NPL Update: EU Credit Servicing Directive transposed into Irish law
The EU Credit Servicing Directive was transposed into Irish law from 30 December 2023. It applies only to post-transposition sales and servicing of NPLs originated by EU banks (the Directive defines NPLs as loans classified as non-performing exposures under Article 47a of the Capital Requirements Regulation).
As expected, the Irish Regulations confirm that two frameworks will run in parallel:
- the Directive’s framework will apply to post-transposition sales and servicing of NPLs originated by EU banks; and
- the existing Irish credit servicing framework (under which holding legal title to a credit agreement can trigger an authorisation requirement) will continue 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.
The Irish Regulations contain a grandfathering provision whereby any “credit servicing firm” under the existing Irish credit servicing framework, which was already authorised as such before 30 December 2023, is deemed to be “credit servicer” under the Irish Regulations for the purposes of post-transposition sales and servicing of NPLs originated by EU banks (i.e. for the purposes of the Directive’s framework).
Credit servicing firms, when subject to the existing Irish framework, will continue to be referred to as “credit servicing firms”. When subject to the new Directive’s framework, they will be referred to as “credit servicers” to distinguish between the frameworks. The Irish Regulations also amend Section 29(5) of the Central Bank Act 1997 to confirm that “…a credit servicer, credit service provider, credit purchaser or designated representative of a credit purchaser, each within the meaning of the European Union (Credit Servicers and Credit Purchasers) Regulations 2023 … shall not be treated as carrying on a regulated business as a credit servicing firm.”
In due course we expect to see details from the Central Bank of Ireland on any specific authorisation process that they plan to use for future credit servicers who do not benefit from the grandfathering provision
While it is positive that purchasers of in-scope NPL portfolios will not be regulated, a key point for upcoming portfolio sales will be how mixed portfolios (NPLs, performing and re-performing loans) originated by EU banks will be managed.
The recent Commission Implementing Regulation ((EU) 2023/2083) sets out the templates to be used by credit institutions for providing information on certain in-scope NPLs (issued on or after 1 July 2018 that become non-performing after 28 December 2021) to credit purchasers. For the other information-provision requirements under the Directive, there are no prescribed forms. We should see further detail from the Central Bank regarding the format to be used for notifications to it (the biannual notification from a credit institution which sells in-scope NPLs to a credit purchaser, the biannual notification from a credit purchaser which on-sells in-scope NPLs to another credit purchaser, and the notification of appointment of a credit servicer). The format for credit purchasers providing information to borrowers is likely to develop as in-scope transactions arise (and may vary depending on the type of loan – for instance, the LMA recently published a suggested form).
The Department of Finance also confirmed in its press release and in its updated December 2023 Feedback Statement that it changed its planned approach to the exercise of one particular national discretion between the June 2023 Feedback Statement and transposition. The discretion under Article 2(6) to exclude public notaries, bailiffs and lawyers from the Directive’s scope has, following consultation with the Central Bank, been exercised.
Please contact any member of our team to discuss the practical impact of the Directive’s framework on upcoming transactions.