Thursday 22 August 2019

Funds given a green light to start lending


The Central Bank has published details of a new regulatory framework for funds set up to invest in loans.

The Irish Funds Industry Association (IFIA) welcomed the announcement.

The IFIA said it will allow pooled investment funds to lend directly to the corporate sector.

It is the first dedicated regulatory regime in the European Union for such "non-bank" loan funds and comes under the umbrella of the EU's Alternative Investment Fund Managers Directive (AIFMD).

The new regulation will apply to funds established to lend to business.

Borrowers are likely to be from the larger end of the SME scale or smaller corporates, companies that are too small to take on the costs associated with tapping the bond market but frustrated by low levels of traditional bank lending.

Governments across Europe are keen to develop alternative forms of lending to reduce reliance on the banking sector.

The framework announced by the Central Bank will see the loan origination funds structured as Qualifying Investor Funds, but without the usual prohibition that bars such vehicles from lending.

For qualifying investors it creates the potential to participate in lending through a regulated entity.

Minimum investments will be €100,000.

Under so-called "passporting" rules, funds regulated here will be able to lend right across the EU.

"With appropriate risk measures in place, loan origination can perform a valuable economic function through the promotion of beneficial long-term investment in infrastructure, technology and businesses generally," according to Pat Lardner, chief executive of the IFIA.

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