The European Securities and Markets Authority (ESMA) has recently published an Opinion addressed to the European Parliament, the Council and the Commission on the components necessary for a common European framework which applies to loan origination by investment funds – that is lending by alternative investment funds, like some peer-to-business lending platforms do.
The Opinion, which forms part of ESMA’s ongoing work on the Capital Markets Union, sets out ESMA’s views on elements such as the authorisation of loan-originating funds and their managers, eligible investors, organisational requirements and leverage.
Loan origination means that an investment fund provides credit (originates a loan), acting as a sole or a primary lender, to borrowers such as small or medium enterprises (SMEs). As such, this activity represents an alternative form of market-based financing.
Several EU Member States have set up bespoke frameworks for loan origination by funds domiciled in their country which means that funds operating cross-border need to comply with different requirements. The European Commission therefore asked ESMA to provide input on the key issues in view of the establishment of a common EU approach. In particular, ESMA suggests the European Commission:
- to assess whether loan-originating AIFs and/or their managers should be subject to some form of authorisation, which could be desirable, among other reasons, to ensure that the interests of borrowers and investors are protected;
- to carefully consider whether loan-originating funds should be open to retail investors.
Last but not least, ESMA believes there should be some form of EU authorization and monitoring at a national level.
The full opinion and more details can be read here.