1. Directive (EU) no. 2021/2167

Directive (EU) no. 2021/2167 (also known as the Secondary Market Directive) (the “Directive”), published in the Official Journal of the European Union of 8 December 2021, aims at (i) harmonizing the regime applicable to credit servicers and credit purchasers which acquire the receivables arising from non-performing credit agreements and (ii) supporting the development of a secondary market for defaulted credits in the European Union, while ensuring that the assignment of such receivables does not cause prejudice to the rights of debtors.

The Directive seeks to remove national barriers to the transfer of defaulted credits, liberalizing their sale by credit institutions to so-called “credit purchasers” (individuals or entities that perform credit purchase activity in the course of its trade, business or profession) and facilitating the due diligence activities by the potential credit purchasers. The objective is to increase competition, also on a cross-border basis, encouraging the entry of new players by opening the domestic markets (with positive effects also in terms of liquidity for the secondary market of defaulted credits).

At the same time, safeguards and protections for assigned debtors are enhanced. Specifically, an authorisation and supervisory regime is established for “credit servicers”, and the relationships between purchasers, credit servicers, and, where applicable, providers of credit management services are regulated. Furthermore, provisions are introduced specifically designed to protect debtors through information obligations, the imposition of conduct rules, a new disclosure regime for credit servicers through the establishment of a new supervisory register, the ability to file complaints and new safeguards concerning contractual matters and creditor-debtor relationships. The Directive also includes protection provisions for debtors when receivables are assigned to third-country (i.e., non-EU) credit purchasers (e.g., by requiring the appointment by such credit purchaser of a representative within the European Union responsible for compliance with EU provisions and, in some cases, the appointment of an authorised servicer for the servicing activity).

In particular, the Directive:

• applies, with certain clearly defined exemptions, to both credit servicers and credit purchasers acquiring receivables arising from non-performing credit agreements;
• requires credit servicers to seek authorisation from the competent national authority, subject to certain conditions being met;
• provides that national authorities have supervisory, investigatory, and sanctioning powers, must maintain a publicly accessible online register of all credit servicers, and allow authorised credit servicers in one Member State to operate elsewhere in the European Union under certain conditions;
• sets forth specific obligations for credit purchasers and credit servicers in their relationships with debtors;
• provides with specific information obligations on credit institutions, both towards potential credit purchasers and competent national authorities.

      2. Legislative Decree of 30 July 2024, no. 116

Through Legislative Decree of 30 July 2024, no. 116, published in the Official Gazette of the Italian Republic of 13 August 2024 (the “Decree”), the provisions of the Directive have been finally implemented in Italy.

In particular, the new provisions have been incorporated into Legislative Decree of 1 September 1993, no. 385 (the “Consolidated Law on Banking and Credit” or “TUB”), with the introduction of a new section (Chapter II in Title V) dedicated to the purchase and servicing of defaulted credits.

      3. Scope of the Decree

Scope of application

In exercising the flexibility provided by the Directive, the scope of the Decree (and thus of the Directive) is limited in Italy to the liberalization of the purchase in the course of its trade, business or profession of credits classified as “defaulted” (sofferenze) according to the regulations of the Bank of Italy (thus excluding from the scope of this reform the purchase and servicing of receivables which are not classified as defaulted).

“Defaulted credits servicing” is defined as the performance of one or more of the following activities in relation to defaulted credits:

• the collection and recovery of payments owed by the debtor;
• the renegotiation of the contractual terms and conditions with the debtor, in line with the instructions provided by the credit purchaser, provided that this does not constitute lending activity under article 106 of the TUB; for these purposes, the early settlement and postponement of payment deadlines do not constitute lending activity. Activities performed by credit intermediaries (as defined in articles 120-quinquies, paragraph 1, letter g) and 121, paragraph 1, letter h) of the TUB) are excluded;
• the handling of debtor complaints regarding credit purchasers, credit servicers and entities to whom business functions related to credit servicing have been outsourced;
• the provision of information to the debtor regarding any change in interest rates and charges or any payment due.

The new rules on the purchase and servicing of defaulted credits apply to loans granted not only by banks, but also by other entities authorised to grant credit (such as financial intermediaries under article 106 of the TUB, investment funds, securitization vehicle entities). This provision, not explicitly contemplated by the Directive, is intended to ensure the creation of a unified, non-fragmented secondary market for defaulted credits.

