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AFME supports the intention to create a common set of rules for developing a true European market for NPLs, creating a common framework for conduct, and supervisory standards, of credit servicing activities, removing impediments to the purchase and management of distressed debt, and improving legal frameworks to better protect creditors from borrower’s default.
As a general rule, AFME supports targeted action that can address genuine economic or supervisory problems, and the NPL issue has been identified as a key concern for European banks. At the same time, and in the spirit of less but better regulation, promoted by the current European Commission, it is important that policy makers do not attempt to fix what is not broken and instead focus their measures on the areas and market actors most in need of action.
Certain provisions of the Proposed Directive, notably those relating to loan transfers and minimum disclosure/reporting, apply to transfers of all loans (i.e. not just non-performing loans). An overly-broad application of the Proposed Directive would likely require significant changes to existing market practice and would also be likely to have unnecessary and negative effects on disclosure, reporting and licensing with respect to performing loans and large corporate NPLs. These impacts may reduce liquidity and increase cost in segments of the secondary loan market that are currently functioning in a satisfactory manner.
It is important that the scope of the Proposed Directive is targeted to markets where policy interventions are needed. The introduction of onerous disclosure and reporting requirements for well-functioning markets such as performing loan transactions and large corporate NPL markets risk reducing liquidity and increase transactions costs in market segments with strong transaction volumes and robust investor appetite. Or simply put, the Directive should not try to fix problems where there are none.
Credit Servicers
The provisions regarding non-bank credit servicers go in the right direction as they set high standards for the authorisation of credit servicers to operate in Europe and require credit servicers to apply the same standards (i.e., duty of care, customer protection) vis-à-vis borrowers as those of the banks whose NPLs they acquire.
The proposals seeking to facilitate the cross-border (intra-EU) provision of credit servicing activities are also encouraging. Access to third-party loan servicers is crucial to the development and growth of secondary markets for NPLs.
Credit Purchasers
The provisions regarding non-bank credit purchasers create new and onerous procedural and informational requirements for the transfer of loans, with negative timing consequences for both performing and non-performing loan disposals.
The requirements for the provision of “all necessary information” to credit purchasers is wide-ranging and goes against the purpose of the recently published EBA NPL data template1, which is to set up a market standard for voluntary use in non-performing loan transactions. They also reverse current market practices whereby loans are traded in Europe on a “buyer beware” basis.
It must also be noted that a creditor may not possess, or have access to, the relevant information. There are also limits imposed by data protection laws and practices relating to bank secrecy, all of which may preclude the creditor from disclosing certain information to third parties.