Regulatory Landscape Before the New Act
Prior to the adoption of this Act, NPL servicing and purchasing in Croatia were regulated under general laws covering obligations, banking, consumer protection, and data protection. Oversight was limited, with some secondary regulations issued by the Croatian National Bank (CNB). Companies purchasing and servicing NPLs did not require special authorization, and regulatory supervision was minimal.
The new Act aims to establish a transparent legal framework that protects all parties and strengthens oversight of the NPL market.
Key Changes Introduced by the New NPL Framework
Licensing Requirements for NPL Servicers
A major reform under the Act is the requirement for NPL servicers to obtain a license from the CNB. To qualify, applicants must meet stringent conditions, including:
- The professional reputation and expertise of management and supervisory board members.
- The credibility of shareholders.
- Implementation of anti-money laundering (AML) measures and internal controls to ensure regulatory compliance and debtor rights.
Once approved, licensed servicers can operate in Croatia. Additionally, EU-based entities with licenses from other member states may provide services through passporting mechanisms.
Rules for NPL Purchasers
NPL purchasers do not require a license to acquire non-performing loans. However, non-EU entities must appoint a representative within the EU.
If the acquired NPLs involve consumer, small business, or SME loans, the purchaser must either engage a licensed servicer or obtain a servicing license. The Act also formalizes the requirement for buyers to receive comprehensive information regarding creditors’ rights and collateral before finalizing transactions.
Following an NPL purchase, the buyer must notify the debtor of the ownership change, the new creditor’s contact details, and other relevant information. This obligation continues from previous general obligations law.
Additional Obligations for Credit Institutions
Banks and credit institutions must adhere to stricter reporting and notification requirements, including:
- Informing debtors about planned NPL sales and repayment terms.
- Submitting relevant transaction documents to the CNB before finalizing the sale.
- Reporting completed NPL transactions to the CNB.
While many of these obligations existed under prior banking regulations, the new Act strengthens enforcement and aligns Croatian rules with EU directives.
Supervision and Compliance Enforcement
The CNB is responsible for overseeing NPL servicers, credit institutions, and local or foreign NPL purchasers operating in Croatia. To ensure compliance, the CNB has the authority to impose corrective measures, including:
- Requiring the removal of management or supervisory board members for non-compliance.
- Temporarily suspending NPL servicing operations.
- Revoking licenses for severe or repeated violations.
- Imposing administrative fines for breaches related to personal data protection, failure to appoint a required NPL servicer, or non-compliance with reporting obligations.
Conclusion: Strengthening Croatia’s NPL Market
By implementing the NPL Directive, Croatia has reinforced its financial regulatory framework and aligned itself with the broader European NPL market. While the Croatian NPL market has remained stable, economic fluctuations may lead to an increase in distressed loans, creating new opportunities for investors.
With this Act, Croatia is now better positioned to manage potential NPL market growth while ensuring transparency, stability, and legal predictability. Investors, financial institutions, and credit servicers operating in Croatia must adapt to this new framework to remain compliant and capitalize on future market opportunities.
For more details on the new Act and its implications, financial professionals and stakeholders are encouraged to consult legal experts or regulatory authorities.
FAQs
- What is the NPL Directive?
- The NPL Directive (Directive (EU) 2021/2167) is an EU regulation that standardizes rules for credit servicers and credit purchasers across member states to improve the management of non-performing loans.
- Do NPL purchasers need a license in Croatia?
- No, NPL purchasers do not require a license. However, non-EU entities must appoint a representative in the EU, and purchasers of certain types of loans must engage a licensed servicer.
- What are the licensing requirements for NPL servicers?
- NPL servicers must obtain a license from the Croatian National Bank (CNB), meet expertise and credibility standards, and implement AML measures.
- How does the CNB enforce compliance?
- The CNB can impose fines, revoke licenses, suspend operations, and require management changes for non-compliance.
- How does this impact investors in the Croatian NPL market?
- Investors must comply with the new regulations, but the structured legal framework improves market transparency and predictability.
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