Response to consultation on draft Guidelines on the assessment of adequate knowledge and experience of the management or administrative organ of credit servicers
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First of all, we feel there is a lack in guidance as to how the proportionality criterion applies. The notion of ‘proportionality’ in and of itself is not that controversial, neither unclear, however it is unclear how it affects credit servicers and how it should be applied throughout the guidelines. It is for example not unreasonable to assume that the obligations for a credit servicer that (s. 13 (c)) handles less complex claims are less stringent than for a credit servicer that handles more complex cases, however the extent to which stringency would be applied (in either direction) is unclear.
To that effect the criteria enumerated in s. 13 do not seem precise enough to ensure a transparent harmonised application of the guidelines. In particular s. 13 (h) seems unclear to us and leaves significant margin to local interpretation.
We think it would be in general useful to clarify some of the criteria in s. 13 perhaps by way of thresholds, hierarchy, weighing, or more detailed guidance as to how they should be interpreted and applied.
Aside from this, we are not entirely sure all of the criteria enumerated in s. 13 are equally relevant. The question rises for example as to how relevant the legal form (s. 13 (d)) should be to the assessment of adequate knowledge and experience of the management or administrative organs.
The same applies for s. 13 (a), where we believe the size of a credit servicer’s balance sheet is not necessarily a correct reflection of it’s credit servicing activities (i.e., in terms of how many ‘clients’ it comes into contact with, how diversified its activities are, etc.). In particular in light of what we think are much more pertinent criteria such as s. 13 (b) and s. 13(c) and 13(g).
Due to the above there is a significant amount of leeway for interpretation on a local supervisory level. Which neither productive for overall legal certainty and transparency, nor for the purpose of promoting a harmonised practice throughout the EU.
However, re-assessment is requirement under s. 15(c) “where material changes to the business model, underlying legal provisions or technologies used occurred” the material word seems too vague, open to interpretation, and requires more guidance and clarity. Perhaps, an annual re-assessment on the “business model, etc.” might be more appropriate.
Furthermore, s. 23 “where the assessment is also carried out by competent authorities for supervisory purposes” should in our opinion be clarified. We do not argue that an (ex-post) assessment or supervisory checks on the credit servicer’s suitability assessment should not belong under the purview of supervisory authorities. However, it should be clearer that the initial and principal suitability assessment, despite it potentially being a very cumbersome process for some credit servicers, remains exclusively with the credit servicer itself.
We can of course understand and agree that the banking industry’s framework is a good source of inspiration and an appropriate benchmark. Similarly we think that the current proposed guidelines are an appropriate benchmark. However, at the same time we would like to highlight that credit servicers, despite the interdependencies with the banking industry, have a very different field of activity and therefore also a quite different risk profile.
The credit servicing industry does not originate loans, collect on performing loans, nor holds deposits from the public. In that sense, the systemic-, overall financial stability-, and risk picture of credit servicers is very different from that of the banking industry. The suitability framework for the banking industry as such is therefore not in its entirety an appropriate mirror for the credit servicing industry.
In our view, some of those criteria have been mirrored in sections 3 and 4, where they are perhaps to a lesser pertinent to credit servicers. This among others is the case for s. 29. While we think that background is certainly valuable, it should not be the predominant criterion. A similar assessment applies to 31 (a), which specifically refer to the financial services industry, and to loan origination. To a lesser extent we are of the opinion that this is also the case for s. 36 (a), which refers to fraud detection and prevention – a topic whose importance we do not underestimate but think predominantly falls under the purview of the entities granting the credit in the first instance.
However, it is one of those cases where the section itself is clear, but the potential result could not be. These supervisory procedures applicable to the assessment of adequate knowledge and experience of the management or administrative organs could differ substantially from one another. Therefore, in the context of harmonization, a more detailed guidance with regard to these supervisory procedures would – at some point – not be entirely inappropriate.
Q1: Is the section on subject matter, scope, definitions and implementation appropriate and sufficiently clear?
Yes.Q2: Is the section on proportionality appropriate and sufficiently clear?
Whilst we do not object to the principle of proportionality in the assessment of adequate knowledge and experience of the management or administrative organs we find it also raises a number of concerns.First of all, we feel there is a lack in guidance as to how the proportionality criterion applies. The notion of ‘proportionality’ in and of itself is not that controversial, neither unclear, however it is unclear how it affects credit servicers and how it should be applied throughout the guidelines. It is for example not unreasonable to assume that the obligations for a credit servicer that (s. 13 (c)) handles less complex claims are less stringent than for a credit servicer that handles more complex cases, however the extent to which stringency would be applied (in either direction) is unclear.
