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ESMA opinion on key principles for a European framework on loan origination funds

13 April 2016

ESMA has published an opinion to the European Parliament, the Council of Ministers and the European Commission setting out its view on the necessary elements for a common European framework for loan origination by investment funds. The publication is in anticipation of a pending consultation by the Commission on loan origination funds, which is due to issue in the second quarter of 2016. The consultation forms part of the Commission’s Action Plan on Capital Markets Union.

Research by ESMA indicates that loan origination by funds is partly or fully allowed in the majority of Member States and ESMA has included an annex showing the different regimes across the EU. ESMA encourages the Commission to look at existing national approaches and regimes in devising a common EU framework, which may be provided for under a legislative proposal or by way of an ESMA instrument supplementing the AIFMD.

The key areas which ESMA draws attention to in its opinion are:

  • Authorisation requirements, both for loan originating funds and their managers
  • Types of loan-originating AIFs
  • Types of investors
  • Organisational requirements for AIFMs managing loan-originating AIFs
  • General requirements for loan-originating AIFs: leverage, liquidity, stress testing, reporting
  • Diversification, eligible investments and eligible debtors
  • Systemic risk

In many cases ESMA does not provide definitive conclusions but recommends that the Commission focus on these matters as part of its work in devising a common European framework for loan origination funds. ESMA notes that loan origination by AIFs is already possible in the context of the EuVECA, EuSEF and ELTIF Regulations and therefore this opinion does not cover AIFs that are subject to these Regulations. ESMA also thinks that the Commission should consider the exemptions for a number of fund types which are currently in place in Member States, such as for private equity, venture capital and hedge funds.

Irish Funds will continue to engage in the ongoing EU and domestic dialogue with a view to striking the right balance in devising a common European framework for loan originations funds.

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