I propose to take Questions Nos. 77 to 79, inclusive, together.
Since the introduction of the Consumer Protection (Regulation of Credit Servicing Firms) Act 2015, credit servicing firms have been subject to the provisions of Irish financial services law that apply to regulated financial services providers, including but not limited to:
- The Consumer Protection Code
- the CCMA
- the Central Bank (Supervision and Enforcement) Act 2013 (Section 48) (Lending to Small and Medium-Sized Enterprises) Regulations 2015,
- the Fitness and Probity Regime,
- the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) Minimum Competency Regulations 2017, and
- the Minimum Competency Code 2017
The Consumer Protection (Regulation of Credit Servicing Firms) Act 2018 (the 2018 Act) expanded the scope of ‘credit servicing’ to also bring the loan owners themselves directly under Central Bank regulation and supervision, and also within the scope of the relevant consumer protection framework. The 2018 Act came into effect on 21 January 2019 and expanded the definition of ‘credit servicing’ in the 2015 Act to also include the following activities:
- holding the legal title to credit granted under the credit agreement;
- determination of the overall strategy for the management and administration of a portfolio of credit agreements; and
- maintenance of control over key decisions relating to such portfolio.
The Central Bank published Authorisation Requirements and Standards (the Standards) in December 2015. These Standards require that Credit Servicing Firms must be able to demonstrate that they are in a position to conduct their affairs in a manner that ensures the best interests of their customers are protected. The Standards were imposed on Credit Servicing Firms as a condition of authorisation and must be complied with on an ongoing basis.
In advance of the 2018 legislation coming into effect on 21 January 2019, the Central Bank published and updated the Standards to reflect the fact that loan owners now fall to be directly regulated. The Standards provide that a Credit Servicing Firms must structure, organise and resource its business to ensure that it is in a position to demonstrate that it can comply with applicable regulatory requirements. This includes ensuring that adequate and effective control of the firm rests in the State, that all firm records are available to the Central Bank, and that the firm is not outsourcing activities to any extent that would impact on its ability to meet all applicable regulatory requirements.
The Standards also contain additional requirements for Credit Servicing Firms which hold the legal title to credit granted under a credit agreement and which engage in associated ownership activities. These requirements include that each Credit Servicing Firms must have effective processes for the development, implementation and oversight of the firm’s overall strategy for the management and administration of its portfolios of credit agreements and the maintenance of control over key decisions relating to those portfolios.
The Central Bank’s supervision strategy for the credit-servicing sector has a number of elements, including:
- Detailed data gathering and analysis, including mortgage arrears and repossession data, such as the pattern of arrears in the Irish mortgage market by entity type; mortgage arrears profile; restructuring activity in the Irish market; data on ARAs and complaints etc. Additionally, obtaining direct evidence from consumers to provide first-hand information about their experiences in dealing with the credit-servicing sector.
- Intensified risk and evidenced-based supervision, which includes both on-site and offsite inspections. The Central Bank will continue to assertively supervise credit servicing firms’ compliance with the CCMA, to ensure that a fair and transparent process is in place for all borrowers, including those whose loans have been sold.
- Use of its full suite of supervisory powers as appropriate.
The Central Bank’s approach to supervision of the credit-servicing sector is underpinned by an expectation of high standards and a professional and consumer-focused approach to compliance.
Beneficial owners were excluded from the scope of the 2018 Act as their inclusion could have had an impact on entities like passive securitisation vehicles. Irish and European banks use securitisation as a matter of course to raise funds for on-lending to the real economy, mortgage borrowers and SMEs who need access to credit. This is an important and ongoing aspect of the international financial system and passive securitisation vehicles do not have any implications for consumer protection.
If securitisation vehicles needed to be authorised and regulated, a number of unintended consequences may arise. For example, such vehicles could find it impossible to comply with the regulatory requirements of the Central Bank and therefore could be forced out of the market completely. Alternatively, they would have to take on staff and premises and adopt structures in order to meet these requirements and the costs of this would be factored in the price that buyers would be willing to pay for securitisations thereby increasing costs which are likely to be passed to consumer.