Subjective requirements

The Decree excludes from the new regime the servicing of credits carried out (a) by servicers on behalf of collective investment schemes, (b) by banks or financial intermediaries under article 106 of the TUB, or (c) in the context of securitization transactions where the purchaser qualifies as a securitisation vehicle (Securitisation Special Purpose Entity) under Regulation (EU) 2017/2402 (i.e., “a corporation, trust or other entity, other than an originator or sponsor, established for the purpose of carrying out one or more securitisations, the activities of which are limited to those appropriate to accomplishing that objective, the structure of which is intended to isolate the obligations of the SSPE from those of the originator”).

Moreover, financial intermediaries under article 106 of the TUB, are exempt from the requirement to be authorised as credit servicers unless they intend to exercise such activity on a cross-border basis through the so-called “European passport”.

The out-of-court recovery of credits performed by entities holding a license for out-of-court credit recovery activity under article 115 of the Royal Decree of 18 June 1931, no. 773 (the so-called “TULPS”), on the basis of a business function outsourcing agreement, on behalf of banks, financial intermediaries under article 106 of the TUB, including under Law of 30 April 1999, no. 130, managers of collective investment schemes, as well as authorised credit servicers under the new provisions introduced by the Decree, does not constitute credit servicing activity under the Decree.

     4. Main provisions of the Decree: requirements and obligations for credit purchasers and servicers

Credit servicing activity

The Decree requires that the credit purchaser must always appoint a credit servicer (or, alternatively, a bank or financial intermediary pursuant to article 106 of the TUB) which shall carry out the receivables servicing activity. This entity will be responsible of compliance with all the obligations established by the new regime, including reporting obligations. Said provisions are driven by two factors:

(i) supervisory needs: the authority will always be able to interact with a supervised entity to verify compliance with the applicable laws and regulations; and

(ii) debtor protection: the desire to ensure a greater protection for assigned debtors, who, under the provisions of the Decree, will interact with a regulated and supervised entity.

It is also required that a purchaser with registered office in a country outside the EU must appoint a representative with residence, domicile or a principal office in a Member State. This representative is subject to the provisions of the Decree that apply to the purchaser.

The Decree further provides that credit purchasers must participate in the Central Credit Register (centrale rischi). The reporting obligation will be fulfilled through banks, financial intermediaries pursuant to article 106 of the TUB, or credit servicers acting on behalf of the purchasers. In this way, continuity in the existing reporting regime is ensured, protecting the system and its operators.

Communication and information undertakings

• The Decree introduces the following new requirements in terms of

  information to credit purchasers:

  • sellers of receivables must provide potential purchasers with the information necessary for evaluation of the receivable and the likelihood of recovering its value (in compliance with current confidentiality regulations) and the same sellers must send to the Bank of Italy – and, if applicable, to the competent authority of the host Member State – on at least a semi-annual basis, information regarding the assigned credits;
  the obligation to inform the assigned debtor of the assignment lies with the servicer, the bank or the financial intermediary appointed for the servicing, and is extended even if the assignee is a bank, a financial intermediary under article 106 of the TUB, a collective investment undertaking, or if the assignment is carried out as part of securitization transactions. The Bank of Italy is also empowered to (a) determine the content and methods of the communication and subsequent notifications to the assigned debtor and (b) identify additional cases where the assigned debtor is entitled to receive information regarding the assignment of a receivable or a contract, defining the methods and content of the communication.

Authorisation procedure for credit servicers

The Decree sets forth specific requirements for entities applying for authorisation. In particular, the Bank of Italy authorises credit servicers when the following conditions are met:

1. they adopt the form of a joint-stock company, partnership limited by shares (società in accomandita per azioni), limited liability company, or cooperative company;
2. their registered office and main offices (direzione generale) are located in the Republic of Italy, where at least part of the activity of collection and recovery activities are carried out;
3. the requirements for acquisitions or changes in bank participations, as provided for by article 19 of the TUB, are met;
4. the individuals performing administrative, managerial and supervisory functions are fit to perform their engagement and meet professional and integrity (onorabilità) requirements and comply with competence and fairness criteria;
5. together with the incorporation deed and the bylaws, a program concerning the initial activity and organisational structure is submitted, including corporate governance arrangements, administrative and accounting organisation, internal controls, policies, and procedures to ensure compliance with the applicable provisions on debtor protection, including those for handling complaints and confidentiality, as well as the provisions governing the creditors’ rights.

Once authorised, the credit servicer is enrolled in a special register held by the Bank of Italy, which is publicly accessible on its website. The same register also includes European credit servicers operating in Italy on a cross-border basis; such entities as well are enrolled in the register by the Bank of Italy. As for the authorisation procedure, please refer to the following section 5.

