On the 6th September 2022, the Malta Financial Services Authority (“MFSA”) issued a circular on Article 6 of the European Market Infrastructure Regulation (“EMIR”) which states the following: “ESMA shall establish, maintain and keep up t Read more
Securitisation provides a method for capital market financing and the flexibility of the Maltese securitisation framework allows for a wide range of assets which may be securitised through a Maltese vehicle.
We would be able to offer the following services in an efficient and professional manner:
Structuring, legal and regulatory advice;
Assisting with the notification process;
Drafting of all internal rules, internal policies, and internal procedures;
Reviewing and/or drafting of necessary documentation;
Liaising with the competent Maltese authorities on an ongoing basis;
Assisting with the company incorporation;
Advising to ensure compliance with all the Anti-Money Laundering (AML) requirements and establishing effective KYC procedures; and
Reviewing and negotiating legal agreements.
Securitisation refers to when an originator transfers an asset or liability (“Securitisation Asset”) to a special purpose vehicle (“Securitisation Vehicle”), which issues financial instruments to investors who fund the securitisation transaction. Securitisation may be set up for:
True sale transactions: when the originator transfers assets to the Securitisation Vehicle; or
Synthetic transactions: when the Securitisation Vehicle assumes any risks from an originator by any means; or
Loan transactions: when the Securitisation Vehicle grants secured loans or other secured facilities to an originator.
A Securitisation Asset means any asset, whether existing or future, whether movable or immovable, and whether tangible or intangible and includes risks. The Securitisation Vehicle may be a public or private company, a commercial partnership, a trust created by a written instrument, a foundation or any other legal structures as long as it is permitted by the Malta Financial Services Authority (“MFSA”). Furthermore, the Securitisation Vehicle may be established under the laws of Malta or under any other jurisdiction recognised by the MFSA.
In terms of licensing requirements, whereas a Securitisation Vehicle that issues or intends to issue financial instruments to the public on a continuous basis, (“Public Securitisation Vehicle”) shall apply to the MFSA in order to obtain a licence, a private securitisation vehicle must only notify the MFSA of its intention to enter into a securitisation transaction before commencing business. This notification must be made in the standard form established by the MFSA and must include details of the Securitisation Vehicle and the securitisation transaction.
Main benefits of the Maltese Securitisation Regime
Securitisation Vehicles are bankruptcy remote from the originator, meaning that no proceedings taken in relation to the originator, including any insolvency proceedings and proceedings affecting creditors’ rights, will have any effect on:
The Securitisation Vehicle;
The assets acquired or risks assumed by the Securitisation Vehicle, including any cashflow or other asset; and
Any payments due by the underlying debtors in connection with the securitised assets.
Further protection is granted by the Securitisation Act including the following:
Enforceability of agreements: Ensures that the agreement between the parties to a securitisation transaction is enforceable and in case of a suspensive condition, the parties do not need to go to court in order to confirm that this event has occurred or otherwise;
Limited Recourse: It is prohibited for any person other than a securitisation creditor to issue any act or warrant against the Securitisation Vehicle;
Non-petition clause: The Securitisation Vehicle’s constitutive documents may allow a particular securitisation creditor or class of them, to demand or place the securitisation vehicle under any dissolution and winding-up proceedings, company recovery procedure, company reconstruction or any proceedings affecting creditors’ rights generally, in any securitisation creditor or class thereof, to the exclusion of other persons;
Privileged claims: Investors and other securitisation creditors have a privilege over the securitisation assets and such privilege shall rank prior to all other claims at law and extends to the proceeds derived from the securitisation assets, to any funds received in payment and to the assets, if any, in which they are invested. This privilege takes operation by law and no registration is required.
The Securitisation Act provides that the originator and the Securitisation Vehicle are free to choose any method of transferring the securitisation assets, including, without limitation, by novation, sale, assignment and declaration of trust. More importantly, the transfer or assignment from the originator to the Securitisation Vehicle shall be considered as final, absolute and binding on all parties and subject to a few exceptions, no re-characterisation or claim by the originator’s creditors is allowed.
Assets held by third parties
The management and responsibility for the daily administration of the Securitisation Vehicle or of the assets or risks thereof may be delegated to any third party, including the originator. Any asset held by any such third party shall be considered as being held on trust for the benefit of the Securitisation Vehicle and the trustee shall ensure that these assets are segregated from his own and those of other customers.
