Bankit NPL Supervisory Provisions
Understanding the New Bank of Italy Regulations on Non-Performing Loans
On February 12, 2025, the Bank of Italy released the final version of its "Supervisory Provisions for the Management of Non-Performing Loans" (NPLs). This publication marks the implementation of Legislative Decree 116/2024, which transposes the EU Directive 2021/2167 (Secondary Market Directive – SMD) into Italian law. The new framework introduces significant changes to the regulation of distressed credit managers (GCS) and distressed credit buyers (ACS).
Key Takeaways from the New Provisions
The provisions primarily apply to non-performing loans originated by banks, excluding those from commercial enterprises or public entities. The acquisition of non-banking distressed credit remains restricted under Article 106 of the Consolidated Banking Act (TUB), ensuring that only authorized financial intermediaries can engage in such transactions.
Regulation of Credit Buyers (ACS)
A significant aspect of the reform is the expansion of NPL market participation to non-regulated entities, provided they deal exclusively with bank-originated distressed loans. However, any acquired NPLs must be managed by a regulated GCS, ensuring oversight and control.
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Impact on Credit Securitization
The decree maintains the existing regulatory framework for securitization under Law 130/99. However, it clarifies that single-tranche securitizations involving only non-performing loans fall under the new regulations, requiring oversight by a GCS, which assumes the role of a master servicer.
Licensing Requirements for Credit Managers (GCS)
While GCS firms are now subject to regulatory supervision, they are not required to obtain a license under Article 115 of the Public Security Law (TULPS) if they were previously operating as debt collection agencies. Additionally, pre-existing contracts for extrajudicial recovery services remain valid even if a loan is later classified as non-performing.
Governance and Conflicts of Interest, supervision and Compliance
The provisions impose restrictions on conflicts of interest, limiting the ability of a GCS to manage loans acquired by entities in which it holds an ownership stake. However, the regulations allow GCS entities to establish affiliated investment vehicles, provided their independence is maintained.
A key concern raised during the consultation phase was whether the GCS should be classified as an “obligated entity” under Italy’s anti-money laundering laws (Legislative Decree 231/2017). While the Bank of Italy currently excludes GCS from this category, legislative amendments may be necessary to ensure compliance with financial transparency standards.
Implications for the NPL Market
The new framework aims to create a structured, transparent, and competitive market for NPLs while maintaining regulatory oversight. By balancing market liberalization with supervisory controls, the Bank of Italy seeks to foster a more efficient distressed debt sector without exposing financial institutions to undue risks.
As the implementation of these provisions unfolds, financial operators, investors, and servicers must stay informed and adapt to the evolving regulatory landscape. The full impact of these reforms will become clearer in the coming months, as industry participants adjust to the new compliance requirements and operational constraints.
Conclusion
The Bank of Italy’s regulatory update represents a crucial step in aligning Italy’s distressed credit market with EU standards. By imposing stricter governance on credit management while allowing for broader market participation, the provisions strike a balance between innovation and financial stability. Market participants should carefully assess their strategies and ensure compliance to navigate the new regulatory environment successfully.
Entering Italian NPE Market is a Newsletter and a Linkedin Group focused on News, Updates, and Insights on Italian Banks, Distressed Credit Markets, Fintech, and Real Estate.
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