1. The implementation of the Secondary Market Directive in Italy
Legislative Decree No. 116/2024 (the “Decree”) transposed in Italy Directive (EU) 2021/2167 (the “Directive”) on credit servicers and credit purchasers, aimed at standardise the rules governing servicers and purchasers of non-performing loans and to foster the development of a secondary market for non-performing loans in the European Union. The main contents and preliminary considerations on the transposition of the Directive in Italy were discussed in detail in our previous newsletter dated 19 February 2024.
In particular, the Decree amended Legislative Decree No. 385 of 1 September 1993 (Consolidated Banking Act, “TUB”) by introducing a new Chapter II of Title V (Articles 114.1 to 114.10) entitled “Purchase and management of non-performing loans and non-performing loan servicers”, introducing a number of legislative changes with respect to the provisions of the Directive.
At the level of secondary legislation, Article 3(1) of the Decree assigned the Bank of Italy the task of issuing further provisions transposing the Directive and implementing the new Chapter II, Title V, of the TUB. In accordance with such task, on 13 February 2025, the Bank of Italy published on its website the new supervisory provisions (the “Implementing Provisions”) which include specific provisions for the management of non-performing loans, regulating in particular the role of the non-performing loan servicer, as a new entity supervised by the Bank of Italy.
This analysis concerns the main changes introduced by the Decree and the Implementing Provisions, with particular reference to the new role of non-performing loan servicer.
2. Scope
The Decree limits the scope of the new legislation to “non-performing loans”, defined by the Implementing Provisions as “all cash and off-balance sheet credit exposures to an entity in a state of insolvency (even if not legally established) or in substantially comparable situations, regardless of any loss forecasts made by the bank. Exposures whose anomaly is attributable to country risk profiles are excluded”. [1]
Contrary to the provisions of the Directive, not only all performing loans but also UTP (Unlikely to Pay) and past due loans, as well as commercial loans (e.g. utilities, loans deriving from business activities, etc.) must therefore be excluded.
Furthermore, national lawmakers have decided, in accordance with the Directive, to extend the scope of the Decree to include non-performing financial loans originated by non-bank entities registered in the register under Article 106 of the TUB, investment funds or securitisation special purpose vehicles (SPVs).
However, the new legislation does not apply to the purchase and management of non-performing loans by: (i) managers of collective investment undertakings in relation to the funds they manage; (ii) banks (including in relation to loans granted or purchased by them); (iii) intermediaries registered in the register under Article 106 of the Consolidated Banking Act (including with regard to loans granted or purchased by them), if carried out in Italy[2].
Finally, the Bank of Italy has clarified that securitisation transactions characterised by risk segmentation (e.g., transactions with subordinated/senior tranches) are excluded from the scope of the new rules on the management of impaired loans: the decision to keep servicing activities reserved for supervised and qualified entities (i.e. banks and intermediaries under Article 106 of the TUB) is intended to protect the soundness and transparency of transactions, for the benefit of both investors and the entire financial system.
3. Purchasers of non-performing loans
The Decree and the Implementing Provisions, transposing the Directive, clarify that purchasers of non-performing loans may be either natural persons or legal entities, provided that they are not banks[3], and that they purchase non-performing loans as part of a commercial or professional activity, and not on a personal or occasional basis.
The legislation does not require purchasers to meet minimum capital requirements or obtain prior authorisation, but such entities must nevertheless act in compliance with the general rules of transparency, fairness and diligence.
4. Information for purchasers of non-performing loans
As of 19 October 2023, Commission Implementing Regulation (EU) 2023/2083 of 26 September 2023 (the “Regulation”) applies, which lays down technical implementing standards for the application of Article 16(1) of the Directive with regard to the templates to be used by credit institutions for the provision to buyers of information on their credit exposures in the banking book.
Article 3 of the Regulation sets out the categories of information that must be provided (counterparty; credit agreement, guarantees and historical collection of repayments), the details of which are then contained in the annexes, which set out criteria, tables, definitions, data and instructions to be followed in providing the information. From a confidentiality perspective, the Regulation provides that credit institutions shall (i) identify the information that must be considered confidential under applicable EU law and (ii) ensure adequate protection of such information, including by putting in place appropriate confidentiality arrangements with transferees before sharing personal data prior to the conclusion of the contract.