To that effect the criteria enumerated in s. 13 do not seem precise enough to ensure a transparent harmonised application of the guidelines. In particular s. 13 (h) seems unclear to us and leaves significant margin to local interpretation.
We think it would be in general useful to clarify some of the criteria in s. 13 perhaps by way of thresholds, hierarchy, weighing, or more detailed guidance as to how they should be interpreted and applied.
Aside from this, we are not entirely sure all of the criteria enumerated in s. 13 are equally relevant. The question rises for example as to how relevant the legal form (s. 13 (d)) should be to the assessment of adequate knowledge and experience of the management or administrative organs.
The same applies for s. 13 (a), where we believe the size of a credit servicer’s balance sheet is not necessarily a correct reflection of it’s credit servicing activities (i.e., in terms of how many ‘clients’ it comes into contact with, how diversified its activities are, etc.). In particular in light of what we think are much more pertinent criteria such as s. 13 (b) and s. 13(c) and 13(g).
Due to the above there is a significant amount of leeway for interpretation on a local supervisory level. Which neither productive for overall legal certainty and transparency, nor for the purpose of promoting a harmonised practice throughout the EU.
Q3: Is the section 2 on the suitability assessment by credit servicers appropriate and sufficiently clear?
Yes.However, re-assessment is requirement under s. 15(c) “where material changes to the business model, underlying legal provisions or technologies used occurred” the material word seems too vague, open to interpretation, and requires more guidance and clarity. Perhaps, an annual re-assessment on the “business model, etc.” might be more appropriate.
Furthermore, s. 23 “where the assessment is also carried out by competent authorities for supervisory purposes” should in our opinion be clarified. We do not argue that an (ex-post) assessment or supervisory checks on the credit servicer’s suitability assessment should not belong under the purview of supervisory authorities. However, it should be clearer that the initial and principal suitability assessment, despite it potentially being a very cumbersome process for some credit servicers, remains exclusively with the credit servicer itself.
Q4: Are the sections 3 and 4 on the individual and collective criteria for the assessment of members of the management or administrative organ appropriate and sufficiently clear?
We believe that, in particular in these sections, the guidelines are perhaps too reliant on or derivative from the suitability rules (the ‘fit and proper’ framework) from the banking industry.We can of course understand and agree that the banking industry’s framework is a good source of inspiration and an appropriate benchmark. Similarly we think that the current proposed guidelines are an appropriate benchmark. However, at the same time we would like to highlight that credit servicers, despite the interdependencies with the banking industry, have a very different field of activity and therefore also a quite different risk profile.
The credit servicing industry does not originate loans, collect on performing loans, nor holds deposits from the public. In that sense, the systemic-, overall financial stability-, and risk picture of credit servicers is very different from that of the banking industry. The suitability framework for the banking industry as such is therefore not in its entirety an appropriate mirror for the credit servicing industry.
In our view, some of those criteria have been mirrored in sections 3 and 4, where they are perhaps to a lesser pertinent to credit servicers. This among others is the case for s. 29. While we think that background is certainly valuable, it should not be the predominant criterion. A similar assessment applies to 31 (a), which specifically refer to the financial services industry, and to loan origination. To a lesser extent we are of the opinion that this is also the case for s. 36 (a), which refers to fraud detection and prevention – a topic whose importance we do not underestimate but think predominantly falls under the purview of the entities granting the credit in the first instance.
Q5: Are the sections 5 and 6 on the individual and collective assessment of members of the management or administrative organ appropriate and sufficiently clear?
Yes.Q6: Is section 7 on corrective measures appropriate and sufficiently clear?
Yes, however the notion “timely” in s. 43 leaves quite some margin for interpretation (to the benefit or the detriment (?) of a credit servicer). Perhaps an indicative period should be considered.Q7: Is section 8 on the assessment by competent authorities appropriate and sufficiently clear?
Yes.However, it is one of those cases where the section itself is clear, but the potential result could not be. These supervisory procedures applicable to the assessment of adequate knowledge and experience of the management or administrative organs could differ substantially from one another. Therefore, in the context of harmonization, a more detailed guidance with regard to these supervisory procedures would – at some point – not be entirely inappropriate.