With effect from 21 January 2019, the Irish credit servicing regime has been amended to regulate persons who hold legal title to credit and/or control the overall strategy or key decisions in relation to a portfolio of loans.
Original Credit Servicing Regime
Ireland’s credit servicing regime was first introduced in 2015 to ensure that regulatory protections afforded to natural persons and SME borrowers travelled with the debt if it was sold by the original regulated lender. Where the purchaser of the debt is an unregulated entity, it is required to appoint an authorised credit servicing firm for all credit servicing activities. These activities include the administration of the loan and all communications with the borrower.
Expanded Credit Servicing and Loan Owners
The credit servicing regime has been expanded by amending the definition of “credit servicing” to add the following in relation to an in-scope credit agreement:
- holding the legal title to credit granted under the credit agreement;
- the determination of the overall strategy for the management and administration of a portfolio of credit agreements; and
- the maintenance of control over key decisions relating to such portfolio.
As is clear from the above, the aim of the amendment is to regulate the person who either holds title to a loan or has material rights to decide how a portfolio of loans is dealt with. There is no exemption for pre-existing transactions. Helpfully, the Act does seek to exempt traditional securitisation arrangements and the wording of the exemption in the Act is largely aligned with the wording in the EU’s Securitisation Regulation.
A person (bar certain exceptions) who carries on the new credit servicing activities mentioned above, immediately before the amendment to the existing law, will be deemed to be authorised as a credit servicing firm, provided that:
- the person applies for authorisation within three months of commencement of the amendment; and
- an authorised credit servicing firm continues to undertake all existing credit servicing activities.
Consequently, any persons brought into scope of the credit servicing regime by the amendment should consider carefully what authorisation applications and restructuring of existing arrangements may be required.
As mentioned in our previous briefings (available here and here), it is unclear how the Act will integrate with initiatives at an EU level to create an EU-wide credit servicing framework aimed at facilitating the transfer of non-performing loans. As these EU initiatives develop the Irish legislature may be forced to revisit the most recent amendment to the credit servicing regime to avoid a conflict between Irish and European legislation.
Clearly, this amendment to the credit servicing regime has immediate consequences for all credit purchasers and credit servicing firms who need to consider carefully whether existing financial and regulatory arrangements should be amended. While the Act is aimed at purchasers in loan sales, it also has (possibly unintended) implications for syndicated debt where the borrower is an SME.