7 novembre 2024A&O Shearman, 1 Bishops Square, London, E1 6AD
Riccardo Sallusti…
First considerations on the authorisation regime for credit servicers and the regulation of credit puchasers
Summary
Directive (EU) 2021/2167 (the “Directive”) on credit servicers and credit purchasers, also known as Secondary Market Directive, published in the Official Journal of the EU on 8 December 2021, should have been transposed by Italian lawmakers by 29 December 2023.
Pending the approval of the European delegation law 2022-2023, and precisely in consideration of the fact that the expiry of the above deadline set by the Directive requires the issuance of the implementing legislative decree as soon as possible, the Treasury Department has recently put out for consultation a draft proposal for the transposition of the Directive.
As is known, the Directive is the end point of a path begun in 2017 with the Commission’s proposal - welcomed by the European Parliament and the Council - to complement the process for the completion of the Banking Union with measures to reduce non-performing loans, implemented through risk sharing and risk reduction[1], and with the development of the so-called “NPL Strategy”, revised in 2020 as a result of the pandemic crisis, which set the following goals:
(i) develop a secondary market for distressed assets, in order to allow banks to move NPLs off their balance sheets, while ensuring further strengthened protection for debtors;
(ii) reform the EU’s corporate insolvency and debt recovery legislation, in order to harmonise the various insolvency frameworks across the EU, while maintaining high standards of consumer protection;
(iii) support the establishment and cooperation of national asset management companies (AMCs) at EU level; and
(iv) implement precautionary public support measures (so-called “asset protection schemes”) to ensure the continued funding of the real economy under the EU’s Bank Recovery and Resolution Directive[2] and State aid frameworks.
The Commission therefore issued a regulatory package in 2018 to address the issue of Non-Performing Loans within the European Union and, specifically, to manage the stock of non-performing loans and prevent their increase[3].
In such context, based on the consideration that “the reduction of current stocks of NPLs and the prevention of any excessive build-up of NPLs in the future are objectives with clear relevance at EU level”[4], the Directive aims to – inter alia – “foster the development of secondary markets for NPLs in the Union by removing impediments to, and laying down safeguards for, the transfer of NPLs by credit institutions to credit purchasers, while at the same time safeguarding borrowers’ rights”[5].
In terms of scope, the Directive applies to:
(i) credit servicers who act on behalf of a credit purchaser; and
(ii) credit purchasers of a creditor’s rights deriving from a non-performing loan and/or from the non-performing credit agreement itself, issued by a credit institution established in the European Union.
The Directive, however, shall not apply when the servicing of the bank non-performing loan is carried out by a credit institution established in the Union, by an alternative investment fund manager (AIFM)[6], or by other entities authorised to provide credit to consumers.
The Directive therefore outlines a “differentiated” system for bank non-performing loans, which are governed by the rules transposing the Directive, compared to the system envisaged for loans other than non-performing loans and/or non-bank loans, for which the current regulatory framework will continue to apply[7].
Article 3 of the Directive defines a credit servicer as a legal person that, in the course of its business, manages and enforces the rights and obligations related to a creditor’s rights under a non-performing credit agreement, or to the non-performing credit agreement itself, on behalf of a credit purchaser, and carries out at least one or more credit servicing activities. “Credit servicing activities” means one or more of the following activities: (i) collecting or recovering from the borrower, in accordance with national law, any payments due related to a creditor’s rights under a credit agreement or to the credit agreement itself; (ii) renegotiating with the borrower, in accordance with national law, any terms and conditions related to a creditor’s rights under a credit agreement, or of the credit agreement itself, in line with the instructions given by the credit purchaser, where the credit servicer is not a credit intermediary as defined in Article 3, point (f), of Directive 2008/48/EC or in Article 4, point (5), of Directive 2014/17/EU; (iii) administering any complaints relating to a creditor’s rights under a credit agreement or to the credit agreement itself; and (iv) informing the borrower of any changes in interest rates or charges or of any payments due related to a creditor’s rights under a credit agreement or to the credit agreement itself.
