Becoming the EU’s leading securitisation centre
Despite Malta introducing a legal framework for securitisation in 2006, the financial crash meant that it was rarely used until around 2012. But there are signs that securitisation is gaining some momentum locally. This is being helped by a dedicated regulated market for wholesale securities, the European Wholesale Securities Market (`EWSM'); a joint venture between the Irish Stock Exchange and Malta Stock Exchange established in 2012 that allows the listing of wholesale-denominated debt securities to trade on an EU-regulated market.
"The revival of securitisation in the EU is now considered to be one of the priorities of the Capital Markets Union, in particular for the refinancing of SME loans and to reduce reliance on bank funding," comments Paul Mifsud (pictured), Managing Director, Sparkasse Bank Malta. "We believe that securitisation as well as private placements of bonds through Maltese vehicles could fit well within the scope of the European Commission's initiatives in this regard, and that Malta is well placed to offer cost-effective solutions for companies to raise non-bank financing."
The Maltese Securitisation Act covers three main types of securitisation: asset securitisation, synthetic securitisation and whole business securitisation. A securitisation vehicle set up as a Maltese company has to appoint a local auditor; otherwise, the appointment of external service providers is optional. "The securitisation vehicle may delegate the day-to-day administration function to a third party, including the originator of the securitisation assets," explains Mifsud.
To further strengthen Malta's position, an innovative piece of legislation – the Securitisation Cell Companies Regulations – was enacted on 28th November 2014. This improves investor protection by formally recognising the segregation and protection of assets allocated to segregated accounts, compartments or units within the same company. A securitisation cell company (`SCC') may be established for the purpose of either entering into securitisation transactions or assuming risks as a reinsurance special purpose vehicle.
"The SCC is a company that creates one or more segregated cells by means of a board resolution. The cells do not have separate legal personality – only the SCC does – but do have separate patrimony status: the assets and liabilities of one cell are treated as being separate from the assets and liabilities of any other cell within the SCC, and from the assets and liabilities of the SCC itself. Assets attributable to a cell are only available to the creditors of that cell and are ring-fenced from other creditors," explains Mifsud.
Mifsud notes that in terms of financing the securitisation transactions for each cell, the SCC would issue financial instruments in respect of the relevant cell, in one or more tranches: "Typically, these would be debt securities but it is also possible to issue shares in respect of a particular cell. Debt securities may be listed and admitted to trading on a regulated market such as the EWSM, or can be offered on a private placement basis.
With the legal and regulatory framework in place, Sparkasse Bank is starting to see interest build among asset managers for tailor-made solutions in alternative asset classes such as real estate and corporate loans.
Mifsud concludes, "While it is possible to set up so-called "loan funds" in Malta, investment in asset backed securities, issued by a securitisation vehicle, may be a more appropriate and efficient means for asset managers or their clients to take advantage of credit opportunities, depending on the circumstances."