The Regulation does not apply to the following:
(i) sales of non-performing credit agreements as part of sales of branches, sales of business lines or sales of clients’ portfolios which are not limited to non-performing credit agreements and transfers of non-performing credit agreements as part of an ongoing restructuring operation of the selling credit institution within insolvency, resolution or liquidation proceedings;
(ii) sales or transfers of non-performing credit agreements through securitisation, where Regulation (EU) 2017/2402 applies and the provision of the related information is governed by Delegated Regulation (EU) 2020/1224 and Implementing Regulation (EU) 2020/1225;
(iii) sales of non-performing credit agreements pursuant to credit default swap, total return swap and other derivative contracts, contracts of insurance and sub-participation contracts;
(iv) sales of non-performing credit agreements pursuant to a financial collateral arrangement or a securities financing transaction.
5. Non-performing loan servicers and authorisation to carry out management activities
One of the main changes brought by the Decree is the introduction of the figure of the non-performing loan servicer, who joins banks and intermediaries pursuant to Article 106 of the TUB as a person authorised to manage non-performing loans on behalf of their purchasers.
Purchasers of non-performing loans cannot, in fact, manage the acquired loans directly, but must rely on a supervised entity to be identified among banks, intermediaries pursuant to Article 106 of the TUB or, precisely, managers registered in the special register established pursuant to Article 114.5 of the TUB and authorised by the Bank of Italy[4].
Unlike the provisions of the Directive[5], which requires the appointment of a person carrying out credit management activities only with regard to the purchase of non-performing loans owed by consumers, the Decree provides that the purchaser of non-performing loans is always required to appoint a non-performing loan servicer (i.e. a bank or financial intermediary pursuant to Article 106 of the TUB), thus regardless of the type of entities to which such non-performing loans are owed.
The Implementing Provisions[6] provide for the management of non-performing loans to include the collection and recovery of payments due from the debtor, the renegotiation of the terms and conditions of the agreement with the assigned debtor[7], the management of complaints from assigned debtors and the provision of information to the debtor with respect to any changes in interest rates and charges or any payments due.
In addition, pursuant to Part One, Chapter 4, Section II of the Implementing Provisions, the activities of an authorised servicer may include the outright purchase and management of non-performing loans for its own account, provided that this is done ‘'subordinately to the management of non-performing loans on behalf of third-party purchasers”.
The reason for such limitation lies in the lawmakers’ desire to ensure that the corporate purpose of the non-performing loan servicer (i.e. servicing on behalf of third-party purchasers) is consistent with the activities actually carried out (also in view of the absence of quantitative prudential requirements for servicers, which is based on the assumption that debt collection is carried out on behalf of third parties)[8].
In order to be registered in the register of servicers, an adequate organisational structure, the adoption of effective operating procedures and an internal control system capable of ensuring the proper servicing of non-performing loans are required. Moreover, the servicer must be able to perform a significant part of the servicing activities directly, avoiding delegating them entirely to third parties without ensuring internal supervision.
The Bank of Italy verifies the applicant's financial and managerial soundness, assessing its ability to operate sustainably in the long term, as well as the business plan submitted by the servicer, which must illustrate the operational strategies and methods of credit management. Applications for registration in the register of servicers by new entities must be submitted to the Bank of Italy, which has 90 days from receipt of the documentation to make a decision.
6. Protection of assigned debtors
One of the objectives of the Directive is certainly to ensure adequate and enhanced protection for assigned debtors. Such principle, endorsed by national lawmakers, is substantiated in specific individual information obligations. In particular, the servicer of non-performing loans, or the bank or financial intermediary pursuant to Article 106 of the TUB appointed by the purchaser to manage such loans, must directly and personally notify the debtor of the assignment of the debt.
The obligation to inform the debtor arises immediately after the assignment of the debt and, in any case, always before any recovery actions are taken against the debtor. The information to be provided to the assigned debtor must meet specific content requirements in order to ensure full transparency and protection of the debtor.
