Transposition Of The NPL Directive Into Belgian Law

On 20 December 2024, the Belgian Parliament adopted the law transposing Directive (EU) 2021/2167 on credit servicers and credit purchasers, also known as the Non-Performing Loans (NPL) Directive (the NPL Law). It aims to regulate the management and transfer of NPLs within the European Union and introduces a structured framework for credit servicers and credit purchasers in Belgium.

This legislation has entered into force on 24 January 2025 and is a trustful implementation of the NPL Directive.

Main objectives

The main objectives of the NPL Law are i) addressing the issue of NPLs on the balance sheet of credit institutions while limiting the risk of new NPLs accumulation and ii) ensuring borrowers protection, particularly for consumers, when NPLs are transferred on secondary markets to specialised credit servicers or buyers who possess the expertise to handle them.

Regulatory framework

The NPL Law sets out a regulatory framework for the sale, purchase, and servicing of NPLs originated by credit institutions within the EU. An NPL is defined as a credit agreement that is either more than 90 days overdue or unlikely to be repaid by the borrower, as per the Capital Requirements Regulation 575/2013 (CRR). This definition includes both syndicated and bilateral credit agreements, where an EU credit institution provides credit in the form of deferred payments, loans, or other similar financial accommodations to commercial or consumer borrowers.

Scope of application

The Belgian NPL Law applies to the following entities:

1. Credit purchasers: any person (other than a credit institution), that (a) purchases a creditor's rights under a NPL, or the NPL itself, (b) in the course of its trade, business, or profession.
   
   
2. Credit servicers: a legal person managing and enforcing rights and obligations related to a creditor's rights under an NPL, or the NPL itself (e.g. a security agent) who acts on behalf of a credit purchaser and carries out at least one credit servicing activity, such as collecting and recovering payments, renegotiating credit terms with borrowers, handling complaints, or notifying borrowers of changes to interest rates or any payments related to a creditor's rights as part of borrower communication.
   
   
3. Credit service providers: third parties to which credit servicers may outsource specific credit servicing activities.

The NPL Law excludes several actors and activities from its scope, including:

• credit servicing activities conducted by (i) EU credit institutions, (ii) alternative investment fund managers (AIFMs), (iii) UCITS management companies, (iv) mortgage and consumer credit lenders, and (v) legal professionals performing their official duties.
• NPLs that are (i) not issued by an EU credit institution, (ii) purchased by an EU credit institution, and (iii) transfers relating to creditor's rights under a NPL or the NPL agreement itself made prior to 24 January 2025.

Authorisation for credit servicers

Under the NPL Law, credit servicers must obtain prior authorisation from the Financial Services and Markets Authority (the FSMA). The authorisation process requires compliance with regulatory standards, including:

• Corporate governance: management bodies must meet criteria for professional integrity and expertise.
• Risk management and internal controls: adequate systems must be in place to protect borrowers, ensure compliance with laws, and handle complaints effectively.
• Capital requirements: credit servicers are required to meet financial thresholds to ensure operational stability.

Operational restrictions and borrower protection

Unlike in Luxembourg, Belgian credit servicers are prohibited from receiving or holding funds from borrowers.

The Belgian NPL Law prioritises borrower rights and includes provisions to ensure fair, professional, and transparent conduct by credit servicers and purchasers. Borrowers must be informed in writing of any transfer of creditor rights, including details about the transfer and their obligations.

Outsourcing of activities

Credit servicers may outsource specific activities to credit service providers under strict conditions, including:

• Written outsourcing agreements.
• Maintenance of direct access to outsourced activity records.
• Notification of outsourcing arrangements to the FSMA.

Outsourcing does not relieve credit servicers of their legal obligations.

Passporting rights

Authorised Belgian credit servicers benefit from EU passporting rights, allowing them to operate in other Member States without additional licensing requirements, provided a prior notification is submitted to the FSMA. Similarly, credit servicers authorised in other EU Member States may operate in Belgium under the same conditions.

Obligations for credit purchasers

When the borrower is a consumer, Belgian credit purchasers must appoint an authorised entity to manage NPLs. The appointed credit servicer must be either an EU credit institution, a lender, or a credit servicer authorised in an EU Member State.

For non-EU credit purchasers, a credit servicer must be appointed if the borrower is a natural person (including consumers and self-employed individuals) or a micro, small, or medium-sized enterprise (SME). Credit purchasers must inform the FSMA of the identity and address of the appointed credit servicer before servicing activities are offered in Belgium. Additionally, non-EU credit purchasers must designate an EU-based representative responsible for ensuring compliance with Belgian law when acquiring NPLs in Belgium.

Conclusion

The transposition of the NPL Directive in Belgium establishes a structured legal framework for the management and transfer of NPLs, balancing the reduction of risks for credit institutions with borrower protection. The new framework enhances transparency and accountability in the secondary market for NPLs.

Stakeholders are encouraged to review their internal procedures and authorisation requirements to ensure compliance.