Securisation Vehicles

Securitisation vehicles and collective investment scheme structures are both corporate set-ups which, while they are set-up with different goals, often have overlapping elements which may cause various legal and financial issues for clients. Hence it is possible that due to such overlapping elements, a securitisation vehicle may potentially be classified as a collective investment scheme, which would have significant legal, regulatory and legal repercussions.

Alternative Investment Funds (“AIFs”) are collective investment undertakings whose aim is to pool capital in line with an already defined and communicated policy for the benefit of its investors. AIFs different from under funds regulated under the Undertakings for Collective Investment in Transferable Securities (“UCITS”) Directive as AIFs only target professional investors. Additionally, AIFs tend to invest less in traditional securities such as bonds, stocks, or derivatives but rather invest in non-traditional assets such as private equity, hedge funds, or real estate.

AIFs are regulated by the Alternative Investment Fund Managers Directive (“AIFMD” or the “Directive”) and its regulatory aim is towards principles such as systematic risk oversight, investor protection, and market stability. Hence, AIFs are typically aimed at professional investors, as the AIFMD framework focuses more on market stability and transparency than retail investor protection. Such differences allow the AIFs to be more attractive to professional investors rather than to retail investors.

The AIFMD has been into force for over 10 years and intends to lay down rules for authorisation, ongoing operation and transparency of AIF managers (“AIFMs”) that intend to manage or market AIFs in the European single market.

Therefore, this Directive regulates:

• EU AIFMs that manage one or more AIFs, whether that AIF is EU or non-EU;
• Non-EU AIFMs that manage one or more EU AIFs; and
• Non-EU AIFMs that market AIFs in the European single market, regardless of the AIF being EU or otherwise.

This being considered not all undertakings not within the scope of the UCITS Directive are AIFs and within the scope of AIFMD. This directive specifically excludes Securitisation special purpose entities amongst others from scope.

Moving on to securitisation vehicles, these entities are generally referred to as Financial Vehicle Corporations (“FVC”). The AIFMD does not put forward a definition of SPVs but simply excludes them from scope. The legal scope of FVCs is better understood and better provided for in the Regulation 1075/2013 concerning statistics on the assets and liabilities of FVCs engaged in securitisation transactions. It shall have the following meaning:

“an undertaking which is constituted pursuant to national or Union law under one of the following:

• contract law as a common fund managed by management companies;
• trust law;
• company law as a public or private limited company;
• any other similar mechanism;

and whose principal activity meets both of the following criteria:

• it intends to carry out, or carries out, one or more securitisation transactions and its structure is intended to isolate the payment obligations of the undertaking from those of the originator, or the insurance or reinsurance undertaking; and

• it issues, or intends to issue, debt securities, other debt instruments, securitisation fund units, and/or financial derivatives (hereinafter the ‘financing instruments’) and/or legally or economically owns, or may own, assets underlying the issue of financing instruments that are offered for sale to the public or sold on the basis of private placements.

This definition does not include:

• Monetary financial institutions;
• Investment funds;
• insurance undertakings or reinsurance undertakings;
• Managers of alternative investment funds which manage and/or market alternative investment funds”

The definition of FCVs is further narrowed in a guidance note published by the European Central Bank, whereby a FCV is defined as a vehicle that shall be set up in advance for securitisation, be legally separate from the original lender and thus providing bankruptcy safeguards, and must own or be tied to real credit-related assets like loans. The ECB also says that these vehicles should mainly deal with credit risk, not other things like exposure to stocks or commodities. This strict definition means that some more complex or synthetic deals might not be exempt from the AIFMD. Such securitisation structures include whole-business securitisations or synthetic risk transfers.

Conversely, the Maltese Securitisation Act provides that securitisation vehicles are not considered to be collective investments schemes, hence, also ruling out securitisation vehicles to be categorised as AIFs. This being considered the Malta Financial Services Authority shall still be able to deem the securitisation vehicles it deems appropriate as collective investment schemes.

Therefore, this Maltese implementation of the AIFMD enables securitisation vehicles set up in Malta to be exempt from the AIFMD regulatory regime by virtue of the domestic transposition. Such relief removes the need to comply with requirements such as fund manager authorisation, capital adequacy, risk and liquidity management, investor disclosures, and leverage limits.

Malta’s approach to the treatment of securitisation vehicles stands out for its legal clarity and practical advantage. By explicitly removing such vehicles from the scope of collective investment schemes, unless specifically designated otherwise by the MFSA, Malta eliminates the uncertainty seen in other jurisdictions where the applicability of AIFMD may depend on interpretation. This certainty not only simplifies compliance considerations for originators and arrangers but also enhances Malta’s appeal as a securitisation-friendly jurisdiction within the EU, particularly for those seeking structured finance solutions without fund-level regulatory constraints.

For any information or assistance, please contact us at info@gtg.com.mt

Author: Dr Neil Gauci