Pursuant to the Directive, the regulatory framework applicable to credit servicers includes, inter alia, the obligation to obtain prior authorisation for servicing activities from the competent national authority. More specifically, the procedure outlined by the Directive[8] requires a credit servicer to obtain an authorisation in a home Member State before commencing its activities. The authorisation will be granted by the competent authorities, identified in the national provisions transposing the Directive, if the requirements for the grant of authorisation set out in Article 5 of the Directive are met, authorities to whose supervision the authorised servicer is to be subject.
Title III (Credit purchasers) of the Directive liberalises the assignment by credit institutions to “credit purchasers”, for whom no authorisation regime is therefore envisaged, with the credit institutions themselves being required to provide the purchaser with pre-negotiation and due diligence information[9]. In addition to the obligation to appoint a credit servicer, purchasers are subject to obligations to the supervisory authority for statistical and monitoring purposes[10].
The rules proposed in the Draft will be implemented through the introduction within Title V of the Consolidated Law on Banking (TUB) of a new Chapter II, dedicated to the activity of purchasing and servicing non-performing loans. This new Chapter II will include the provisions on the new figure of the “servicer of non-performing loans”, who will need to be authorised to carry out such activities - and consequently - supervised by the Bank of Italy. Further measures are also envisaged on transparency and relations with customers under Title VI as well as on sanctions under Title VIII.
5.1 Objective and subjective scope
In accordance with the approach of the Directive, the new rules only concern the so-called “financial” credits, i.e., granted by banks and other entities authorised to provide loans (such as, for example, financial intermediaries pursuant to Article 106 of the Consolidated Law on Banking, investment funds, and securitisation special purpose entities). On the other hand, this does not apply to other types of loans, such as trade receivables, those arising from supply or tender contracts, utilities, etc.[11], for which the existing rules will continue to apply.
Moreover, the Draft seems to take advantage of some of the flexibility spaces granted by the Directive to the Member States.
A first choice in this sense, in implementation of the provisions of Article 2(3) of the Directive, is to limit the scope of the new rules, within non-performing loans, to only those loans classified as distressed loans under the Bank of Italy’s implementing provisions. Therefore, subject to specifically provided exceptions, the new rules refer exclusively to the purchase of non-performing loans by purchasers of non-performing loans in connection with the servicing of non-performing loans.
Conversely, the new rules do not apply to the management carried out: (i) by managers of collective investment undertakings in relation to the funds they manage; (ii) by banks (with reference to the credits they grant and purchase); (iii) by intermediaries registered in the register provided for by Article 106 of the Consolidated Law on Banking (with reference to the credits they grant and purchase), provided that it is carried out in Italy.
The Draft, in implementation of Article 2(4) of the Directive, further provides that the new provisions do not apply to the servicing of non-performing loans carried out as part of securitisation transactions pursuant to Law 130, when the purchaser of the loans is a securitisation special purpose entity under Article 2(2) of Regulation (EU) 2017/2402 (so-called “securitisation regulation”)[12].
This should mean that the use, as a “master servicer”, of a bank or a financial intermediary pursuant to Article 106 of the Consolidated Law on Banking would remain mandatory for the management of credits classified as non-performing loans and acquired by securitisation special purpose entities under the “securitisation regulation”, while the activity of “special servicer” could be exercised - in outsourcing - as is the case today, and therefore without the “special servicer” having to obtain an authorisation under the new rules. This is particularly relevant for all “special servicers” only having an authorisation pursuant to Article 115 of the Consolidated Law on Public Security (TULPS), who could continue to carry out such credit management activities according to said authorisation.
In order to provide for such exclusion, the Draft refers in a broad sense (in this respect echoing the Directive) to credit management carried out in the context of European securitisation transactions, but the text could better clarify that the exclusion applies precisely to both “master servicers” and “special servicers”.
On the point, it is worth recalling a remark already made by early commentators of the Directive.
Many Italian securitisation transactions involving non-performing loans are not among “European” securitisations and are subject only to Law No. 130/1999. This means that the so-called “domestic” securitisations do not fall within the exclusion set out in the Directive and the Draft, and consequently securitisation special purpose entities that purchase non-performing loans as part of such securitisations will be subject to the new rules, and therefore will have to entrust their management to an authorised servicer of non-performing loan, to a bank or to a financial intermediary pursuant to Article 106 of the Consolidated Law on Banking. At first glance, this raises a problem of coordination with Law 130/1999 (which apparently is not to be amended in the Draft), which in Article 2(6) currently lays down that the collection of assigned receivables is to be carried out by banks or financial intermediaries pursuant to Article 106, while the performance of such activities should in fact be permitted also to servicers of non-performing loans.
