Loan Market Association produces reporting templates to help market participants navigate the new EU Directive on Non-performing Loans
11 January 2024A new Directive was enacted by the European Commission in 2023 to regulate the sale, purchase and servicing of Non-performing Loans (NPL) originated by EU banks. The Loan Market Association (LMA) has produced regulatory reporting and notification templates to help market participants navigate the new 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 investors may not be aware of however is the relevance of the newly enacted NPL Directive and what they will need to do from now 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.
Who is the Directive relevant to?
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?
The LMA has 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 of the Directive. Both the guidance note and the templates were produced in consultation with an expert 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 is also working on a member state implementation survey in respect of key EU jurisdictions. The survey, 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 know in order to ensure that they are able to comply with the Directive at a local level. It should be noted that these local law requirements will be relevant not only to investors located in that jurisdiction, but also to sold or purchased NPLs where the borrower, or a member of the borrowing group, is located there.
Questions to be answered as part of the survey 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.
Amelia Slocombe, Head of Legal, Managing Director, said
“The NPL Directive is challenging for market practitioners to interpret because it is a piece of legislation which was really designed to protect consumers and smaller businesses, but we realised this has also impacted the larger end of the corporate loan market.
We soon realised that this was something where our members needed practical, industry-wide solutions, and therefore in a first of its kind for the LMA, we have produced regulatory reporting and notification templates, as well as local member state Q&As, designed to assist firms with compliance on both an EU and national level.”