The final report presents guidelines on the assessment of the knowledge and experience of the management bodies of credit servicers, in accordance with Directive (EU) 2021/2167. These guidelines establish common criteria to assess the collective competence of management bodies, taking into account the individual skills of their members. They apply to all credit servicers and competent authorities, without favoring…
- Title: Final report on Guidelines on the assessment of knowledge and experience of the organs of credit servicers
- Author: European Banking Authority (EBA)
- Date: 15 December 2023
- Type: Guide
- Scope: Directive (EU) 2021/2167 on credit servicers, assessment of adequate knowledge and experience of the management or administrative body of credit servicers, applicable to all credit servicers in the EU except exceptions (e.g., credit institutions)
- Themes: criteria and processes for individual and collective knowledge and experience assessment, principles of proportionality, corrective measures, role of competent authorities
- Population: members of management or administrative bodies of credit servicers
- Sector: financial services, management of non-performing loans
- Period: application from 27 June 2024 (p. 1-12)
The document presents the guidelines developed by the EBA for assessing the adequate knowledge and experience of the management or administrative body of credit servicers, pursuant to Directive (EU) 2021/2167. This topic is crucial as it aims to ensure that these bodies collectively possess the necessary skills to competently and responsibly manage activities related to non-performing loans (NPL), thereby strengthening market confidence and integrity.
Key findings are:
- The Directive requires that the management or administrative body collectively have adequate knowledge and experience, assessed based on the individual skills of members (p. 3-6).
- The Guidelines apply to all governance structures without favoring a particular model and specify assessment criteria, assessment processes, and principles of proportionality according to the size, complexity, and activities of the credit servicer (p. 12-13).
- The assessment must be carried out before member appointment, and periodically in case of significant changes (composition, business model, technologies) (p. 13-14).
- Individual assessment criteria include education, relevant professional experience, knowledge of legal requirements, understanding of risks, ability to contribute to governance and corporate culture (p. 14-17).
- The collective assessment must cover all skills necessary for responsible conduct of activities, including risk management, compliance, IT security, local and cross-border markets, and strategic planning (p. 17-18).
- In case of gaps, corrective measures must be taken promptly, such as training, adjustment of responsibilities, recruitment or replacement of members (p. 19).
- Competent authorities must define and publish their supervisory procedures, reuse information collected during authorization, and be able to intervene in case of non-compliance (p. 20-21).
Recommendations are:
- Integrate the Guidelines into internal practices of credit servicers and competent authorities before 27 June 2024.
- Apply the principle of proportionality in assessments and procedures.
- Document assessments and inform competent authorities of changes and corrective measures.
- Ensure coordination between financial and non-financial authorities to avoid duplication.
- Maintain continuous assessment to guarantee management competence amid sector evolutions (p. 3-22).
- Directive (EU) 2021/2167 aims to improve the management of non-performing loans in the EU by regulating credit servicers, notably by imposing requirements on the qualification of their management bodies (p. 4).
- Credit servicers may be mandated by credit institutions to manage NPLs, which requires specific skills to protect borrowers and ensure responsible management (p. 4).
- The EBA was mandated to develop harmonized Guidelines on the assessment of adequate collective knowledge and experience of management bodies, based on individual member assessment (p. 5-6).
- The objective is to ensure that management bodies collectively have the necessary skills to understand activities, risks, and regulatory requirements, and to manage the credit servicer effectively (p. 6).
- The Guidelines cover all types of governance structures, without interfering with national company law or other legislation (p. 6-7).
- They also specify assessment processes, timing (before appointment, upon significant changes), and corrective measures in case of non-compliance (p. 7).
- Competent authorities are responsible for supervising compliance and may withdraw authorization in case of breach (p. 5-7).
Application and scope of the Guidelines:
- Apply to all credit servicers in the EU, except exceptions provided by the Directive (e.g., credit institutions) (p. 10).
- Concern all types of governance structures (unitary, dual, others) without preference (p. 6, 10).
- Define key notions: management or administrative body, management and supervisory functions, members (p. 10).
Principle of proportionality:
- Assessment must consider size, internal organization, nature, scale, and complexity of activities (p. 12).
- Criteria for applying proportionality include number of employees, volume of debts managed, legal form, listed status, group membership, cross-border activities, complexity of activities, and outsourcing (p. 12-13).
Assessment of individual knowledge and experience:
- Each member must have an up-to-date understanding of activities, risks, governance, responsibilities, and corporate culture (p. 14-15).
- Assessment criteria: role and responsibilities, education, prior professional experience, professional conduct (p. 15).