Holding of funds

Under the Decree, credit servicers are entitled to receive and hold funds paid by debtors for subsequent transfer to the credit purchasers, provided that these sums are credited to a separate account opened with a bank and maintained there until transferred to the purchaser. These accounts must be treated as separate assets and no actions may be taken against them by the creditors of the credit servicer – or in their interest -, nor by the creditors of the account bank. The actions of the creditors of the credit purchaser are allowed within the limits of the sums owed to latter.

The Decree also provides that if insolvency proceedings are started against the credit servicer, the funds credited to these accounts, in an amount equal to the sums collected and owed to the credit purchasers, are immediately and fully returned to the latter without the need for a claim submission or filing and outside of any distribution or restitution plans.

Credit servicing on a cross-border basis

The Decree provides that:

• Italian credit servicers can carry out credit servicing activities in other Member States, even without establishing branches, in compliance with the procedures established by the Bank of Italy and the provisions of the Decree;
• EU credit servicers can carry out in Italy the activities for which they are authorised in their home Member State, even without establishing branches, within the limits and conditions set for the exercise of these activities applicable to Italian credit servicers. The starting of the operations is preceded by a notification to the Bank of Italy by the competent authority of the credit servicer’s home country;
• Italian credit servicers can carry out credit servicing activities outside of the EU (with or without the establishment of a branch), subject to authorisation by the Bank of Italy.

Supervision by the competent authority

The Bank of Italy is designated as the Italian authority responsible for supervising credit servicers.

Credit servicers will be required to submit to the Bank of Italy, in the manner and within the deadlines set forth by the latter, periodic reports, their financial statements as well as any other data or document required. Such obligations apply also to the entities towards which the credit servicers outsource business functions.

The Decree provides that credit servicers are allowed to operate in a Member State different from its home State without establishing branches, as long as the entity holds an authorisation granted under the conditions and in compliance with the laws and regulations in force in home State (home country control principle).

Penalties

The Decree extends certain administrative penalties, already provided for in Title VIII of the TUB, to violations of the newly introduced provisions; e.g., unauthorised credit servicing activity is subject to a penalty up to Euro 5 million or up to 10% of the turnover.

    5. Implementing provisions

The Decree provides that the Bank of Italy adopts the implementing provisions of the TUB, as amended by the Decree, within six months from the date on which the Decree enters into force (the “Implementing Provisions”).

On 24 July 2024, the Bank of Italy launched a consultation on the draft Implementing Provisions, addressing, inter alia, the role of the credit servicer.

More specifically, under the Decree, the Bank of Italy will have the power to issue implementing provisions concerning the following aspects:

• the authorisation procedure, the criteria for evaluating the conditions required for the authorisation, as well as the cases and grounds for revocation;
• the requirements for outsourcing certain credit servicing activities and the conditions for the participation in the Central Credit Register of the Bank of Italy;
• the information obligations towards supervisory authorities in case of credit assignments;
• the requirements that the intermediaries enrolled in the register under article 106 of the TUB must meet to provide credit servicing activities in other Member States;
• the procedures and conditions for cross-border operations of credit servicers;
• the content and methods for the information towards the assigned debtors;
• corporate governance, risk containment in its various forms, administrative and accounting organisation, internal controls.

The consultation will remain open until 23 September 2024.

In the context of such consultation, the Bank of Italy, considering the new regulatory framework and the requirements for entities which intend to carry out credit servicing activity or to continue to perform such activities, clarified that operators must carefully assess the necessary measures to ensure compliance with the new requirements and adopt appropriate organisational and control structures in order to ensure the proper performance of the activity, with a view to the submission of the authorisation applications.

In order to facilitate an orderly transition to the new regime, pending the completion of the procedure of adoption of the national regulatory provisions, the Bank of Italy specified that it is available to engage in informal discussions in order to guide the operators interested in submitting future authorisation applications, also providing clarifications and, if necessary, preliminary considerations on the informational and documentary elements to be attached to the applications.

      6. Transitional provisions, entry into force and application

Entities carrying out credit servicing activities as of the date on which the Decree enters into force are allowed to continue to perform such activities for a period of six months following the date of entry into force of the Implementing Provisions. In order to ensure a smooth transition to the newly introduced provisions, no later than three months after the Implementing Provisions enter into force, entities already operating in credit servicing must submit an authorisation application to the Bank of Italy.

The Decree entered into force on 14 August 2024, but will apply starting from the date on which the Implementing Provisions enter into force and with respect to the purchase of credits made from that date onward.