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Finance and Capital Markets

Many of the developments in our practice area this Spring are driven by European Union initiatives reflecting a theme identified in our overall introduction.

Policy imperatives include ongoing concerns with sustainable finance as evidenced in developments around the Green Bond standard and further advancement of the Capital Markets Union where initiatives range from amendments to regulatory frameworks to the introduction of a new harmonising directive in insolvency law.

Key Themes in Finance and Capital Markets

Credit Servicing - EU and Ireland

The EU directive (Directive (EU) 2021/2167) on credit servicers and credit purchasers (the “Credit Servicing Directive”) must be transposed by EU member states into national law by 29 December 2023 (the "Implementation Date").

The Credit Servicing Directive applies only to non-performing loans (NPLs) originated by a credit institution established in the EU which are transferred or sold after the Implementation Date. The CSD imposes an obligation on credit purchasers to appoint a credit servicer to perform credit servicing activities in respect of the sale of certain types of NPLs, including mortgages. Credit servicers in scope must obtain an authorisation in their home EU member state and will then have the right to provide those services in other EU member states. In-scope credit purchasers will not need to be regulated under the Credit Servicing Directive and will not be subject to any additional requirements for the purchase of NPLs, other than as provided for by the national legislation transposing the Credit Servicing Directive or by applicable consumer protection law, contract law, civil law or criminal law.

In Ireland, the definition of "credit servicing" under the Consumer Protection (Regulation of Credit Servicing Firms) Act 2018 (CSA 2018) is much broader than its counterpart under the CSD and includes holding legal title to credit (which would include mortgage loans).

The interplay between the Credit Servicing Directive and the existing credit servicing regulatory framework in Ireland remains somewhat unclear on matters such as:

  • whether legal title holders or persons who hold strategic control over Irish consumer NPLs and Irish SME NPLs originated by regulated entities will continue to be required to be authorised to carry on the business of a credit servicing firm;
  • whether Ireland will seek to continue to apply the existing credit servicing regulatory framework to performing loans; and
  • how the requirements of the Credit Servicing Directive will be implemented within the existing broader credit servicing regulatory framework in Ireland.

In late January, the Department of Finance issued a Consultation Paper in which it strongly suggested that two parallel credit servicing regimes in Ireland were being contemplated – (i) the credit servicing regime under the Credit Servicing Directive applying to NPLs originated by an EU credit institution and sold after the Implementation Date and (ii) the existing Irish regime continuing to apply to (a) performing loans, (b) NPLs originated by an EU credit institution and sold prior to the Implementation Date, (c) the sale of performing loans and NPLs originated by non-EU credit institutions and (d) the sale of mixed loan portfolios by EU credit institutions. The consultation period ends on 8 March 2023 and we expect there to be further clarity on what shape the transposition of the CSD takes along with any national discretions contained within it by early summer. 

EU Capital Markets Union

On 7 December 2022, the European Commission published a series of proposed measures to further develop the EU’s Capital Markets Union. Proposals include measures:

  • to make clearing services more attractive and resilient in the EU, through targeted amendments to a range of financial regulatory frameworks (including the European Market Infrastructure Regulation, which governs the use of derivatives in the EU);
  • to harmonise certain corporate insolvency rules, (considered further in our Commercial Litigation and Disputes Resolution commentary) making them more efficient and helping to promote cross-border investment; and
  • to introduce a new Listing Act which aims to alleviate the administrative burden for companies of all sizes and, in particular, SMEs so that they can better access public funding by listing on stock exchanges.

The proposals, which are still at an early stage, will be of relevance to a broad range of corporates and financial market participants doing business in and from Ireland, including users of derivatives, issuers of listed securities and corporates considering the use of the European capital markets to raise financing. The proposals will arguably be of particular relevance to Ireland given its central role for EU securitisation transactions.

European Green Deal - EU Green Bond Standard

As one of the EU’s green finance initiatives, the European Commission proposed a voluntary EU green bond standard (GBS) under a proposed regulation on European green bonds (the “GB Regulation”) in July 2021.  After much back and forth, proposals and counter proposals, a provisional agreement was announced between the Council and the Parliament on 28 February 2023 after the fourth round of trialogue negotiations.  

Although the full text of the final agreement has not yet been released, the Council has highlighted a number of features of the agreed position:

  • All proceeds of GBS-compliant bonds will need to be invested in economic activities that are aligned with the EU taxonomy, provided the sectors concerned are already covered by it.  For those sectors not yet covered by the EU taxonomy and for certain very specific activities there will be a "flexibility pocket" of 15%.  This will allow the GBS to be used from the outset.
  • Provision will be made for a voluntary disclosure framework for issuers of bonds which do not meet all the requirements of the GBS.
  • A registration and supervisory regime will be established for external reviewers of GBS-compliant bonds.  This regime will fall within the European Securities and Markets Authority's responsibility.

Market participants will welcome the voluntary nature of the GBS, as there had been concerns that the GBS could be made a mandatory standard for any issuer marketing its bonds as sustainable or sustainability-linked.  The inclusion of the flexibility pocket for activities that are not yet taxonomy-aligned will also be welcomed by issuers.

The progress of the GBS is relevant not just to corporate bond issuers but also to issuers, sponsors and originators of securitisations. 

In 2022, both the European Banking Authority and the European Commission expressed the view that, rather than developing a specific framework for sustainable securitisations in the EU, legislators should ensure that the GBS is appropriate for use by securitisations.  This includes provision that certain of the GBS requirements apply to the originator, rather than the issuer.  This and other aspects of the GBS will be closely scrutinised by market participants as the full details of the final agreement become clear.

The agreement is still provisional in nature and must now be approved by both the Council and the Parliament.  Once it is approved by those institutions, it will begin to apply 12 months after it enters into force.

The Latest Capital Markets Developments

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