With European demand for securitisation products growing, Malta is deftly positioning itself as a rival to Luxembourg and Ireland as a hub for onshore securitisation structures. The only EU member – besides Luxembourg – with dedicated securitisation legislation, Malta has become one of the fastest growing securitisation centres in the EU, and the number of securitisation vehicles has grown from just 18 in 2015 to 40 by the end of 2017. These covered a variety of asset classes including lease and other receivables, various categories of loans and financial instruments and even container vessels.
Malta’s Securitisation Act provides a robust creditor-friendly framework, which means greater certainty for many of the legal challenges that investors are typically faced with in any securitisation transaction, while the Securitisation Cell Company offers an innovative vehicle for platform and programme structures. Malta is the first EU member state to legislate for the use of segregated cell companies, already popular in the insurance and funds sectors, for securitisation transactions. In 2017, the island launched the Institutional Financial Securities Market (IFSM), a market for debt securities, asset-backed securities, derivative securities and insurance linked notes specifically designed for the institutional investors, which puts Malta at par and direct competition with the financial services hubs of Luxembourg and Dublin.
Malta's Ministry for Foreign Affairs, Valletta
Malta’s Securitisation Act dates back to 2006, although it was not until recently that Maltese securitisation structures began gaining traction in tandem with the recovery of the global securitisation market following its collapse as a result of the 2008 financial crisis. Securitisation is experiencing a comeback, and is now widely viewed as an efficient and effective financing tool. By transforming illiquid assets into tradable securities, securitisation can help channel cash flow to borrowers and fund significant economic development, while helping issuers and investors diversify risk across asset classes and across the globe. Reviving securitisation is also part of the EU’s Capital Markets Union project, which is being designed to encourage capital markets financing and reduce companies’ reliance on bank funding.
The European securitisation market was hit hard by the financial crisis, with issuance falling from a €450 billion high in 2006/2007 to about €80 to 90 billion, according to the Association for Financial Markets in Europe. In 2017, the European Commission proposed two legislative measures to restore market activity in EU securitisation transactions: the Securitisation Regulation and the Securitisation Prudential Regulation, aiming to introduce a more favourable, simple and transparent framework for the sector. These initiatives, which form part of the EU Capital Markets Union, have sparked renewed enthusiasm for securitisation, and the expectation is that securitisation could reach an annual volume of €350 billion once the new legislation becomes applicable to transactions in 2019.
In this climate, Malta is set to play a leading role in meeting this growing demand. Its strong legal framework, which provides for statutory bankruptcy remoteness and true sale, among other benefits, and tailored rules on tax neutrality, together with the solid foundations that have already helped the country become a leading European financial centre, are expected to contribute to Malta’s growth in this area.
Maltese securitisation vehicles do not require authorisation unless they issue securities to the public on a continuous basis or undertake the business of reinsurance special purpose vehicles in the context of insurance linked securities transactions and are, instead, merely required to notify the Malta Financial Services Authority (MFSA) of their intention to commence securitisation activities.
Malta Financial Services Authority (MFSA)
The Cell Company Concept
The Securitisation Cell Company (SCC) is a single legal entity that can establish one or more segregated cells for the purpose of entering into securitisation transactions, with the assets and liabilities attributable to each cell constituting a separate patrimony of the SCC that are segregated from the assets and liabilities of other cells and from the non-cellular patrimony of the SCC. Assets attributable to a particular securitisation cell are therefore only available to investors and other creditors transacting with that cell. SCCs are the ideal vehicle for programme or platform structures, offering cost efficiency and quicker set-up time for each cell while ensuring robust legal segregation between transactions. The number of SCCs established in Malta has grown from just two in 2015 to 15 SCCs with 26 cells at the end of 2017.
Malta is also aiming to become the jurisdiction of choice for the securitisation of transport-related assets. Maltese vehicles have recently been utilised for the securitisation of container vessels and their bareboat charter party receivables. While securitisation is not a financing technique typically employed by ship owners, it could prove to be a useful means of securing alternative funding as traditional sources of financing are becoming increasingly limited or expensive. While capitalising on Malta’s securitisation regime, securitisation transactions involving ships are also able to take advantage of the benefits offered by Malta’s tried and tested shipping regime, such as efficiency and certainty of enforcement of a mortgagee in an event of default, as well as the automatic stay on insolvency proceedings of the vehicle pending the outcome of the enforcement proceedings on the vessel. Malta’s more recently introduced aviation legislation, established in part on the jurisdiction’s well-established shipping framework and in part on international benchmarks such as the Cape Town Convention, similarly offers an interesting proposition for the securitisation of aircraft when considered together with the Maltese securitisation regime.
Among the extensive list of asset-classes that can be securitised, Maltese securitisation vehicles, or cells in an SCC, can be used for the assumption of risk in insurance-linked securities transactions such as catastrophe bond issuances, longevity risk transfer transactions, collateralised reinsurance transactions and cell sidecars, provided they obtain the prior authorisation of the MFSA. As the global reinsurance market evolves, with increasing numbers of reinsurers tapping the capital markets and seeking alternative risk management vehicles, Malta offers a secure solution for European insurers looking for Solvency II compliant reinsurance securitisation structures.
In 2017, the Malta Stock Exchange also received approval to launch the IFSM, the first fully Maltese-regulated wholesale securities market. The IFSM offers increased flexibility and the ability to create securitised instruments tailored to issuers’ own corporate requirements as well as to investor groups’ specifications. It is regulated under the Wholesale Securities Market (WSM) Listing Rules and only admits wholesale financial instruments with a denomination of at least €100,000.
The English language gives the country another advantage over other popular securitisation locations. As one of the country’s official languages, the vast majority of the Maltese workforce speaks English fluently, while legislation and regulations are also published in English. There are also a number of legal, accountancy and audit firms with significant experience in securitisation present in Malta.
Maltese Parliament, Valletta
A Preferred Jurisdiction
While there may still be some remaining reservations or misgivings regarding securitisation, these do not invalidate its economic rationale, and the opportunities for securitisation in Malta are abundant. Malta’s securitisation framework is specifically designed to protect the interests of investors. This is one of the reasons why Malta is becoming a preferred jurisdiction for the structuring of securitisation vehicles at a time of investor-centric international regulatory initiatives, such as the EU’s standardised securitisation framework, which are expected to help improve perceptions of securitisation as an effective means of alternative financing and increase global demand for securitised products.