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Development of secondary markets for non-performing loans and distressed assets and protection of secured creditors from borrowers’ default

CLOSED CONSULTATION  

 
From: Ministry for Finance
​(Economic Policy Department)
​Published on: 14 August 2017
Running till: 20 October 2017
​Last Updated: 23 October 2017
1.        Background
 
As part of its efforts to tackle the issue of non-performing loans (NPLs) in the EU, the Commission launched a public consultation with a view to exploring possible initiatives to facilitate the development of secondary markets for NPLs. The consultation aims to gather targeted input from stakeholders on ways to improve the functioning of the secondary market and more specifically on loan servicing activities by third parties and the transfer of loans away from the originating bank. The consultation also offers interested parties the occasion to give feedback on a possible new instrument, labelled 'accelerated loan security', aimed at increasing the protection of secured creditors from business borrowers' default to improve the functioning of the SMEs credit market.
 
Within this context, following the launch of the exercise by the European Commission, the Ministry for Finance is undertaking a local public consultation on the matter in order to elicit responses from the local interested parties.
 
Target group: All citizens and organisations are welcome to contribute to this consultation. Target group includes, but not limited to, public authorities, citizens, legal professionals, representative bodies, market participants and borrowers. Some of the questions of the first section are more specifically targeted to participants in markets for secondary loans. Respondents are invited to provide evidence-based feedback and specific operational suggestions to questions raised in both sections. Do not feel obliged to answer the complete questionnaire. Please select those questions which you deem relevant to answer. In doing so, please be as succinct and concrete as possible.
 
Objective of the consultation: The Commission seeks feed-back from stakeholders via a public consultation in order to inform its work on legislative measures with the aim to remove or reduce impediments of secondary markets for non-performing loans and thereby facilitate their development. Moreover the Commission seeks feedback regarding a possible legislative initiative to strengthen the ability of creditors to recover value from secured loans to corporates and entrepreneurs. More specifically, the Commission seek stakeholders' views on an EU new security right called "accelerated loan security".
 
 
2.        Consultation Questions
 
 
1. Would you consider the current size, liquidity and structure of secondary markets for NPL in the EU an obstacle to the management and resolution of NPLs in the EU? If yes, would you consider such obstacle to be significant?
 
2. What are the key considerations for banks in deciding whether loan sales should be a significant part of their strategy to manage its NPLs?
 
In answering please specify
- bank internal factors (i.e. any factors inside the bank including the type and characteristics of the NPL portfolio, management capacity etc.)
- external factors (i.e. any factors outside of the bank
that are important considerations in this context.
 
3. What would be the best way(s) of attracting a wider investor base to secondary loan markets, especially for non-performing loans?
 
4. In order to widen the investor base, please specify
- which incentive(s) should be given?
- whether certain obstacles to widening the investor base should be removed?
 
5. What are the specific advantages to the development of secondary markets when the acquiring investor is a bank, an investment fund or another type of entity?
 
In particular, would you see specific advantages for
- helping banks overcome legacy assets;
- creating investment opportunities for specialised investors?
 
6. What are the main concerns linked to each of these investor types?
 
7. What are potential benefits and risks from a public policy point of view when considering the appropriate legal framework for secondary markets for loans, and especially NPLs?
 
Please rank the following dimensions (in order of importance):
- debtor protection,
- privacy,
- data secrecy,
- promoting increased market size and depth and equal treatment of investors
 
8. How can one best strike the balance between such dimensions?
 
9. Do differences in these benefits and risks across Member States justify national differences in the framework for secondary markets for loans? If yes, in which way?
 
10. Would you consider current rules applicable in Member States pertaining to secondary markets for NPL in the EU a significant obstacle to the further development of these markets?
 
11. What is the most suitable manner to protect a debtor in the case of transfer of a loan and/or collateral by the creditor to a third party?
 
12. What are the (potential) advantages from specialisation across jurisdictions or asset classes?
 
13. Are you aware of obstacles to operating in secondary markets across national jurisdictions? Would you consider these obstacles to be significant, and/or influence your geographical scope of business operations?
 
14. Do you consider that an EU regulatory framework (Directive or Regulation) regulating certain aspects of the transfer of loans would be useful? What are in your view the key elements that should be addressed in such a framework?
 
15. Please provide any other comments that you find useful in relation to this section.
 
16. What are the advantages of having access to third-party loan servicers in terms of secondary loan market efficiency?
 
In particular, do you see specific advantages for
- helping banks overcome legacy assets;
- creating investment opportunities for specialised investors?
 
17. Are there any obstacles for banks and non-bank investors to have access to third-party loan servicers?
 
If yes, please specify the nature of these obstacles, i.e.
- regulatory,
- legal, or
- other
 
18. What are the advantages and risks of outsourcing specific activities to third-party loan servicers compared to internal workout of loans? Please be concrete as to the activities that have been outsourced and why this has proved to be beneficial or not.
 
19. What are the main risks for debtor protection, in particular for the households in financial difficulties, which are linked (directly or indirectly) with the practices of the third-party loan servicers?
 
20. In the markets and jurisdictions that are relevant to you, is third-party loan servicing mainly focused on management of performing loans, non-performing loans, or both? Please describe the advantages and drawbacks of both situations.
 
