ESMA publishes opinion on Loan Origination


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.


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