I am advised by the Central Bank consistently reviews the regulatory framework to ensure it is fit for purpose. In this context, the Central Bank advocated for a legislative regime whereby customers would be protected regardless of whether their loan was held by a bank or a non-bank.
As the Deputy is aware, the Consumer Protection (Regulation of Credit Servicing Firms) Act 2015 brought ‘credit servicing’– in effect interfacing with borrowers – under Central Bank regulation and supervision. This resulted in a significant strengthening of consumer protection for borrowers where loans had been sold by a bank, as the 2015 legislation meant consumer protection obligations would travel with loans when sold. In 2018, the Consumer Protection (Regulation of Credit Servicing Firms) Act 2018 (the 2018 Act) extended the definition of ‘credit servicing’ to also bring the owners of the legal title to credit directly under Central Bank regulation and supervision, and within the scope of the relevant consumer protection framework. This means that both loan owners and credit servicing firms must adhere to the same consumer protection requirements as the original regulated entity, including the Code of Conduct on Mortgage Arrears 2013 and the Consumer Protection Code 2012.
The 2018 Act excludes securitisation special purpose entities from the requirement to be authorised and regulated where
- the securitisation special purpose entity was established by or on behalf of the owner of credit as part of the securitisation arranged by or on behalf of that owner of credit,
- the owner of credit retains the legal title to the credit so assigned or otherwise disposed of,
- and the originator, sponsor or original lender of the securitisation is required to retain on an ongoing basis a material net economic interest in the securitisation of not less than 5 per cent.
While the Central Bank cannot comment on a specific transaction, it is important to note that loans involved in a securitisation transaction continue to be subject to all Central Bank requirements, including the Codes outlined above and the contractual rights of borrowers are not affected.
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.