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The Credit Services Association (CSA)
Blog: The UK credit and collections sector in a European context: Preparing for Brexit and proposed new EU Directive on credit servicers and purchasers
Angela McClean (the Credit Services Association’s General Counsel) looks at Brexit implications, and Leigh Berkley (CSA Board Director for European and Public Affairs) looks at an important new piece of EU legislation.
As the UK trade body for the debt collection and purchase sector, we need to be very aware of developments outside the UK that may affect our members and this year we are dedicating a whole stream to International Relations at the upcoming UK Credit & Collections Conference 2018 (UKCCC).
On the date of the UK Credit & Collections Conference 2018 it will be just slightly more than six months to go before 29 March 2019 (the anticipated date for the UK and EU to conclude the withdrawal agreement). There is a huge amount of coverage of Brexit in the press and lots of commentators explaining and speculating on what Brexit may mean but as yet no real clarity. We are quite aware that for some of our members Brexit may in fact have little or no impact. However the Institute of Directors recently called on the government to speed up guidance on what companies should expect if ‘no deal’ on leaving the EU is reached following its survey of 800 business leaders showing that fewer than a third had made any Brexit contingency plans. The Financial Conduct Authority (FCA) has also recently published a paper on “Preparing your firm for Brexit.” It therefore seems to be the right time to encourage members, who have not yet done so, to ensure that they are reviewing their own businesses to identify whether Brexit may have implications for them. This is important operationally but also from both a governance and risk perspective. To that end we are including a session on the possible implication of Brexit for members at the conference.
It is still very unclear exactly what the implications may be for individual members but the Financial Conduct Authority’s recent paper goes some way to setting a framework for solo regulated firms to begin to consider and address. As it states, Brexit will mainly impact UK firms conducting business in the EEA and vice versa, rather than UK firms just operating in the UK. However, all firms should look at the bigger picture of what they are doing now/plan to do in the future For example, firms that:
- have customers or counterparties based in the EEA
- transfer personal data between the UK and EEA/vice versa
- are part of a wider corporate group based in the EEA
- receive funding from an entity in the EEA
- outsource or delegate services to an EEA firm/vice versa
should seek to understand on what legal basis that business occurs and whether it can continue on that basis after Brexit (in whatever form Brexit takes).
Any such consideration should include how an implementation period (during which EU law would continue to apply in the UK and currently being discussed from end March 2019 until end Dec 2020) could affect your business as well as the scenario of a “no deal Brexit” where the UK would operate as a third party country to the EU. It is important to consider both possible risks and possible opportunities.
The next steps if you think you may be affected by Brexit are to work out what changes you might need to make (including any regulatory permissions you may need or indeed your clients may need which could affect you) e.g. if relying on the existing EU passporting regime
The regulated credit and collections sector is subject to an array of EU legislation, in respect of some of which, for example, the General Data Protection Regulation (GDPR) we have lobbied hard on behalf of our industry to make it work for UK businesses in and consumers affected by our sector. The UK Data Protection Act 2018 mirrors much of the GDPR but as yet no final arrangements have been agreed between the EU and the UK with regard to what will happen with cross border data transfers following Brexit. It is therefore advisable to
- ensure you know where your data is held and/or transferred for example to/from clients, businesses providing services to your firm or intra group for groups with businesses in the EU. You should consider whether you need to introduce clauses in contracts to permit transfer. There is a general call by certain commentators for legal certainty to avoid business interruption and adverse effects for consumers and for a declaration of adequacy from the Commission to be made that the UK ensures an adequate level of protection for the transfer of personal data or, in the absence of such a declaration, for another agreement to be reached between the UK and the EU with respect to the adequacy of data protection laws in the UK. In the absence of such adequacy arrangements EU data controllers will be in breach of the GDPR rules if they transfer personal data to the UK without putting in place necessary arrangements to safeguard the personal data being transferred.
- In addition to arrangements for personal data other legal areas that members should consider are:
- commercial law: the implications of this are largely unknown but you could consider such matters as your sources of corporate funding, any standard contractual clauses referring to the EU, governing law and jurisdiction clauses referring to EU law or courts and the possibility of the imposition of tariffs and/or economic/exchange rate changes.
- general employment issues: firms which have EU residents as employees will need to consider possible implications for such employees as well as any likely impact on resources e.g. rights of residence, assisting employees with application procedures/to know the law and the changes. Many commentators also believe there may be a possible impact of Brexit where the UK might revisit some of its employment law derived from the EU generally post-Brexit e.g. amending TUPE provisions to make them more business friendly, allowing amendment of employment terms following a TUPE transfer
- decisions of the Court of Justice of the European Union (CJEU)– as yet it is not clear whether these will have any effect in the UK pre/post Brexit/post Brexit transition so if members rely on such decisions or are awaiting any decisions these should be considered
Proposed EU Directive on credit servicers, purchasers and the recovery of collateral
All of the points Angela has covered above become even more important in the light of the ‘Proposed EU Directive on credit servicers, purchasers and the recovery of collateral’, which we will also be discussing at the UK Credit & Collections Conference. This new piece of EU legislation could bring about major changes whether we leave (with some UK firms possibly excluded from certain areas of work) or stay in the EU. Although this is still just a proposal, we need to start planning for both scenarios.
In summary, the European Commission has proposed the regulation of both credit servicers and credit purchasers with a common supervisory framework as part of the ongoing work in relation to non-performing loans (NPLs) in Europe. It is intended to encourage the development of secondary markets for NPLs. As currently drafted, there is still uncertainty as to which UK regulated activities and credit agreements will be covered by the Directive although from meetings with the Commission it seems the intention is to govern both debt collection and debt administration as we understand these terms in the UK.
The CSA has responded to the proposals making the point that while we welcome the move towards raising standards across Europe, it will be important to align the standards so that there is a level playing field for consumers and companies operating in the different regions, particularly when it comes to standards on customer treatment and managing complaints. We and some of the larger CSA members, and particularly FENCA who are closely engaged with the Commission, have also raised questions over the value of the large amount of information that firms will be required to provide to their local competent authorities. Two examples are the provision of information about individual credit agreements being transferred in debt sales, and notification of the intention to directly enforce credit agreements.
Both the Treasury and the FCA are working together to understand the impact of the proposals on the standard of debt collection practices in the UK and the impact on potentially vulnerable consumers. They believe that there is some risk that the Directive, as drafted, may adversely affect the current level of consumer protection making it more difficult for the FCA to take action against firms and for consumers to seek recourse should things go wrong. The Government has confirmed that it is working with regulatory authorities, EU institutions and other member states, and of course with industry and consumer representatives, to ensure that the proposed measures do not undermine borrower protections or the fair treatment of consumers. One risk is the possibility of credit servicers based in other member states providing debt collection services in the UK and not being subject to FCA regulation but rather to the regulation in their own member state.
Join me at the UK Credit & Collections Conference in Stratford-upon-Avon on 13 September 2018 where I’ll be sitting on an expert panel in our international relations session on the implications of Brexit and the Proposed Directive on Credit Services, Credit Purchasers and the Recovery of Collateral, amongst other topics: http://ukccc.csa-uk.com/. I look forward to discussing all of this further with members and other delegates.