On the 2nd April 2014, the Malta Financial Services Authority (MFSA) issued a set of Investment Services Rules establishing the “Standard Licence Conditions applicable to Collective Investment Schemes authorised to invest through Loans”. The said Rules apply specifically to loan funds together with all additional laws, regulations or standard licence conditions relative to Alternative Investment Funds (AIFs) or Professional Investor Funds (PIFs).
The new MFSA Rules were prompted by several enquiries relating to the licensing and regulation of loan funds under the Investment Services Act and seek to address the particular risks associated with such funds.
The Rules are based on the provisions of the AIFM Directive, as duly transposed into Maltese law in 2013, and also draw on the relevant MFSA Banking Rules such that the inherent characteristics of collective investment schemes have been retained whilst ensuring consistency with the Banking Act.
Summarily, the new regulatory regime comprises the following salient features:
- Loan funds may be established as PIFs or AIFs and are to be structured as unleveraged closed-ended schemes which will invest through loans solely and exclusively to unlisted companies and SMEs.
- Units may only be sold to professional investors (as defined in Section I, MiFID) or to investors who, on request, elect to be treated as professional clients (as per Section II, MiFID) subject to a minimum investment of EUR 100,000.
- The Scheme must appoint a fund manager, a custodian, an auditor, a compliance officer and a money laundering reporting officer.
- The use of leverage and short selling techniques and the reuse of collateral by the Scheme are not permitted.
- The fund manager is required to (i) establish and implement a credit risk strategy and related policies proportionate to the scope and sophistication of the Scheme’s activities, which will establish the framework for lending and guide the credit granting activities of the Scheme; and (ii) employ an appropriate liquidity management system and adopt procedures which enable the monitoring of liquidity risk of the Scheme and ensure that the liquidity profile of the scheme complies with its underlying obligations. This latter requirement builds on the provisions of the AIFM Directive using concepts normally applied in the banking sector.
- Detailed disclosure obligations to investors modelled on the disclosure requirements prescribed in the AIFM Directive.
The MFSA will highlighted its commitment to monitor developments relative to the regulation of shadow banking both at European and international level and indicated that the new Rules may be updated as and when appropriate.
The updated Rulebooks are publicly available for download on the MFSA’s official website.