- Specific required knowledge: legal and regulatory framework, insolvency procedures, consumer protection, data protection, anti-money laundering (p. 15-16).
- General necessary knowledge: governance, banking and financial activities, contract law, accounting, auditing, financial information interpretation, managerial skills (p. 16).
- Practical experience evaluated according to position nature, duration, company complexity, responsibilities, technical knowledge, number of subordinates, academic activities (p. 16-17).
- Supervisory members must be able to effectively challenge management (p. 17).
Collective assessment:
- The body must collectively possess the knowledge and experience necessary to manage all activities and risks, including fraud prevention, compliance, internal audit, IT security, local and cross-border markets, managerial skills, and strategic planning (p. 17-18).
- Assessment must compare required and actual skills, distinguishing management and supervisory functions (p. 18).
Assessment process:
- Individual assessment uses various documents (CVs, diplomas, recommendation letters), interviews, questionnaires, information verification (p. 18-19).
- Results must be documented, including weaknesses and corrective measures (p. 19).
- Collective assessment is performed with a methodology specific to the credit servicer, considering the impact of composition changes (p. 19).
Corrective measures:
- In case of collective insufficiency, measures to be taken promptly: adjustment of responsibilities, member replacement or recruitment, individual or collective training (p. 19).
- Competent authorities must be informed without delay of gaps and planned measures (p. 19-20).
Role of competent authorities:
- Must define and publish their supervision procedures, reuse information collected during authorization (p. 20).
- May request detailed CVs, information on good reputation (criminal record, sanctions, expulsions, dismissals, prior assessments) (p. 20-21).
- Must set deadlines for their assessments and promptly inform credit servicers of negative decisions (p. 21).
- Have means to intervene in case of non-compliance (p. 21).
Public consultation and adjustments:
- Consultation addressed nature of activities, proportionality criteria, knowledge domains, supervision procedures (p. 25-40).
- Several respondents requested simplification, clarification of criteria, consideration of credit servicing specificity (less risky than banking credit) (p. 26-37).
- The EBA clarified that some knowledge is essential (regulation, borrower protection, anti-money laundering), proportionality applies but without fixed thresholds, and procedures must remain flexible (p. 27-38).
- Assessments remain the responsibility of credit servicers, but authorities may perform controls (p. 33).
- No modification of fundamental requirements, but adjustments to reduce complexity and improve clarity (p. 26-39).
- Established facts:
- Directive (EU) 2021/2167 requires assessment of adequate collective knowledge and experience of credit servicers’ management bodies (p. 4-6).
- The Guidelines specify individual and collective assessment criteria, processes, and corrective measures (p. 12-21).
- Assessment must be continuous and adapted to the size and complexity of the credit servicer (p. 12-13).
- Competent authorities have a supervisory role and may withdraw authorization in case of non-compliance (p. 20-21).
- Assumptions:
- Assessment based on provided documents, interviews, questionnaires, and verifications is sufficient to guarantee member competence (p. 18-19).
- Complementarity of members allows achieving the required collective competence (p. 37).
- Interpretations:
- Knowledge and experience are not limited to duration or diploma but to a thorough and updated appraisal (p. 15, 30).
- Proportionality allows adapting requirements according to size and complexity, but some requirements (e.g., fair treatment of borrowers) remain mandatory (p. 29-30).
- Uncertainties:
- Practical implementation of criteria and processes may vary according to jurisdictions and governance structures (p. 6, 29).
- Impact of corrective measures on governance and business continuity will depend on specific cases (p. 19).
- Coordination between financial and non-financial authorities may present challenges (p. 28).
- The Guidelines must be integrated into the practices of credit servicers and competent authorities before 27 June 2024 (p. 11).
- Credit servicers must implement proportionate policies and procedures to assess and maintain adequate knowledge and experience of their management bodies, considering organizational changes and sector evolutions (p. 6, 12-13, 16).
- Assessments must be documented, including gaps and corrective measures, and competent authorities informed without delay of major changes or deficiencies (p. 19, 22).
- Competent authorities must define, publish, and apply transparent and proportionate supervision procedures, including reuse of information collected during authorization and coordination with other authorities (p. 20-21, 28).
- In case of non-compliance, measures ranging from training to suspension or withdrawal of authorization must be taken promptly (p. 19, 20).
- Proportionality must guide the intensity of assessments and procedures without compromising essential governance and borrower protection requirements (p. 12-13, 29).
- Credit servicers must ensure prior assessment of members before appointment, except justified exceptions, and continuous assessment (p. 13-14).
- The Guidelines do not modify applicable national law but complement it to ensure harmonization at the European level (p. 6, 28).
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