EU NPL Directive
Irrespective of the loan market segment in which market participants are active, one theme seems prevalent across the board – the expectation that non-performing loans (NPLs) will rise in 2024, as the delayed impact of higher interest rates takes hold. Forecasts range from 3-4.5%, depending on the sector. What some institutions may not be aware of though is the relevance of the newly enacted NPL Directive and what they will need to do from 30 December 2023 onwards to ensure compliance when they either buy or sell NPLs.
What is the NPL Directive?
The NPL Directive is intended to regulate the sale, purchase and servicing of NPLs originated by EU banks.
Is the Directive relevant to my institution?
If your institution is an EU bank which now (or in the future) sells NPLs or is a buyer of such loans (but is not an EU Bank) then the NPL Directive is likely to apply.
What does this mean in practice?
Amongst other requirements, it creates disclosure obligations from seller to buyer, notification requirements by buyer to underlying borrower, and reporting requirements (by seller and buyer) to relevant local regulators.
What has the LMA done to help market participants with the implementation process?
We are delighted to have now published, in addition to a detailed guidance note on the Directive itself, a series of template notices which can be adapted by sellers and buyers to help them satisfy the various disclosure and reporting requirements. Both the guidance note and the templates were produced in consultation with a dedicated working group of sellside banks and buyside investors active in the market, including consultation with their policy/regulatory teams.
As a separate and ongoing exercise, the LMA will also be working on a member state implementation “tracker” in respect of “key” EU jurisdictions. The tracker, initially to include Germany, Ireland, France, Spain, Luxembourg and the Netherlands and produced in conjunction with local legal counsel in each of the relevant countries, is intended to summarise key factual information which institutions will need to order to ensure that they are able to comply with the Directive at a local level. Questions to be answered as part of the tracker will include details on the implementing rules, any additional disclosure or reporting obligations beyond those contained in the Directive, and details of the relevant competent authorities to whom information must be disclosed.
NPL Directive: European Commission takes action to ensure a complete and timely transposition across the EU
On 25 January 2023, the European Commission (the Commission) announced the adoption of a package of infringement decisions due to the absence of communication by several Member States of measures taken to transpose the Directive (EU) 2021/2167 on credit servicers and credit purchasers (NPL Directive) into national law.
The Commission is sending a formal notification letter to those Member States who have failed to notify national measures transposing the NPL Directive, ahead of the expired deadline of 29 December 2023.
Access our guidance note on the Directive itself, and a series of template notices which can be adapted by sellers and buyers to help them satisfy the various disclosure and reporting requirements. Both the guidance note and the templates were produced in consultation with a dedicated working group of sellside banks and buyside investors active in the market, including consultation with their policy/regulatory teams.
Access also the first two of a planned series of member state implementation “surveys” in respect of both Germany and Ireland, which are intended to provide factual and practical guidance for members, as well as the core requirements of the local legislation itself.
In the world of lending, there are challenges aplenty – black swan events, trade wars, and bewildering monetary policy decisions, to name a few. However, one challenge that truly stands out is what former U.S. Secretary of Defence Donald Rumsfeld famously termed the "known unknowns."
The NPL Directive, short for Non-Performing Loan Directive, embodies precisely this concept.