Implementation of SMD Directive - new Bank of Italy rules on NPL credit servicers

Italy implemented the Secondary Market Directive (Directive (EU) 2021/2167) on credit servicers and credit purchasers (SMD Directive) issuing Legislative Decree no. 116 dated 30 July 2024 (also known as the Italian NPL Decree), that amended the Italian Banking Code (Legislative Decree No. 385 of 1 September 1993) to regulate non-performing loan (NPL) credit servicers (gestori di crediti in sofferenza).

The Italian NPL Decree, in line with the SMD Directive, provides for the application of the new regime on NPLs only, thus excluding other categories of defaulted and impaired loans such as unlikely to pay (UTP) loans, and extends the application of the new rules to loans originated by non-banks.

In a break with the past, the activity of purchasing NPLs from banks and other regulated entities has been liberalised and can also be carried out by non-supervised entities. Importantly, credit purchasers of non-bank NPLs are prohibited from renegotiating the repayment terms since this would suggest that new financing has been granted (thus requiring a financial licence).

Any credit servicing activity, such as the collection or recovery from the borrowers, must be carried out through an authorised credit servicer or through a bank or financial intermediary listed in the register mandated by Article 106 of the Italian Banking Code.

The Italian NPL Decree does not apply to securitisation transactions involving NPLs governed by Italian Law No. 130 of 30 April 1999 (i.e. where the servicing remains limited to banks and financial intermediaries registered in line with Article 106 of the Italian Banking Code).

In accordance with the SMD Directive, the role of “NPL credit servicers” (gestori di crediti in sofferenza) is now regulated in Italy. These entities are subject to authorisation and supervision by the Bank of Italy and will carry out “credit servicing activities” as defined in the SMD Directive (i.e. the collection or recovery from the borrower of any payment due in relation to a creditor’s rights under a credit agreement; the renegotiation with the borrower of any terms and conditions in relation to a creditor’s rights under a credit agreement in accordance with the instructions given by the credit purchaser, where the credit servicer is not a credit intermediary, provided that the recovery/collection activity does not involve the granting of credit).

The Italian NPL Decree requires NPL credit servicers to carry out claims collection activity in Italy. The NPL credit servicers are also authorised to collect claims on behalf of the credit purchaser in segregated bank accounts, making use of the regime of segregation of assets provided for by law whereby the funds deposited in the segregated bank accounts constitute a “patrimonio separato” (separate assets) from the assets of NPL credit servicers. Any action by the creditors of the NPL credit servicer or by the creditors of the bank where the funds are deposited is not permitted in respect to these segregated assets. Any actions by the creditors of the single NPL credit purchaser are permitted within the limits of the funds due to the latter.

In the event of insolvency proceedings against the NPL credit purchaser, the funds credited to these accounts, in an amount equal to the funds collected and due to such NPL credit purchasers, will be immediately and fully returned to the relevant liquidator, without the need to file an application for admission of liabilities or a claim and outside the distribution plan. The sums deposited with the bank are not subject to any legal or judicial set-off, and no conventional set-off can be agreed upon regarding the depository bank’s claims against the NPL credit purchasers.

NPL purchasers are subject to reporting obligations to the Centrale Rischi (i.e. the central credit register of the Bank of Italy where any material forbearance measure is reported). Shareholders and directors of NPL credit servicers are subject to the rules on qualifying shareholdings and directors of banks.

The Italian NPL Decree has introduced a specific supervision regime for NPL credit servicers to verify compliance with the law provisions for the protection of the assigned debtors (i.e. information obligations on the assignment, complaints management, rules of conduct).

As for implementation of the SMD Directive in relation to Directive 2008/48/EC on consumer credit contracts (CCD) and Directive 2014/17/EU on consumer credit contracts for residential real estate (MCD), the Italian Banking Code has been amended to introduce specific notices to be sent to the consumer in the event of changes to the terms of the contract. In addition, the rules on the forbearance measures to be proposed to debtors in difficulty, already provided for in real estate credit contracts, will be extended to consumer credit contracts.

Finally, NPL credit servicers must now be audited by an external audit firm, as it is the case for financial intermediaries entered in the register under Article 106 of the Italian Banking Code.

On 13 February 2025, the Bank of Italy published the Bank of Italy’s rules for the implementation of EU Directive 2021/2167 on NPL credit servicers and NPL credit purchasers. These Bank of Italy Implementing Measures will enter into force the day following their publication of the Italian Official Gazette (which is still pending).

Entities already carrying out the activity of NPL credit servicers as of the entry into force of the Italian NPL Decree (i.e. 14 August 2024) are entitled to:

• continue to carry out these activities for a period of six months following the date of entry into force of the Bank of Italy Implementing Measures and by that date must either obtain authorisation or cease to carry out the servicing activity;
• submit an application for authorisation to the Bank of Italy no later than three months from the date of entry into force of the Bank of Italy Implementing Measures. Pending the administrative authorisation procedure, these entities may continue to operate even beyond that deadline. In the event of failure to submit or acceptance of the application, they must cease to carry out the activity.

With the communication dated 13 February 2025, with the purpose of facilitating the orderly start to the new regime, the Bank of Italy has scheduled a workshop to be held exclusively by videoconference on 6 March 2025 from 10 am to 12 pm to provide clarifications on the filing of the authorisation under the Bank of Italy Implementing Measures. Requests for participation must be submitted by 4 March 2025 by e-mail (RIV.Costituzioni@bancaditalia.it ).

Conclusions

NPL credit servicing activity can be carried out not only by banks and financial intermediaries registered in the register under Article 106 of the Italian Banking Code (i.e. regulated and supervised entities), but also by NPL credit servicers, which are new entities supervised and regulated in line with banks and financial companies. The capital requirements of NPL credit services, however, are set out by the Italian Civil Code for commercial companies. In terms of licensing procedures, information supervision, inspection, supervisory reports, sanctions, characteristics and qualities of members and company representatives, the rules are essentially the same as those applicable to banks and intermediaries enrolled with the register under Article 106 of the Italian Banking Code.

In essence, the market for NPL purchasers (i.e. those who take on the credit risks of the NPLs) has been liberalised while NPL credit servicers have been placed under strict control. This is due to regulator concerns about the risks of interconnection between shadow banking and commercial banks.

Although an important purpose of the SMD Directive is to make the NPL market more efficient, the effect of regulating only one side of this large industry (i.e. the side of NPL credit servicers) raises the question of the interconnection between non-bank financial institutions (NBFIs) and the credit system, which could transfer back any financial shocks emerging in the shadow banking system. This is mainly because NPL credit purchasers remain largely unregulated.

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