THE CURRENT SYSTEM AND THE FSA’S POSTULATE TO CHANGE IT

Early October, the FSA surprised the financial market with its postulate to eliminate the receivables managers (i.e. companies like KRUK SA, ULTIMO SA, and ca. 40 other players on the Polish market) from the receivables management process.

Currently, receivables managers operate in Poland, based on permissions granted by the FSA and under its supervision. The licensing process takes roughly two years and involves meeting a number of strict requirements resulting from the regulations concerning the investment funds, as well as high standards required by the FSA itself. The permission allows a receivables manager to manage the securitized receivables which are part of the investment portfolios of the securitization investment funds (i.e. funds which mainly invest in NPL portfolios acquired from the banks). Therefore, securitization funds have an important role in the deposit system. The debt management takes place based on the outsourcing agreement concluded with the fund manager (in Polish: Towarzystwo Funduszy Inwestycyjnych — TFI), therefore, the supervision over receivables manager’s activities is two-level, i.e. simultaneously conducted by the FSA and the TFI.

The current system has been introduced in Poland in 2009 with the view to place all of the entities involved in the receivables management process under the FSA’s supervision in order to better protect the investor. With its current proposal, the FSA uses the same justification (i.e. increase of the investors’ protection) to eliminate the receivables managers from the legal system.

In its justification, the FSA also indicates the irregularities on the debt market that have occurred in the past years and, among others, reminds of the Getback SA case — one of the largest financial scandals on the Polish market as a result of which about 20,000 investors (bondholders and investment certificate holders) have been affected. However, the FSA seems to ignore the fact that Getback operated based on the permission granted by the FSA and under its supervision, which may lead us to the key question, i.e. whether the current regulations are the cause of the no-matter-how-discreditable-but-until-now-one-off “Getback case” or ineffectiveness and sluggishness of the state supervision over its activity, especially that some of the market participants blew the whistle before the damage had occurred?

In the attempt to provide the answer to the above question, it needs to be reminded that the “Getback case” had an immensely negative effect on other players in the receivables management market. Never before has the debt management sector suffered from such reputation damage and it took over three years before the companies with the strongest financial standing and market position decided to offer their bonds to the public investors once again. 

SOME OF THE POTENTIAL CONSEQUENCES OF THE FSA’S POSTULATE

Giving some thought to the possible consequences of the FSA’s postulate, one cannot ignore the most probable projection, i.e. that the proposed modification would result in the destabilization of the receivables market for several years and would take it back to the times of the debt collection companies acting not only without state supervision but also without any self-regulation (e.g. the receivables management sector has adopted in the past year's Principles of Good Practices and set up Ethics Committee for the purpose of the amicable settlement of the consumers’ complaints).

As a result, the Polish market would become less competitive in comparison to other EU member countries. In fact, bearing in mind that the EU parliament has just adopted the directive on credit servicers, credit purchasers, and the recovery of collateral regulating outsourcing of the servicing of the credit portfolios (NPL Directive), Poland would once again swim against the EU current. This can beyond doubt lead to the foreign investors’ outflow — another consequence, which has not been addressed by the FSA.

To simplify, it can be said that the Polish receivables market currently consists of two segments: (i) securitization funds operating within specialized capital groups, where the TFI, receivables manager and fund participant are affiliated entities and (ii) securitization funds managed by an independent TFI, where the fund participants are either individuals or financial investors, including foreign investors and the receivables are managed by one or more independent servicers (receivables managers).

Looking at the possible scenarios for the capital groups, the new legislation may result in internal reorganizations leading to the situation in which the TFIs would take over the operation activities from the receivables managers and continue their servicing activity. However, due to operational complexity, such a solution would only be available for the largest players. In such a case, smaller players could be forced to sell their portfolios and leave the Polish market. This would lead to the consolidation of the receivables market. At the same time, the FSA would have to extend the scope of their supervision over the TFIs, as the activity of the receivables managers would be absorbed by them.

In the case of the securitization funds operating independently from the capital groups, contrary to the FSA’s intentions, the investors’ protection would be diminished, as the two-level supervision system over the servicer (i.e. by the TFI on the one hand and by the FSA on the other) would disappear. Also, the simultaneous management of the receivables by two or more servicers, which guarantees the best results of the funds and secures the fund for the case of servicer’s worsen financial standing or for the case of the loss of the FSA’s permission, would also no longer be an option.

INTERIM PERIOD

Last but not least, the FSA proposed an 18-month period for the TFIs to adjust to the new regulations. Leaving aside, for now, the question of the proposed interim regulation is in breach with the constitutional rule of the protection of the acquired rights, it seems to be an extremely short period of time for the large capital groups to reorganize in a way that would be safe for their current investors (investment certificate holders and bondholders). Has the FSA given that a thought?

All facts considered, it is hard to find a decent justification for the FSA’s new legislation initiative, other than it may be another attempt to statutory cover up failures of the state authorities, no matter the cost. 

Family Business Initiative Association (IFR) is a Warsaw-based alliance that groups entrepreneurs who own family businesses, as well as experts and scientists who support this community. Agnieszka Mitręga is an IFR expert and an attorney-at-law at GWLAW Gdynia.

Disclaimer: The opinions expressed in this publication are those of the author. They do not purport to reflect the opinions or views of any of the author’s clients and/or their affiliates or to represent their interests.