Prepared by Cristian Sgaramella, Giovanni Bombaglio and Adele Zuliani
On November 25, 2021, the Bank of Italy sent to the parties referred to in art. 2, paragraph 3, letter c of Law 130/1999 a notice entitled “”Servicers in securitization. Risks profiles and supervisory guidelines”.
The notice recommends that these subjects must have an operating and monitoring system appropriate to the role assigned to them by the law, in order to be able to provide a clear and exhaustive view of the operations managed.
This assumption, as affirmed by the Supervisory Authority, derives also from the circumstance that securitization operations involving assets other than banking assets are increasingly being carried out, with the subsequent requirement for operational approaches and handling of prospective risks that are highly specific and which could have a significant impact on the operation.
The key point of this recommendation seems to be the acknowledgement that, even though the field discipline foresees a sole entity to which entrust the functions foreseen by art. 2, paragraph 3, letter c of Law 130/1999 (the servicer), what happens is that in practice there is a dichotomy between the master servicer (supervised entity and “guarantor” of the market regarding the compliance of the securitization with the law and the prospectus) and the special servicer (i.e. the one who is entrusted with purely operational tasks and who is not subject to the discipline of Legislative Decree 385/1993 so-called TUB).
The legal grounds for this assumption can be identified in Bank of Italy Circular 288/2015 “Supervisory Provisions for Financial Intermediaries”, where paragraph 5.1 of Section VII, Chapter 1 Title III allows for the outsourcing of debt collection activities, as long as the outsourced party retains “the ability to control and responsibility for the outsourced activities…”
This means that the master servicer is responsible for any lack or inefficiency that may be found in the performance of the special servicer. . In this regard, we are thinking of the hypotheses in which the special servicer finds itself in positions of conflict of interest with the debtor (insofar as not operating with an exclusive mandate) and which must be managed and resolved by the delegating party, or the hypotheses in which the delegated party is called upon to carry out a preliminary due diligence on the fair value of the credit positions.
In the awareness of the risks, current legal frameworks require that the master servicer must receive periodic information from the parties delegated by it (since this obligation must be reflected in the contractual agreements between the parties) and that it is, in turn, obliged to provide periodic information to the market on the status of the individual securitization transaction.
In this context the intervention of the Supervisory Authority takes place, which obliges master servicers to transmit to the Authority on a half – yearlybasis a set of periodic information on the securitization operations handled by setting, in this regard, two ad hoc templates (one for operations backed by the State Guarantee – the so-called GACS – and one for all the others) which provide overall information on the various operations and detailed data on the collections and the trend of recoveries. It should be noted that this additional information supplements and does not replace the information flow already transmitted via ordinary supervisory reports.
Particularly noteworthy seems to be the need for the Supervisory Authority to monitor the performance of securitizations backed by GACS: actually, given the weak economic recovery following the pandemic, the problems linked to this kind of securitization are becoming increasingly clear, since on 26 transactions 17 show receipts even 50% lower than the original business plans.
Finally, it should be noted that attention had already been paid to servicers’ activities by 2019: in fact, the EBA had expressed concerns in its Opinion Paper of October 23, 2019, where it suggested that they act as “skin in the game” through the maintenance of an “economic risk” in the operation in order to align their interests with those of the noteholders.
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