21. Do, in your experience, third-party loan servicers concentrate on a specific asset class or does their asset mix tend to be more diverse? Please describe the advantages and drawbacks of both.
 
22. What specific services are offered by third-party loan servicers, in the markets and jurisdictions that are relevant to you?5 Which services do you consider to be most instrumental in terms of market efficiency? Please be as concrete as possible.
 
23. Do you consider that a EU regulatory framework (Directive or Regulation) regulating third-party loan servicers would be useful?
 
If yes, should such legal framework include rules on
- the licensing requirements for such servicers;
- the supervision of such servicers?
 
Are there any other elements that should be covered by such a legal framework?
 
24. Please provide any other comments that you find useful in relation to this section.
 
25. Are you aware of significant differences in business practices in different markets and jurisdictions, for example through voluntary codes of conducts, industry standards, etc.? If yes, does this, and how, constitute an obstacle to your business?
 
26. As a market participant, are you actively partaking in several national markets? If so, do you encounter obstacles to operate internationally in an efficient manner? Please specify.
 
27. In the markets and jurisdictions that are relevant to you, are there unduly onerous legal restrictions in place:
a. on the sale of loan portfolios, including to non-bank entities? Please specify these restrictions and their impact.
b. on banks that want to outsource some or all loan servicing functions to third-parties, including to non-bank entities. Please specify those restrictions and their impact.
 
Such undue restrictions could for example concern the areas of debtor protection, privacy, data secrecy, equal treatment of investors.
 
If yes, could the removal of such undue requirements be considered? Please specify where such an approach could be contemplated and describe the advantages and drawbacks thereof.
 
28. What specific aspects could be improved, in order to facilitate existing cross-border activities and/or entry into new markets? Going beyond mere facilitating, what would accelerate the resolution of NPLs?
 
29. Do you consider that the development of a common EU approach would have an added value in the areas of:
a. the sale and transfer of loans?
b. loan servicing by third parties?
 
If yes, which areas so far regulated under national law should be the focus of such harmonisation efforts? Potential focal points could include third party servicers’ licensing regimes, capital requirements, trade secrecy and consumer protection.
 
Are there other actions that could be taken at EU level that would yield significant benefits for market efficiency (for example EU guidance or recommendations, the creation of a central register of loan servicers, etc.)?
 
30. Please provide any other comments that you find useful on this section.
 
31. Do similar forms of out-of-court enforcement allowing banks to enforce secured loans exist in your country?.
 
If yes,
- please describe these.
- what are the benefits of these provisions for banks in terms of enforcement and value recovery from NPLs?
- what are the main risks and challenges arising from these forms of out-of-court enforcement tool?
 
32. Do you see benefits in ensuring that every Member State makes available an instrument along the lines of the 'accelerated loan security' facility?
 
33. Do you see the accelerated loan security as a valuable instrument to avoid future accumulation of NPLs in banks’ balance sheets?
 
34. Do you agree with the possible main features of an accelerated loan security as described above?
If not, what are the features that you do not agree with and why?
 
35. What are the (additional) features that an accelerated loan security should have in order to enhance its effectiveness in avoiding the encumbrance of bank balance sheets with further NPLs in terms of functioning of the mechanisms?
 
36. Do you agree with the proposed restriction on the scope of a possible accelerated loan security instrument to loans to businesses and corporates, and on the exclusion of primary residence of borrower even in the case of these loans? Please explain the reasons for your answer.
 
37. In what ways could an accelerated loan security be rendered potentially advantageous to borrowers to ensure its willing take-up by debtors (e.g. possible discharge of debtors in case the value of the assets becomes less than the debt)?
 
38. How should an accelerated loan security instrument be designed in order to be consistent with the preventive restructuring framework and the insolvency law of your country (e.g. stay on enforcement actions, cram-down on minority creditors, avoidance actions, ranking of creditors)? In your view, what would be the main obstacles to ensure such consistency?
 
39. How should an accelerated loan security instrument be designed in order to be consistent with the public and private law rules and principles (including for instance property law, public and private law) of your country? In your view, what would be the main obstacles to ensure such consistency?
 
40. How should an accelerated loan security instrument be designed in order to be consistent with the existing national collateral legal framework?
3.        Documents
4.        Submission of input
 
Submissions were sent in through the following channel:
Submissions were received by not later than 20th October 2017.                               
We thank you for your input. 
 
 
 
 
Data Protection Statement Data Protection Act (Chapter 440)
 
The Data Protection Act, 2001 regulates the processing of personal data whether held electronically or in manual form. The Ministry for Social Dialogue, Consumer Affairs and Civil Liberties collects only information which is necessary for it to perform its intended functions and is set to fully comply with the Data Protection Principles as set out in the Act.  Verification of the ID number provided will take place as deemed necessary. All personal data provided will be processed according to the Data Protection Act (Cap 440).
 
 
In addition, please be aware of:
 
·         Disclosure under the Freedom of Information Act (Chapter 496)
As we are a public authority all documents we hold, including documents related to this public consultation process, may be released following a request to us under the Freedom of Information Act (Chap. 496), unless such request may be subject of an exemption arising from the same Act.

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