On the other hand, when servicing non-performing loans of so-called “domestic” securitisations, the question arises as to whether “special servicers” having only the authorisation pursuant to Article 115 of the Consolidated Law on Public Security, in order to be able to carry out servicing activities, must in any case obtain also the “new authorisation” or may only act as credit service providers on the basis of an outsourcing agreement in accordance with Article 12 of the Directive[13].
It is also provided that a Decree of the Minister of Economy and Finance may indicate other entities that, in view of their activities, are excluded from the scope of application of the new rules. Such a provision is likely intended to implement the provision of Article 2(6) of the Directive, which expressly refers to credit servicing activities carried out by notaries, public bailiffs, or lawyers, when such servicing activity is carried out as part of their respective professions.
5.2. The purchase of non-performing loans for consideration
The Draft clarifies that the purchase for consideration of non-performing loans does not amount to lending within the meaning of Article 106 of the Consolidated Law on Banking. Thus, in accordance with the Directive, while servicing is subject to authorisation, purchase is liberalised. However, liberalisation is limited only to the purchase for consideration of non-performing loans, while the statutory reservation remains for the purchase for consideration of loans other than non-performing loans, in implementation of Recital 16 of the Directive.
Here it should be pointed out that in defining the activity of servicing non-performing loans, the Draft stipulates that the activity of renegotiating contractual terms and conditions with the borrower is allowed to the credit servicer “provided that it does not amount to lending within the meaning of Article 106” and that mere “early repayment and postponement of payment terms” are not relevant to this end.
5.3 Credit purchasers’ obligation to appoint a servicer
While Article 17(1)(a) of the Directive provides for the credit purchaser’s obligation to appoint a credit servicer only with reference to the purchase of non-performing loans claimed from consumers, the Draft - taking advantage of the same flexibility granted in such respect by the same Article 17(1)[14] - seems to provide that a credit purchaser is always required to appoint a credit servicer (i.e., a bank or a financial intermediary pursuant to Article 106 of the Consolidated Law on Banking), regardless, therefore, of the type of entities against which such non-performing loans are claimed. This choice seems to comply with supervisory needs (so that the authority could always interface with a regulated entity) and the desire to ensure greater protection for the assigned debtor. This is an aspect that may perhaps be better clarified in the Draft.
On the other hand, there is no provision to exercise the option referred to in Article 17(4) of the Directive, which allows Member States to authorise credit purchasers to also engage natural persons to service credits.
5.4 The issuance of the authorisation
Alongside banks and financial intermediaries registered in the register referred to in Article 106 of the Consolidated Law on Banking, the servicing of non-performing loans on behalf of purchasers of non-performing loans may be carried out by those who have obtained the authorisation provided for by the new rules (the “Authorisation”).
Such Authorisation must be requested from the Bank of Italy and will be granted by the same on condition that the requirements outlined, inter alia, in new Article 114.6 of Chapter II, Title V of the Consolidated Law on Banking, as well as in future implementing provisions, are met.
Article 114.6(1) of Chapter II, Title V of the Consolidated Law on Banking, echoing Article 5 of the Directive, provides that the Bank of Italy shall grant the Authorisation if the applicant has, inter alia, (i) adopted the form of a joint-stock company, a partnership limited by shares, a limited liability company or a cooperative society; (ii) its registered office and head office located in the territory of the Republic of Italy; (iii) submitted, together with the articles of incorporation and by-laws, a plan concerning the initial activity and organizational structure, corporate governance arrangements, an administrative and accounting organization and internal controls, policies and procedures to ensure compliance with applicable debtor protection provisions, including those for handling complaints.
Moreover, Article 114.6 leaves to the future implementing provisions of the Bank of Italy the rules relating to the authorisation procedure, the assessment of the conditions referred to in paragraph 1 of Article 114.6, as well as those relating to the cases of revocation or forfeiture of the Authorisation.
