“Specialised debt restructurers” are institutions that purchase, manage and restructure non-performing exposures. The purpose of the introduction of the concept of “specialised debt restructurers”, as defined in Article 36(5) of the Regulation No 575/2013 (CRR), as amended through Regulation (EU) 2024/1623, is, inter alia, to further improve the efficiency of institutions’ management of non-performing exposures. This is achieved by allowing institutions which can manage the risk with respect to such exposures to be excluded from the scope of the prudential backstop. With respect to the intended liquidity and stable funding of a specialised debt restructurer, it should be particularly noted that non-performing exposures are purchased at a discount, considering the expected loss given default. In addition, it is not realistic to expect that 100 per cent of the value of the exposure will be written down, as in such case, a secondary market for non-performing exposures would not exist. Furthermore, institutions acquiring non-performing exposures will, by definition, be required to uphold a long-term financing to match the duration of the portfolio of non-performing exposures, and to not inflate the interest rate risk of such portfolios. Consequently, applying an exclusion from the prudential backstop for specialised debt restructurers bears limited risk due to the nature of the operations of specialised debt restructurers in itself, which should be considered when interpreting Article 36(5) of the CRR.

Article 36(5) of the CRR states that an institution must have complied certain criteria “during the preceding financial year” in order to qualify as a specialised debt restructurer. There are several uncertainties with respect to how the criteria to qualify as a “specialised debt restructurer” should be interpreted, most notably the requirement of having complied with the criteria “during the preceding financial year”.

With respect to the notion “during the preceding financial year”, we consider mainly two ways of interpretation to be relevant, either:

1. that the criteria for qualifying as a specialised debt restructurer was complied with no later than the on last day of the preceding financial year; or
2. that the criteria for qualifying as a specialised debt restructurer was complied with at all times from the beginning to the end of the preceding financial year.

Hereto, we note that grammatically, “during” could be interpreted as either “all through a period of time”, or “at some point in a period of time” (see Oxford Advanced Learner’s Dictionary, 10^th edition, regarding the word “during”).

The reference to “during the preceding financial year” is also of particular interest with respect to institutions that during a financial year underwent a complete reorganisation (e.g., in light of an acquisition), and is for all practical purposes from such reorganisation a “new” undertaking, to specialise in the acquisition and management of non-performing exposures. Specifically, whether such institutions, provided that the specific criteria to qualify as a specialised debt restructurer was fulfilled from the time of the reorganisation onward, would be able to fulfil the criteria of “during the preceding financial year”.

With respect to the acquisition and divestment of institutions, the interpretation of “during the preceding financial year” will also have other important consequences. For example, an institution fulfilled the requirements to qualify as a specialised debt restructurer during the preceding financial year on an individual basis. It did not fulfil the requirements on a consolidated basis. The institution is then being deconsolidated from the group by way of divestment. In this context, it is of interest whether the fact that the previous consolidated situation did not fulfil the requirements prevent the institution to be qualified as a specialised debt restructurer.

Notwithstanding how the notion “during” should be interpreted, it is evident from the relevant Article that once an institution qualifies and relies on the exemption from the prudential backstop, the criteria will have to be complied with continuously for as long as an institution intends to rely upon the exemption.

Finally, considering that the Regulation (EU) 2024/1623 amending the CRR was adopted as late as 31 May 2024, few, if none, will be able to qualify as a specialised debt restructurer as of 1 January 2025 should a narrow interpretation for the notion “during” be applied, which cannot have been intended by the EU legislator, particularly as the regime will be subject to review already during 2028.