As the 29 December 2023 transposition deadline for the Credit Servicing Directive approaches, the Department of Finance has published its decisions on the various national discretions that were the subject of its January 2023 Consultation Paper.
The Consultation Paper sought feedback on ten points in the Directive where Member States have an element of discretion. Our January 2023 insights on that Consultation Paper are here: NPL / Credit Servicing Update: Department of Finance consults on transposition of Credit Servicing Directive.
Those who will be impacted by the Directive were waiting for confirmation as to how the Department of Finance plans to manage the impact of the Directive, which will only apply to post-transposition sales and servicing of NPLs originated by EU banks, on Ireland's existing regulatory framework for credit servicing firms (in particular given that, under the existing 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.
The Department has now confirmed that it is currently planning for two parallel regimes: the Directive's framework would apply to post-transposition sales and servicing of NPLs originated by EU banks, with 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.
While it is positive that the Department does not plan to regulate purchasers of in-scope NPL portfolios, a key point that will need 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 post-transposition.
Some other points to note from the Department's decisions are that Irish-authorised credit servicing firms will be allowed to receive and hold funds from borrowers, and that the requirement for a credit servicing firm to be a legal person (i.e. not an individual and not a partnership) will continue to apply. While the discretion to allow a credit servicing firm to comply, on a credit purchaser's behalf, with the reporting obligations under the Central Credit Register framework has not been exercised, that is on the basis that the existing framework is "appropriate and effective and should continue to apply" – in practice, reporting on behalf of a credit owner is permitted and is usually listed as one of the services to be provided by a credit servicing firm in the relevant credit servicing agreement.
The Department has not confirmed how far in advance of the transposition deadline it plans to publish the transposing regulations, and caveated that its decisions remain subject to change if necessary in the run-up to 29 December 2023. We would expect to see the regulations in mid/late-Q4 2023, but will publish further updates if the position changes.
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.