In our view, Ireland should avail of this discretion and prohibit AIFs that originate loans from granting loans to consumers in Ireland. We note the distinction that this discretion will prohibit all...
5. Public Consultation Questions - Discretion 2
Discretion 2 - Article 1(7) of Directive (EU) 2024/927
The discretion provided for under Article 1(7) of Directive (EU) 2024/927, amending Article 15(4) of Directive 2011/61/EU, permits a Member State to prohibit funds that originate loans from granting loans to consumers in its territory.
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(7) Article 15 is amended as follows: … (b) the following paragraphs are inserted: … 4g. Without prejudice to other instruments of Union law, a Member State may prohibit AIFs that originate loans from granting loans to consumers as defined in Article 3, point (a), of Directive 2008/48/EC of the European Parliament and of the Council (*10) in its territory, and may prohibit AIFs from servicing credits granted to such consumers in its territory. Such prohibition shall not affect the marketing in the Union of AIFs granting loans to consumers or servicing credits granted to consumers. (*10) Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC (OJ L 133, 22.5.2008, p. 66).’;" |
Loan Origination Framework
Directive (EU) 2024/927 amends the AIFMD by inserting paragraphs in Article 15 which set out the regulatory parameters for AIFs that originate loans (including loan-originating AIFs[1]).
The Directive defines “loan origination” or “originating a loan” as:
“the granting of a loan (i) directly by an AIF as the original lender or (ii) indirectly through a third party or special purpose vehicle, which originates a loan for or on behalf of the AIF, or for or on behalf of an AIFM in respect of the AIF, where the AIFM or AIF is involved in structuring the loan, or defining or pre-agreeing its characteristics, prior to gaining exposure to the loan”.
The Directive explicitly prohibits AIFMs from managing an AIF that originates loans with the sole purpose of selling them to third parties (“originate-to-distribute strategy”).
The common rules and requirements set out in Directive (EU) 2024/927 in relation to risk retention, concentration limits and restrictions on lending are intended to facilitate cross-border development of the loan origination market whilst ensuring AIFs that are originating loans are regulated appropriately from an investor protection and financial stability perspective.
Ireland's Position
Ireland was the first EU Member State to introduce a specific regulatory framework for loan originating investment funds. The Central Bank introduced a domestic framework for loan originating qualifying investor alternative investment funds, or L-QIAIFs, in 2014. L-QIAIFs must meet several rules set out in the Central Bank’s AIF Rulebook.[2]
Under the existing Irish regulatory framework, L-QIAIFs are not permitted to originate loans to “natural persons”[3]. The current prohibition on originating loans to natural persons is not limited to consumers in Ireland. The prohibition provided for under Article 15 (4)(g) of the AIFMD differs in scope as it allows Member States to prohibit AIFs that originate loans from granting loans to consumers in its territory. If exercised, this discretion will prohibit all AIFs that originate loans, whether domiciled in Ireland or elsewhere, from granting loans to Irish consumers. Equally, the exercise of this discretion will not prohibit loan origination AIFs domiciled in Ireland from granting loans to consumers in Member States where such practices are permitted.
The current policy stance, for reasons of public interest, to prohibit loan origination by AIFs to consumers in Ireland under the new loan origination framework. A decision to permit AIFs that originate loans to grant loans to Irish consumers would represent a significant policy departure and may give rise to consumer protection concerns. Such concerns were reflected in an ESMA opinion to the European Parliament, the Council and the Commission in 2016 on the key principles for a European framework on loan origination by funds which concluded that (emphasis added):[4]
“loans should not be granted to consumers, as this might raise conflicts with the Consumer Credit Directive (CCD), or to other individuals, as there might be national legislation further to CCD regulating lending to individuals.”
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Question 2. a) Should Ireland prohibit AIFs that originate loans from granting loans to consumers in Ireland? If not, please provide a rationale to support your views. b) What are the benefits, costs, risks, etc., of prohibiting AIFs that originate loans from granting loans to consumers in Ireland? |
[1] A loan-originating AIF is defined in the Directive as an AIF (i) whose investment strategy is mainly to originate loans; or (ii) whose originated loans have a notional value that represents at least 50 % of its net asset value.
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Observations