On 24 March 2023, a draft law No. 8185 (the "Draft Law") has been submitted to the Luxembourg Parliament (Chambre des Députés). The Draft Law aims to (i) transpose Directive (EU) 2021/2167 of 24 November 2021 on credit managers and credit purchasers, (ii) implement Regulation (EU) 2022/2036 of 19 October 2022 amending Regulation (EU) 575/2013 and Directive 2014/59/EU as regards the prudential treatment of global systemically important institutions with a multiple-point-of-entry resolution strategy and methods for the indirect subscription of instruments eligible for meeting the minimum requirement for own funds and eligible liabilities, and (iii) amend:
- the Luxembourg Consumer Code;
- the amended Luxembourg law of 5 April 1993 on the financial sector;
- the amended Luxembourg law of 23 December 1998 establishing the financial sector supervisory commission (CSSF);
- the amended Luxembourg law of 22 March 2004 on securitisation; and
- the amended Luxembourg law of 18 December 2015 on the failure of credit institutions and certain investment undertakings.
Transfer of creditor's rights legal framework
The transposition of Directive (EU) 2021/2167 of 24 November 2021 on credit managers and credit purchasers, and amending Directive 2008/48/EC and 2014/17/EU ("Directive 2021/2167")
The purpose of Directive 2021/2167 is to establish a European framework in relation to the transfer of a creditor's rights under a non-performing loan ("NPL") or the NPL itself, thus permitting credit institutions to deal with the issues of NPLs on their balance sheets.
Directive 2021/2167 is a complement to the existing EU rules that require credit institutions to set aside sufficient funds for their NPLs, encouraging them to divest of their NPLs and avoid excessive accumulation. In this respect, Directive 2021/2167 establishes a framework to enable credit institutions, if their outstanding NPLs become too high, to be able to sell these NPLs on the secondary market to other operators with the risk appetite and expertise needed to manage them.
The Draft Law covers loans initially concluded by a credit institution that turn into NPLs within the meaning of Article 47bis of Regulation (EU) 575/2013 of 26 June 2013 on prudential requirements for credit institutions and investment firms. According to the Draft Law, purchasers of NPLs will have to comply with certain obligations, including the obligation to appoint a credit manager in order to manage an NPL concluded with a consumer, or even, for purchasers from non-EU/non-EEA countries, to manage NPLs concluded with natural persons and micro, small and medium-sized enterprises (as referred to in Article 2 of the annex to the Commission Recommendation 2003/361/EC). The CSSF must ensure that credit purchasers are complying with a certain number of obligations set out in the Draft Law. The Draft Law provides certain fundamental principles governing the relationship of credit purchasers and credit managers with borrowers in this respect: credit purchasers and credit managers must act in good faith, loyally and professionally.
In addition, Directive 2021/2167 regulates the activity of credit managers who, on behalf of a credit purchaser, manage and enforce the rights and obligations associated with the creditor's rights under a NPL, or with the NPL itself, and who carry out one or more credit management activities. The Draft Law introduces credit managers in Luxembourg law as a new type of PFS which must be authorised by the CSSF and which is subject to its prudential supervision. The amended law of 5 April 1993 on the financial sector will introduce provisions regulating the authorisation and the exercise of the activity of credit managers and will also allow a credit manager to choose to manage loans with or without the possibility of receiving and holding borrowers' funds, in which case additional obligations will apply, such as the segregation of funds. A European passport for the free provision of credit management activities within the EU will be sought, as this is a new entity that is being introduced at European level. On a general note, the Draft Law will empower the CSSF to supervise, investigate and sanction, if necessary, credit managers for certain violations.
Directive 2021/2167 also makes specific amendments to Directive 2008/48/EC on credit agreements for consumers, by amending the Consumer Code and in particular by providing for the communication of information to consumers in the event of changes to the terms and conditions of agreements, as well as new provisions on late payment and late performance, and to Directive 2014/17/EU on credit agreements for consumers relating to residential immovable property.
Globally systemically important institutions treatment
Implementation of Regulation (EU) 2022/2036 of 19 October 2022 amending Regulation (EU) 575/2013 and Directive 2014/59/EU as regards to the supervisory treatment of global systemically important institutions ("Regulation 2022/2036")
The Draft Law also aims to implement Regulation (EU) 2022/2036 of 19 October 2022 amending Regulation (EU) 575/2013 and Directive 2014/59/EU as regards the prudential treatment of global systemically important institutions with a multiple-point-of-entry resolution strategy and methods for the indirect subscription of instruments eligible for meeting the minimum requirement for own funds and eligible liabilities. The Draft Law transposes the one-off amendments that Regulation 2022/2036 makes to Directive 2014/59/EU, which deals with the legal framework for the recovery and resolution of credit institutions and investment firms, into the law of 18 December 2015 on the failure of credit institutions and certain investment firms, as amended. These amendments aim to strengthen the applicable normative framework for bank resolution by reviewing the treatment of banking groups with multiple entry points in their resolution strategy, as opposed to a single entry point strategy, in order to better align this treatment with that provided for by international standards and to better take into account third country entities within them.
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