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Financial Services Regulation

Dáil Éireann Debate, Thursday - 25 February 2021

Thursday, 25 February 2021

Questions (44, 68, 69)

Bernard Durkan


44. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which transactions, sale of loans and other activity have taken place in the past two years with reference to taking some investment funds outside the control of the Central Bank, notwithstanding the provisions of the 2018 amendment; if further legislative amendments will be considered to ensure that, notwithstanding the practice, all investment funds come within the remit of the Central Bank; and if he will make a statement on the matter. [10709/21]

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Bernard Durkan


68. Deputy Bernard J. Durkan asked the Minister for Finance if investment funds all remain under the supervision of the Central Bank; if funds sold on to unregistered third parties are still subject to Central Bank rules; and if he will make a statement on the matter. [10885/21]

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Bernard Durkan


69. Deputy Bernard J. Durkan asked the Minister for Finance the number and value of loan books currently in the hands of unregistered third parties having left institutions supervised by Central Bank rules; and if he will make a statement on the matter. [10886/21]

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Written answers (Question to Finance)

I propose to take Questions Nos. 44, 68 and 69 together.

When loans are sold by Irish Banks, they are required to be sold to a Central Bank regulated entity.

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 Central Bank's Consumer Protection Code, Code of Conduct on Mortgage Arrears and its SME Regulations. 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 on-going 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 alternative repayment arrangements (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 reducing the liquidity available to the lenders originating securitisations and increasing costs that are likely to be passed to consumer.

As of Q3-2020, Retail Credit Firms and Credit Servicing Firms held 14% of all mortgage accounts, representing 120,341 accounts, with €20.9 billion outstanding.

Investment Funds

The Central Bank of Ireland is the competent authority for the authorisation and supervision of investment funds established in Ireland. There are two categories of investment funds in Ireland: Undertaking for Collective Investment in Transferable Securities (UCITs), and Alternative Investment Funds (AIFs) which may be sub divided into Retail and Qualifying Investor AIFs depending on the types of investors they will be marketed to.

Property funds domiciled in Ireland are typically established as Qualifying Investor AIFs. These fall under the Central Bank’s AIF Rulebook and are subject to the provisions of the EU’s Alternative Investment Fund Managers Directive. A Qualifying Investor AIF must appoint an Alternative Investment Fund Manager who will also be regulated under the Alternative Investment Fund Managers Directive.

Section 110 companies are not subject to Central Bank authorisation. There are a number of conditions which a company must meet in order to be regarded as a qualifying company for the purposes of section 110 of the Taxes Consolidation Act 1997 (“TCA 1997”).

One of those conditions is that the company notifies Revenue of their intention to be a qualifying company by completing a Form S.110 no later than 8 weeks from the date the company commences its business as a qualifying company for the purposes of section 110 TCA 1997. As it is a requirement of section 110 TCA 1997, it is appropriate that the Form S.110 be submitted to the Revenue Commissioners.

However, in addition to the Revenue reporting requirements, under section 18 of the Central Bank Act 1971, all Irish qualifying companies are obliged to report quarterly data to the Central Bank. This is in addition to the reporting obligation which many such companies already have, where they are “Financial Vehicle Corporations”, to report quarterly data to the Central Bank under Regulation ECB/2013/40. This information is then reported to the European Central Bank. The European Central Bank statistics provide harmonised information on the securitisation market and can also be broken down by country.

Further information on the reporting requirements of Special Purpose Vehicles and Financial Vehicle Corporations is available at the websites of the Central Bank of Ireland and the European Central Bank respectively.