Securitisation Vehicles are subject to income tax on worldwide income. However, this can be substantially reduced or eliminated through the deductions of eligible expenses under the Securitisation Transactions (Deductions) Rules. These deductions include sums payable by the Securitisation Vehicle to the originator or assignor, expenditure incurred in respect of the day-to -day administration of the Securitisation Vehicle, and payables in relation to the financial instruments. Furthermore, if after taking into account the afore-mentioned deductions, tax is chargeable on any remaining total income of the securitisation vehicle, a further deduction of an amount equal to the said reaming total income may be claimed.
Other tax benefits include no tax liability for an originator who is a non-Maltese tax resident, no withholding tax on payments of interest by the Special Purpose Vehicle to non-Maltese resident investors holding equity or debt instruments in Special Purpose Vehicles, and an exemption from VAT in relation to transactions in securities.
Simple Transparent and Standardised Securitisation
Regulation (EU) 2017/2402 (“Securitisation Regulation”) replaces the previous approach to securitisation regulation and provides a comprehensive set of rules that apply to European securitisations and applies to institutional investors and to originators, sponsors, original lenders and securitisation special purpose entities (the “Applicable Parties”). The Securitisation Regulation provides for certain key requirements in relation to the Applicable Parties which can be summarised as follows:
Due Diligence: Institutional Investors shall verify compliance with the credit granting criteria mentioned in the Securitisation Regulation and shall carry out a due diligence assessment which enables it to assess the risks involved;
Risk Retention: The risk retention is 5% and the Applicable Parties have a direct obligation to ensure compliance with the risk retention requirements;
Transparency: Originators, sponsors and securitisation special purpose entities (SSPEs) must make detailed information available to holders of securitisation positions, competent authorities and investors (upon request); and
Re-securitisation: Subject to certain instances, re-securitisation is not allowed.
The Securitisation Regulation also provides a specific framework for simple, transparent and standardised (“STS”) securitisations, which designation applies to securitisation that meet certain requirements. In this regard, STS transactions and bound by the same due diligence, risk retention and transparency requirements but they will be subject to lower capital requirements.
In the context of the Securitisation Regulation, the term “Securitisation” is to be understood as a transaction or scheme, whereby securitises credit risk and issues tranched, subordinated securities. Therefore, if the securitisation is out of scope of the Securitisation Regulation as it securitises a risk other than credit risk or it does not tranche the securities issued, the Securitisation Act would apply. Furthermore, it shall be noted that in the case the securitisation is within the scope of the Securitisation Regulation certain requirements from the Securitisation Act may still apply.
Securitisation Cell Companies
In terms of the Securitisation Cell Companies Regulations (the “Regulations”), a Securitisation Cell Company (“SCC”) is a company creating within itself one or more cells to segregate and protect the cellular assets of the company. A SCC can be set up for the purpose of entering into securitisation transactions or for reinsurance purposes. Moreover, a SCC shall at all times be considered as a single legal person and the creation by a SCC of a cell does not create, in respect of that cell, a legal person separate from the SCC.
The assets of the company attributable to the cells of the company (“Cellular Assets”) must be separate and identifiable from other cellular assets and non-cellular assets of the SCC and in terms of segregation, the asset and liabilities of each cell are separate and distinct from those of other cells. Indeed, Cellular Assets attributable to a cell are only available to creditors of that particular cell and where a liability arises in relation to a particular cell, only the Cellular Assets of that particular cell shall be used to satisfy that liability. Any liability not attributable to a particular cell of a SCC is the liability of the SCC’s non-cellular assets.
The Regulations also provide that a cell may be established by means of a board of directors’ resolution resolving to establish a cell for the purpose of a securitisation transaction. An SCC incorporated as a public company is required to have a minimum share capital of €46,588 whereas a private company is required to have a minimum share capital of €1,165. No minimum capital requirements are applicable in relation to the establishment of a cell. Whereas an SCC established to act as a Securitisation Vehicle shall notify the MFSA prior to commencing business in respect of any cell, approval by the MFSA of the creation of a cell is required in relation to an SCC that issues financial instruments to the public on a continuous basis.