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Mindful of the fact that certain businesses are finding it increasingly difficult to gain access to capital through traditional lending sources, on the 10th of November 2020, the Malta Financial Services Authority (‘MFSA’) restructured the Loan Funds Regime by publishing a revised version of the Loan Funds Rules, the aim of which is to achieve a better balance between the need for a comprehensive regulatory framework and making the regime more practical and accessible to the fund industry. The revised Rules are applicable from the 10th November 2020 onwards.
WHAT CHANGED?
The list below highlights the most salient changes which were made to the Loan Fund rules:
- The requirement of having all the sub-funds of an umbrella structure licensed as loan funds has been removed. Thus, a Scheme structured as a multi-fund company may have a sub-fund licensed as a loan fund and other sub-funds having other investment objectives.
- Previously, the Loan Funds could only issue loans to unlisted companies and small and medium-sized enterprises (‘SMEs’), whilst financial undertakings, households and individuals were not eligible to receive any financing. Under the revised Rules, this was amended and largely follows the European Securities and Markets Authority’s (“ESMA”) Opinion on Loan Origination Funds. Furthermore, under the revised Rules, loan-originating funds shall not be able to originate loans to the following debtors:
- Individuals;
- Financial undertakings;
- Collective investment schemes;
- The Alternative Investment Fund Managers (“AIFM”) and related parties, including the fund’s service providers.
- Borrowing restrictions previously applicable to Loan Funds were removed and now, the use of leverage, including borrowing, is allowed up to 200% of the net assets of the Scheme. Previously, the use of leverage and the reuse of collateral were not permitted, whilst borrowing was only allowed under certain conditions. Short selling and reuse of collateral are still not permitted.
- The initial paid up share capital requirement of self-managed Loan Funds licensed as Professional Investor Funds which was set at €300,000 was removed. Therefore, Loan Funds licensed as Professional Investor Funds would now require an initial paid up share capital of €125,000.
COLLECTIVE INVESTMENT SCHEMES ALREADY LICENSED IN TERMS OF THE LOAN FUND RULES
The previous version of the Loan Funds Rules shall remain applicable to current collective investment schemes which have been established in terms of the Loan Funds Rules and have been licensed up to the 10th November 2020. However, licensed funds may choose to amend any of their current applicable requirements in terms of the revised Rules. Before doing so, the said funds must duly notify investors and seek regulatory approval.
While the previous Rules remain applicable, existing licensed loan funds are nonetheless expected to assess how the revised framework might impact the fund. Any potential issues arising as a result of the revised Loan Fund Rules requiring action by the licensed scheme, need to be addressed by no later than 1st November 2021.
If an existing Loan Fund has been granted any derogations by the MFSA in terms of the previous Rules, the licence holder is expected to undertake an assessment of the applicability or otherwise of such derogation.
For further information about how GVZH Advocates can assist you in terms of the MFSA revised Loan Fund Rules, kindly contact us on [email protected].