Overview
The Directive on Credit Servicers and Credit Purchasers was adopted by the EU in 2021 (the Directive) and the implementing technical standards (ITS) relating to the Directive have also been adopted by the European Commission. Member states (of the EU) were required to implement the Directive into local law by the end of 2023 and notably France, Luxembourg, Ireland and Germany have now passed laws implementing the Directive.
The Directive is a complicated piece of legislation which, broadly speaking, is intended to facilitate the disposal of non-performing loans (NPLs) sitting on the balance sheets of EU banks. Amongst other things, it is intended to lower regulatory barriers for non-banks to acquire NPLs and give prospective purchasers access to key information at the diligence stage of a transaction.
A detailed analysis of the Directive is beyond the scope of this update, nevertheless, set forth below is a brief overview of the elements of the Directive most relevant to institutions who regularly trade loans, distressed credit and/or insolvency claims.
Who is subject to the Directive?
- The ITS and the Directive are designed to: (i) obligate "credit institutions" established in the EU (i.e. EU banks) which are selling NPLs from their banking book (as opposed to their trading book, which is an important distinction for such sellers) to provide prospective secondary market purchasers with specified information on the loans in question (and, if applicable, the collateral related thereto), and (ii) impose separate obligations upon such purchasers of NPLs (outlined in more detail below).
NPL Definition
- For the purposes of the Directive, NPLs are classified as (i) credit agreements and rights under credit agreements, (ii) in the form of a deferred payment, loan or other similar financial accommodation, (iii) which have been "issued" by EU banks. The definition is broad enough to capture both syndicated and bilateral loan agreements.
- The meaning of "non-performing" is derived from Article 47a of the EU Capital Requirements Regulation (the CRR). The criteria set out in the CRR classifies a loan as non-performing if (i) it is either 90 days past its due date, or (ii) full repayment of the loan without realising collateral is deemed to be unlikely.
- Although primarily intended to standardise sales of portfolios of loans by EU banks, it is important to note that the requirement to complete the templates also applies to the sale of individual NPLs.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