5.5 The transitional regime
The Draft is available for public consultation until 29 February 2024. The relevant legislative decree, once approved, will enter into force on the day following its publication in the Official Gazette.
The Draft itself, in accordance with the deadline of 6 (six) months set out in the Directive for the adaptation to the new regime, provides that entities engaged in the servicing of non-performing loans may continue to carry out such activity until 29 June 2024 in accordance with the regulations currently in force. By such date they must obtain the authorisation, or cease performing the activity.
In conclusion, the analysis of the Draft shows a significant change in the scenario of non-performing loan acquisition and servicing. In accordance with the objectives of the Directive and thus aiming at the formation of an integrated market of debt collection services at European level, the Draft, on the one hand, makes the acquisition of non-performing loans more accessible, but on the other hand imposes a greater burden in the exercise of the activities for their servicing. This activity is indeed conditional on obtaining the Authorisation granted by the Bank of Italy and on the meeting of requirements in part similar to those necessary for the registration in the register pursuant to Article 106 of the Consolidated Law on Banking.
Undoubtedly, in order to fully understand the impact of the new rules on the domestic market, it will be necessary to wait – not only for the publication in the Official Gazette of the legislative decree transposing the Directive – but also for the issuance of future Bank of Italy implementing measures, especially with reference to the assessment of the conditions for obtaining the Authorisation.
The content of this document is for information purposes only and is not and cannot be intended as legal advice on the topics dealt with. For further information please contact Stefano Padovani or Andrea Bertoni.
[1] Communication of 11 October 2017, COM (2017) 592.
[2] Directive 2014/59/EU.
[3] The package included a proposal for a Regulation (proposed amendment to Regulation (EU) No. 575/2013, European Commission, 2018a) and a proposal for a Directive (proposed Directive on credit servicers, credit purchasers and the recovery of collateral, European Commission 2018b).
[4] Recital (1) of Directive (EU) 2021/2167.
[5] Recital (9) of Directive EU/2021/2167.
[6] More specifically, to AIFMs authorised or registered in accordance with Directive 2011/61/EU, to management companies and to investment companies authorised in accordancw with Directive 2009/65/EC provided that the investment company has not designated a management company under that Directive, on behalf of the fund it manages.
[7] In this regard, early commentators have already had the occasion to outline how, in light of Recital (17) of the Directive, such “double regime” will remain only in the event that at national level a harmonised regime for all type of credits is not adopted (see P. Carrière, “La Direttiva sui “gestori” e “acquirenti” di NPL: prospettive per il mercato italiano”, in Diritto Bancario.it, December 2021).
[8] See Articles 4, 5, 7, 8 and 21 of the Directive.
[9] Articles 15 (Right to information regarding a creditor’s rights under a non-performing credit agreement or the non-performing credit agreement itself) and 16 (Implementing technical standards for data templates) of the Directive.
[10] Articles 17 (Obligations of credit purchasers), 18 (Use of credit servicers or other entities), 19 (Representative of a third-country credit purchaser) and 20 (Transfer of a creditor’s rights under a non-performing credit agreement, or of the non-performing credit agreement itself, by a credit purchaser and communication to the competent authorities) of the Directive.
[11] See Article 1 (Subject matter) of the Directive.
[12] Article 2 (Scope) of the Directive, paragraph 4: “This Directive shall not affect requirements in Member States’ national laws regarding the servicing of a creditor’s rights under a credit agreement, or of the credit agreement itself, when the credit purchaser is a securitisation special purpose entity as defined in Article 2, point (2), of Regulation (EU) 2017/2402 of the European Parliament and of the Council (20) as long as such national laws: (a) do not affect the level of consumer protection provided by this Directive; (b) ensure that competent authorities receive the necessary information from credit servicers”.
[13] The Draft provides that the activity carried out, on the basis of an agreement for the outsourcing of corporate functions, by entities authorised pursuant to Article 115 of the Consolidated Law on Public Security, inter alia, in favour of servicers of non-performing loans, does not amount to the servicing of non-performing loans.
[14] “Host Member States may extend the requirement provided for in the first subparagraph to other credit agreements”.
