|John Breslin||Callaghan Kennedy|
The Bill has the sensible policy aim of ensuring that relevant Irish borrowers (natural persons and small and medium-sized enterprises (SMEs) retain the protections they have under Irish law if their loans are sold by Irish-authorised credit providers to unregulated purchasers.
However, the scope of the Bill is wider than this. It effectively expands the regulation of loan origination and secondary ownership of that credit to loan types not previously regulated, for example loans to corporate SMEs.
This goes much further than is necessary and could be damaging for the Irish economy. Efforts are underway to persuade the Government to narrow the scope of the Bill to its originally-stated intended scope.
To provide context, the policy aim of the Bill has been signposted to the market from early in the Irish loan sales process (particularly since the commencement of the special liquidation of IBRC, the former Anglo-Irish Bank). This process is ongoing as Irish banks complete their balance sheet de-leveraging, and NAMA (Ireland's bad bank) completes its mandate on an accelerated basis.
The regulatory protections which may be lost where the loan is purchased by an unregulated entity include the benefit of certain codes of practice (for instance on mortgage arrears enforcement, and SME lending) and the right to refer disputes to an ombudsman. Even though a number of loan portfolio purchasers agreed informally to adhere to the codes of practice, the Irish government considered that this was not sufficient.
Whilst it is not anticipated that the Bill will be enacted in its current form, it is vital for purchasers of relevant Irish loan portfolios (including for deals already completed) to understand the fundamental aim of the Bill. It seems clear that the basic policy objective of providing continuity of regulatory protection will remain.
The Bill's core focus is the regulation of loan book servicers. These firms will be subject to a relatively light-touch system of regulation (the imposition of capital requirements is not expected).
However, if no loan book servicer is appointed, the loan book purchaser, often a special purpose vehicle (SPV) will be required to obtain a loan book servicing licence. Many SPVs are not equipped in the first instance to obtain this licence.
The definition of loan book servicing is drafted with the intention of regulating borrower-interaction activities, rather than portfolio-level strategic management. However, the Bill is not altogether clear in defining the parameters of regulated activity.
Managers of SPV purchasers will need to review carefully both their servicing agreements and actual day to day activities to ensure regulatory compliance. A three-month transition period is expected to apply upon commencement of the new law.
John Breslin and Callaghan Kennedy