Lawyers at Matheson say that some there is still some uncertainty about how new rules on credit servicing will operate in practice.

The rules, which lay down a common European framework for the transfer and management of banks’ non-performing loans (NPLs), came into effect in Ireland on 29 December 2023.

This followed the Minister for Finance Michael McGrath’s signing of the European Union (Credit Servicers and Credit Purchasers) Regulations 2023, which gave effect to an EU directive on the issue.

In a note on the firm’s website, the Matheson lawyers point out that an existing Irish credit-servicing regulatory framework will operate alongside the new EU regime – effectively creating two parallel regimes.

Timing issues

While welcoming the clarifications provided in the transposing legislation, they also highlight areas where some uncertainty remains, adding that these issues may be addressed in due course by guidance from the European Commission or regulators.

The Matheson lawyers say that there are timing issues that create a lack of clarity – including whether the new rules apply only to NPLs first transferred by an EU credit institution on or after 30 December 2023, or whether they also apply to resales of NPLs on or after 30 December 2023, even where the NPLs were first transferred by an EU credit institution before 30 December 2023.

They also say that the responsibility and time for determining that loans are non-performing – particularly in the context of resales of loans and where credit institutions hold loans in their trading books – is unclear.

The Matheson note adds that it is also unclear whether and how the obligations on credit institutions and credit purchasers will apply to non-EU credit institutions – in particular, those with a branch in the EU.

‘Parallel regimes’

It also expresses concern about uncertainty surrounding whether the activities of facility agents and security trustees are caught by the new regulations.

“There is a possibility that, in the absence of clear guidance being provided by the European Commission, the European Banking Authority or national regulators, the new obligations being imposed upon EU credit institutions selling NPLs, and on purchasers and servicers of those NPLs, may actually deter some EU credit institutions from selling or some purchasers from buying NPLs,” the lawyers state.

They add that this is particularly the case in Ireland, where there are now two “parallel, yet different, regimes” in operation.