Securitisation

The flexibility of the securitisation regime allows for an extensive range of assets, including future receivables, which may be securitised through a Maltese vehicle.

In any form of securitisation, an originator such as a bank or an insurer, transfers an asset or liability to a Special Purpose Vehicle (SPV) – or a securitisation vehicle as termed in the Securitisation Act – which issues securities to investors who in turn fund the asset or liability transferred. The key benefit of securitisation is that it can provide non-traditional sources of capital market financing and in this way complements traditional debt and equity financing available to businesses.

The Securitisation Act provides a legal framework for domestic and cross-border securitisations to take place in and from Malta. It provides a comprehensive framework for the conversion of receivables or other assets into securities that can be placed and traded in capital markets.

Besides the traditional forms of structured finance, Malta intends to develop a niche area in securitisation vehicles in insurance, life settlement policies, finance raising for intellectual property structures as well as environment and transportation projects.

A securitisation vehicle enjoys tax neutral status optimising the investors’ return and the originator’s cost of funding. Although, as a rule, securitisation vehicles are liable to 35% tax in Malta substantial deductions are available, which effectively eliminate any taxable income in Malta. Specifically enacted tax rules clarify the deductions available for securitisation vehicles.

Securitisation vehicles can be setup for:

  • Sale transactions: the originator transfers a pool of assets to the securitisation vehicle
  • Synthetic transactions: the securitisation vehicle assumes the credit risk of the originator through credit derivatives
  • Loan transactions: the securitisation vehicle grants secured loans or other secured facilities to the originator
 Download your copy of the Securitisation Factsheet

Insurance-linked securities and RSPVs

The current challenging environment across Europe has increased the need to maximise returns and has stimulated new ways of transferring risk and financing reinsurance. Malta is targeting the insurance-linked securities (ILS), catastrophe bond and reinsurance convergence sector by providing the use of Reinsurance Special Purpose Vehicles (RSPVs). The regulation allows for RSPVs to be authorised, formed and regulated in Malta, and is a move that is expected to attract ILS issuers to the domicile – particularly European based transactions.

As of February 2012, securitisation vehicles have had the option to have their securities listed on the European Wholesale Securities Market (EWSM), a European regulated market based in Malta. Listing on the EWSM is advantageous to the issuer as it enhances the publicity and credibility of the securities offering.

RSPV Regulatory Framework:

  • The Insurance Business Act allows for the making of regulations which provide for the establishment of special purpose vehicles within the meaning of the Reinsurance Directive (Directive 2005/68/EC).
  • The RSPV Regulatory framework provides for the authorisation and regulation of RSPVs. Applies the Insurance Business Act (Cap.403) and the Securitisation Act (Cap 484)
  • Aligned with EIOPA Advice for Level 2 Implementing Measures on Solvency II (Directive 2009/138/EC)

Authorisation Process:
Procedures for the authorisation of an RSVP for specific use/s. Includes Mandatory Conditions required for all Contractual Arrangements to ensure that claims of the providers of capital to the RSPV are at all times subordinated to the reinsurance obligations of the RSPV to the insurance or reinsurance company.

Governance Requirements:
Qualifying shareholders and key functionaries must be fit and proper persons and the RSPV’s system of governance needs to be appropriate to the nature, scale and complexity of the risk that the RSPV assumes.

Solvency Requirements:
RSPVs must be fully funded at all times. The value of its assets must be equal to or exceed the aggregate maximum risk exposure, so that the RSPV is able to pay the amounts it is liable for as they fall due.

Supervisory Reporting:
The RSPV is required to report to the MFSA on the value of its assets, its aggregate maximum exposure, any conflicts of interest, as well as any significant transactions entered into within a reporting period.

 

Securitisation Cell Companies (SCC)

Malta has broken new ground with the launch of a unique new structure called the Securitisation Cell Company (SCC), the legislation of which came into force in November 2014. The domicile was the first EU member state to introduce SCCs, which are companies, empowered to establish within themselves one or more cells for the purpose of securitisation transactions.

Niche Areas for Securitisation

  • Insurance
  • Life settlement policies
  • Raising finance for intellectual property structures and environment and transportation projects

 

 Download your copy of the Securitisation Factsheet