MFSA launches rulebook for collective investment schemes investing through loans

Malta's flexibility as a domicile for funds has recently been enhanced through the introduction of a rulebook addressing the needs of collective investment schemes investing through loans. The introduction of the rulebook answers in the affirmative a question that has long pre-occupied financial services professionals in the jurisdiction i.e. can a fund issue loans? The Maltese legal environment for money lending companies remains imperfect, with the rules governing money lending under the financial institutions act being particularly unwieldy, but there can be no doubt that this is a step in the right direction for Malta.

The positive development does not however come without some caveats.  In particular the rulebook is very particular about the borrowers that may borrow from an MFSA authorised loan issuing fund i.e 'unlisted companies and SMEs'. Some other noteworthy features of the rulebook are the following:

• The fund must be of a closed-ended nature (although there are certain limited flexibilities)
• The fund can only be sold to professional investors as defined under MiFID, or investors who elect to be treated as professional investors and invest a minimum of EUR 100,000
• The fund must implement a credit risk strategy
• The fund must maintain a liquidity management policy
• The fund must adhere to a number of investment restrictions

You can read our full report on the rules here: http://www.ccmalta.com/publications/malta-loan-funds

Dr Charles Cassar

Chetcuti Cauchi Advocates