Finance and Capital Markets
While 2022 started off with high expectations for the financial and capital markets, the resultant uncertainty caused by Russia's invasion of the Ukraine has cast a long shadow over 2022.
Several other macro-economic challenges are contributing to this market uncertainty, such as interest rate hikes, ongoing global supply chain issues, increasing energy costs and inflationary pressures. However, despite these uncertainties, we expect that legislators and regulators will continue to focus their attention on the European Commission’s flagship Capital Markets Union project, including strengthening the securitisation market to broaden investment opportunities.
Credit servicing has been a topical issue over the last number of years and, unsurprisingly, is also in the spotlight in 2022 with more expected from Europe over the coming months. Sustainable finance has been a dominant topic of discussion in 2022, and this can be expected to continue into 2023 amid strong investor demand for green financial products including ESG securitisations, particularly in the area of CLOs.
Key Themes in Finance and Capital Markets
The Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Act 2022 (the “Act”) commenced on 16 May 2022. The Act, among other things, brings a number of previously unregulated credit providers into the scope of the Central Bank of Ireland’s (“Central Bank’s”) regulatory remit.
The Act expands the definition of a “retail credit firm” to include any person whose business consists wholly or partly of (a) directly or indirectly providing credit to, or (b) entering into a consumer-hire agreement or hire-purchase agreement with, a natural person in Ireland. Any such person now requires to be authorised by the Central Bank. The Act also expands the definition of "credit servicing", resulting in entities that own or service consumer-hire agreements or hire-purchase agreements now falling within the scope of the credit servicing firm legislative regime and accordingly requiring authorisation by the Central Bank.
The definition of "credit" has also been expanded to include a deferred payment, a cash loan (whether or not provided on the security of a mortgage or charge over an estate or interest in land), or other similar financial accommodation. This captures many credit arrangements previously out of scope, such as Personal Contract Plans or "buy now, pay later" arrangements.
Any providers carrying out these activities prior to the introduction of the Act that are now within the expanded scope of the Act were given a transition period of no later than three months after the commencement of the Act to apply for a transitional authorisation from the Central Bank. This transition period ended on 16 August 2022. The transitional authorisation allows the provider to carry on the business of a retail credit firm or credit servicing firm until the Central Bank makes a final decision to grant or refuse its authorisation. However while the transitional authorisation is in place, the Central Bank may impose regulatory and supervisory conditions on the provider, and / or direct that the provider does not carry on the business of a retail credit firm or credit servicing firm for such period as the Central Bank directs, not exceeding three months.
It is worth noting that the Consumer Protection Code and other codes and standards administered by the Central Bank will now also apply to these providers.
Read more: please see further discussion of the Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Act 2022 in our commentary on Financial Services Regulation.
Section 5 (Further transitional provision for existing retail credit firms) and section 7 (Further transitional provision for existing credit servicing firms) of the Act.
Review of the EU Securitisation Regulation:
Following industry consultation, the European Commission has undertaken a review of the functioning of Regulation (EU) 2017/2402, commonly known as the "Securitisation Regulation". The Securitisation Regulation lays down a general framework for securitisation in the EU and creates a specific framework for simple, transparent and standardised ("STS") securitisation.
On 11 October 2022, the European Commission published its long-awaited report on the functioning of the Securitisation Regulation (the "Report"). The review and consequential Report was mandated pursuant to Article 46 of the Securitisation Regulation and draws on industry consultation that was carried out as well as an opinion and report published by the joint committee of the European Supervisory Authorities.
The Report notes that the Securitisation Regulation seems overall fit for purpose and the European Commission has not recommended that amendments be made to the Securitisation Regulation at this point. The Report was therefore not accompanied by a legislative proposal. However, it does acknowledge that there is room for "fine-tuning" and identifies a number of targeted improvements that could be made, as well as making certain clarifications. The Report concludes that the area will be continued to be closely monitored and it has left open the possibility of amendments to the Securitisation Regulation in the future.