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Ireland: New licence regime

On July 8 2015, the Consumer Protection (Regulation of Credit Servicing) Act 2015 was enacted into Irish law

John BreslinCallaghan Kennedy
On July 8 2015, the Consumer Protection (Regulation of Credit Servicing) Act 2015 was enacted into Irish law. The Act imposes obligations on loan administrators (or where no authorised servicer is appointed, on the legal owners of the credit), with the aim of ensuring Irish natural person and applicable SME (small and medium enterprises, as defined under EU law) borrowers maintain the protective benefits of statutory codes applicable to Irish-regulated financial service providers where such loans (relevant loans) have been sold to unregulated entities, such as hedge funds.

Credit servicing of relevant loans requires a licence, and is defined as including (without limitation) day-to-day loan book administration activities (such as borrower communication and payments collection). It excludes certain acts like the overall determination of the portfolio management strategy, provided such excluded functions are not exercised in a manner that would themselves contravene certain Irish financial services law.

The main loan book administrators already operating in the market are expected to apply for licences in the near term. Any regulated financial service provider licensed by the Central Bank of Ireland (or equivalent European Economic Area regulator) to originate credit in Ireland is also deemed to be licensed as a credit servicing firm (such as an Irish bank acting as a facility agent for a multilateral loan to an Irish SME).

When first proposed by the Irish government in July 2014, the Act attracted significant market criticism, but the final Act represents a more fit for purpose law. That said, it still contains pitfalls to be avoided and it applies to both historic and future individual loan and loan book portfolio acquisitions.

For example, SME is broadly defined and potentially catches several loan types a secondary purchaser may not initially suspect (for example loans to partnerships). Also, the typical special purpose vehicle (SPV) loan book acquirer appoints a loan servicer (required to be a regulated credit servicing firm) and an investment manager (not so required). However, any investment manager taking strategic portfolio decisions (such as enforcement) involving relevant loans will now also need to take such actions in a manner consistent with Irish financial services law.

Audits of existing loan ownership structures and servicing arrangements in light of the Act are also advisable, particularly as compliance failures may impact specific loan actions proposed (such as restructurings) as well as overall investment return.

John Breslin and Callaghan Kennedy

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