With global demand for securitization products growing, Malta is deftly positioning itself as a rival to Luxembourg and Ireland as a hub for onshore securitization 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 around 50 by the end of 2018. These covered a variety of asset classes including lease and other receivables, various categories of loans and financial instruments and even container vessels. As one of the most blockchain friendly countries in the world, Malta is now also seeking to develop a conducive environment for tokenisation, which is often described as the next generation of securitisation.
Attractive Securitisation Framework
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’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.
The island also launched the Institutional Financial Securities Market (IFSM), a market for debt securities, asset-backed securities, derivative securities and insurance linked notes specifically designed for institutional investors, which puts Malta on par with the direct competition from the financial services hubs of Luxemburg and Dublin.
The Rise of Tokenisation
Malta is also aiming to become the jurisdiction of choice for the tokenisation of assets. Tokenisation is the process that transforms rights to an asset into digital form – the so-called token – on the blockchain through a security token offering (STO). A security token can represent a share in a company, ownership of a piece of real estate, or participation in an investment fund. The main advantage of tokenisation is that it widens the investor pool by enabling fractional ownership of assets, thus lowering the minimum stake required to invest. However, tokenisation does not only offer liquidity, it also adds an extra layer of transparency to each transaction due to blockchain technology while the use of smart contracts can significantly reduce administrative and operational expenses related to asset financing. Tokens can also be traded on a regulated blockchain-powered exchange. Malta is uniquely placed to offer a supportive ecosystem for STOs through the enactment of its framework for Distribution Ledger Technologies (DLTs). In addition, the Malta Stock Exchange (MSE) has plans to set up two new exchanges for security tokens by the end of 2019 in partnership with digital asset giants Binance and OKEx.
A Focus on Investor Protection
In positioning itself as a centre for both securitisation and tokenisation, Malta places great importance on offering legal certainty and investor protection. Malta’s securitisation framework is specifically designed to protect the interests of investors, and the Malta Financial Services Authority is currently developing an STO policy, which takes into consideration the evolving needs of the industry while ensuring high standards of investor protection and market integrity. Although the token economy is still in its infancy, many believe tokenisation will soon become a mainstream method of asset financing, creating a new exciting asset class.