitisation Act is both non-intrusive and flexible, and at the same time secures the required level of investor protection. Should the securitisation company become insolvent, the Securitisation Act provides for rules aimed at protecting the rights of the investors, the originator and other securitisation creditors over securitisation assets. Furthermore, the bankruptcy remoteness principle isolates the securitisation assets from any insolvency risks of the securitisation vehicle, the originator or any service providers."

Securitisation creditors, including bondholders in a securitisation vehicle enjoy a privilege over the assets of the securitisation vehicle, and therefore rank prior to other claims at law. The Securitisation Cell Company framework has brought in an additional structuring option, which increases economies of scale and enhances investor protection while enabling the structuring of multiple transactions though a single securitisation vehicle.

The MFSA Chairman was also asked about the loan market, especially as the EU looks to introduce a level playing field with the Capital Markets Unit. Prof Bannister noted that the Action Plan on Building a Capital Markets Union seeks to explore ways to build a pan-European approach to better connect SMEs with a range of funding sources and to strengthen alternative funding channels for these types of enterprises. The recent increase in the structuring of securitisation arrangements under the Securitisation Act also connects well with the European approach, which aims to revitalise the cross-border securitisation market and introduce a framework for simple, transparent and standardised securitisations. This comes at the same time as the launch of the Maltese loan funds framework, which is built on the AIFMD and further reinforced by a number of risk mitigation conditions. These developments will continue sustain the momentum that is driving Maltese financial services going forward.

To date, the Authority has licensed five loan funds and 30 securitisation vehicles, together with one licensed reinsurance vehicle. The Authority is confident that both the securitisation and the loan fund market will increase the relevance of the financial sector to the real economy and SMEs, thereby contributing to the deepening of the financial markets.

The full report is available through the MFSA Website on: https://goo.gl/X3rhWs

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