The transposition deadline for the Credit Servicing Directive is coming up later this year (29 December 2023). The first indication of how the interplay between the new EU framework and Ireland’s existing regulatory framework for credit servicers and loan owners will be managed came this week with the launch, by the Department of Finance, of a Consultation Paper.
The Consultation Paper looks for feedback, by 8 March 2023, on the ten points in the Directive where Member States have an element of discretion. Save in respect of the final, tenth, question, the Consultation Paper does not give any indication of the Department’s views on whether Ireland should exercise some or all of those discretions. The discretions relate to, for example, whether credit servicers authorised as part of the Directive’s framework should be allowed to receive and hold funds from borrowers, whether natural persons can operate as credit servicers, and whether credit servicers should be allowed to comply with credit register-related obligations on behalf of the credit purchaser.
The final, tenth, question relates to the discretion given to Member States who already have credit servicing regulatory frameworks that are equivalent to, or stricter than, the Directive’s framework to allow already-regulated credit servicers to be automatically recognised as authorised credit servicers under the Directive’s framework (which would give them the right to passport across the EU from the transposition date). The Department’s consultation paper notes that Ireland’s current framework is “considered broadly equivalent” to the Directive’s framework, so it appears that automatic recognition from 29 December 2023 is quite likely.
The consultation paper also looks for views on whether Ireland should exercise the Article 17(1) discretion. This would allow it, where it is host Member State, to require an EU-based credit purchaser to appoint a credit servicer in respect of credit agreements other than just non-performing credit agreements with consumers. There is no indication in the consultation paper as to what approach the Department of Finance might take on this point, but it is certainly one to watch.
Interplay with existing Irish authorisation framework
Those who will be impacted by the Directive have been waiting for an indication as to how the Department of Finance plans to manage the impact of the Directive, which will apply to post-transposition NPL sales only, on Ireland’s existing regulatory framework for credit servicing firms (in particular the fact that, under the Irish framework, holding legal title to a credit agreement can trigger an authorisation requirement). For the purposes of the Directive, NPLs are loans classified as non-performing exposures under Article 47a of the Capital Requirements Regulation.
It appears, based on the introductory section to this week’s Consultation Paper, that the Department is contemplating two parallel regimes: the Directive’s framework applying to post-transposition sales and servicing of NPLs originated by EU banks, and the existing framework continuing to apply to the sale and servicing of performing loans, pre-transposition NPLs originated by EU banks, and the sale and servicing of NPLs originated by non-bank lenders. As mentioned in our previous insights on the Directive, a key point that needs to be worked through over the coming months is how sales of mixed portfolios (NPLs, performing and re-performing loans) originated by EU banks will be managed. It is positive that there is no suggestion that the Department plans to regulate the purchasers of NPL portfolios that are within the Directive's scope, and that aligns with the overarching purpose of the Directive: to foster the development of the secondary market for NPLs.
Please contact any member of our team to discuss the impact of the Directive on your business, and we will continue to keep you updated as developments occur.