7. The role of licence holders pursuant to Article 115 of the TULPS
The new regulations introduced by the Decree and the Implementing Provisions also redefine the role of authorised entities pursuant to Article 115 of the Consolidated Law on Public Security (“TULPS”). Such companies, traditionally active in out-of-court debt collection, may now choose whether to apply for authorisation as non-performing loan servicers pursuant to Article 114.6 of the TUB or to limit themselves to carrying out collection activities on behalf of third parties or as providers of specialised services under the responsibility of a non-performing loan servicer within the framework of outsourcing agreements, it being understood that the servicer must in any case ensure compliance with the governance and supervisory rules set out in the Implementing Provisions.
According to the Bank of Italy’s guidelines, if the classification as non-performing occurs after the out-of-court collection activity has been entrusted to a person licensed under Article 115 of the TULPS, the latter may continue to manage such loans without requesting authorisation under Article 114.6 of the TUB. Conversely, if the debt is subsequently assigned to a purchaser of non-performing loans, the recovery activity falls within the scope of Chapter II of Title V of the TUB. The purchaser will therefore be required to entrust the management to a bank, an intermediary or an authorised non-performing loan servicer.
Furthermore, in the context of securitisation transactions involving exclusively non-performing loans carried out pursuant to Law 130/1999 and without risk segmentation, the master servicer (bank, financial intermediary or non-performing loan servicer) may, in compliance with the applicable sectoral regulations and on the basis of an outsourcing agreement, use entities licensed pursuant to Article 115 of the TULPS for the out-of-court recovery of securitised non-performing loans.
Regulatory references
Directive (EU) 2021/2167 of the European Parliament and of the Council of 24 November 2021 on credit servicers and credit purchasers and amending Directives 2008/48/EC and 2014/17/EU.
Implementing Regulation (EU) 2023/2083 of 26 September 2023 laying down implementing technical standards for the application of Article 16(1) of Directive (EU) 2021/2167 as regards the templates to be used by credit institutions for the provision to buyers of information on credit exposures in the banking book.
Legislative Decree No. 385 of 1 September 1993 (Consolidated Law on Banking), Chapter II of Title V (Articles 114.1 to 114.10).
Legislative Decree No. 30 of 30 July 2024, No. 116 implementing Directive (EU) 2021/2167 of the European Parliament and of the Council of 24 November 2021 on credit servicers and credit purchasers and amending Directives 2008/48/EC and 2014/17/EU.
Consultation document containing the provisions of the Bank of Italy for the implementation of the Directive.
Provisions of the Bank of Italy for the transposition of Directive (EU) 2021/2167 on purchasers and servicers of non-performing loans.
Summary table of the public consultation launched on 24 July 2024 by the Bank of Italy, published on the Bank of Italy website.
Workshop for operators interested in applying for authorisation as “non-performing loan servicers”, 6 March 2025, slides published on the Bank of Italy website.
Written by Matteo Gallanti and Stefano Padovani.
[1] The Implementing Provisions, in line with the provisions of the TUB, identify the scope of “non-performing loans”, the definition of which coincides with that contained in Circular No. 272 of 30 July 2008 (Accounting Matrix).
[2] Article 114.2, paragraph 1, of the TUB.
[3] Article 114.1 of the Consolidated Banking Act.
[4] Article 114.3, paragraph 2 of the Consolidated Banking Law.
[5] Article 17, paragraph 1, a) of the Directive.
[6] See the definition of “Management of non-performing loans” provided for in the Implementing Provisions.
[7] Such renegotiation shall not be considered a lending activity within the meaning of Article 106 of the Consolidated Banking Act; for such purposes, early repayment and postponement of payment terms shall not be considered lending activities.
[8] As emerged during the consultation by the Bank of Italy, the subordination criterion is considered as met if the gross book value of loans serviced on behalf of third parties exceeds 50% of the total gross book value of non-performing loans serviced, including those purchased for one’s own account. For the purposes of said calculation, both non-performing loans purchased before the entry into force of the legislation and those purchased at a later stage, provided they are still in the servicer’s portfolio, are to be included; non-performing loans managed out-of-court are excluded from the calculation.
Non-performing loan servicers must verify compliance with the subordination criterion on a quarterly basis, reporting any deviations to the Bank of Italy.
