Credit servicing (the management and administration of credit agreements under which cash loans have been advanced to certain individuals and SMEs) has been a regulated activity in Ireland since July 2015 (see our previous briefing here). On 10 December 2015, the Central Bank published its Authorisation Requirements and Standards for Credit Servicing Firms, (the Requirements) following its July 2015 Consultation. A helpful FAQ is also available on the Central Bank's website.
The Requirements are divided into two parts:
- Part A sets out the requirements that applicants for authorisation must comply with. Each firm may have further conditions attached to its authorisation when it receives it from the Central Bank.
- Part B contains a non-exhaustive list of the regulatory requirements that apply to these firms.
AUTHORISATION – GENERAL:
The Requirements require firms to demonstrate (among other matters):
- an organisational structure that is capable of supervision by the Central Bank, with control of the firm being in Ireland;
- robust governance arrangements, enabling the firm to best protect its customers;
- sufficient compliance requirements (including a Compliance Officer and a well-resourced compliance function);
- the existence of an internal audit function; and
- the existence of accounting policies and procedures, error policies, complaints resolution policies and business continuity policies.
AUTHORISATION - MATTERS HIGHLIGHTED IN THE CONSULTATION:
The Central Bank specifically sought industry views in the following areas:
- Professional indemnity insurance (PII): in its consultation, the Central Bank proposed that each firm have a PII policy in place with the amount insured being at least €1.25 million per claim and €1.85 million in aggregate for a single policy period – this has been reflected in the Requirements. There is an exception in respect of credit servicing business carried out on behalf of a regulated financial services provider which is authorised to provide credit in Ireland.
- Outsourcing: in its consultation, the Central Bank sought views on whether firms should be required to notify it when planning to outsource any important operational functions – this has been reflected in the Requirements together with requirements regarding how the relationship between the relevant firm and the service provider should be managed.
- IT: the proposal in the consultation that firms be required to have adequate IT systems in place is reflected in the Requirements.
- Independent review: the proposal that firms could be required to procure third party reviews of their operations has also been included.
- Dealing with holders of credit: the
proposals that firms be:
- required to tell the relevant holder of the credit about their obligations under financial services legislation; and
- able to demonstrate how their agreements with such holders enable them to fully comply with their obligations,
have been included.
AUTHORISATION - OTHER POINTS TO NOTE:
- Accounts: firms must provide audited accounts and applicable auditor's reports to the Central Bank on request.
- Ownership: the Central Bank must be notified of proposed material changes in ownership of a firm, i.e. where the holding of a person or a group of persons acting in concert reaches or exceeds 10%, 20%, 33% or 50%, or if the firm becomes a subsidiary of such a person. Disposals where the interest of the relevant person(s) would fall below one of those four thresholds must also be notified to the Central Bank when they occur.
- Location: Central Bank approval must be sought before a firm can operate from a premises other than its head office.
- Record keeping: a non-exhaustive list of the types of records that firms must maintain is contained at paragraph 11 of Part 1, and those records must be kept for a minimum of 6 years.
- Non-compliance: non-compliance could result in an authorisation being revoked, the Central Bank availing of its Administrative Sanctions Procedure and potential criminal liability.
Part 2 of the Requirements contains a non-exhaustive list of legal and regulatory requirements of which firms should be aware. In particular, Part 2 highlights that firms must comply with all applicable provisions of the Consumer Protection Code 2012, the Code of Conduct on Mortgage Arrears 2013 and the Code of Conduct for Business Lending to Small and Medium Enterprises 2012 (the SME code is expected to be replaced by a regulation in 2016).
Firms may also be required to pay an annual levy to the Central Bank, and Central Bank approval must be obtained before a firm can appoint a person to a pre-approval controlled function. The Minimum Competency Code 2011 (MCC) must be complied with where the firm employs or otherwise retains individuals to act on its behalf in respect of activities covered by the MCC, and firms have also been asked to note that the Central Bank Act 1997 imposes obligations on their auditors.
RETAIL CREDIT FIRMS:
It should be noted that, when consulting on the Requirements, the Central Bank indicated that it would apply corresponding standards to retail credit firms following a further public consultation (which has not yet taken place). This is expected in early 2016.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.