The Alternative Investment Fund Managers Directive II (AIFMD II) introduces a harmonised framework for loan-originating AIFs across the EU. This regulatory shift aims to enhance transparency, mitigate systemic risk, and ensure investor protection. For Malta-based AIFMs, these changes bring both challenges and opportunities in structuring compliant, resilient lending strategies.
Why Loan Origination Needed Reform
Loan-originating AIFs have grown in popularity, offering alternative financing to businesses and infrastructure projects. However, inconsistent national rules created regulatory arbitrage and investor risk. AIFMD II addresses this by introducing a unified EU-wide framework.
Key Challenges Addressed
- Lack of standardised risk retention rules.
- Inadequate leverage controls.
- Limited investor safeguards in loan distribution models.
What AIFMD II Introduces
AIFMD II defines a “loan-originating AIF” and sets out a comprehensive regulatory framework, including:
- Diversification Rule: No more than 20% of the AIF’s loan exposure to a single borrower.
- Risk Retention: AIFs must retain 5% of the notional value of loans they originate and transfer.
- Leverage Limits: 175% for open-ended and 300% for closed-ended AIFs.
- Closed-Ended Requirement: Loan-originating AIFs must be closed-ended unless liquidity risk is demonstrably managed.
- Prohibition on Originate-to-Distribute: AIFs cannot originate loans solely for resale.
- Lending Restrictions: No loans to AIFM employees, delegates, depositaries, or group entities.
- Policies & Procedures: Annual review of internal lending policies is mandatory.
Transitional Provisions
Existing AIFs have until 16 April 2029 to comply, with specific grandfathering rules depending on capital raising and leverage levels.
Application
A Malta-based AIF specialising in SME lending across Southern Europe was previously operating under fragmented national rules. With AIFMD II, the fund restructured to meet the 20% borrower cap and retained 5% of each loan on its books.
Results
- Improved investor confidence and onboarding.
- Enhanced due diligence processes.
- Successful MFSA approval under the new framework.
Key Outcomes
- 30% increase in institutional investor interest.
- Reduced regulatory risk exposure.
- Streamlined compliance reporting.
How ARQ Group Can Help
At ARQ Group, we understand the complexities of loan origination under AIFMD II. Our team of experts is dedicated to helping you navigate these changes with tailored strategies and regulatory insight. Whether it’s through structuring compliant lending vehicles, managing leverage thresholds, or preparing for MFSA engagement, we are here to support your fund’s growth and resilience.
For more information, please contact Dr Denia Ellul – Director – ARQ Advisory Ltd, ARQ Corporate Ltd and ARQ Fiduciaries Ltd.
Denia Ellul
Director of ARQ Advisory Ltd, ARQ Corporate Ltd and ARQ Fiduciaries Ltd.
A lawyer by profession, Denia attended the University of Malta and successfully completed a Bachelor of Laws degree, followed by a Doctor of Laws degree in 2014. Following her graduation from the University of Malta, Denia commenced her employment with a local law firm which helped her gain the necessary knowledge in various fields of law, including corporate and commercial law, cross-border tax planning and financial-legal matters.
