Insights into International NPL Markets and Regulations in Sweden

Sweden implements EU’s NPL Directive

On 24 November 2021, the EU Directive 2021/2167 on credit servicers and credit purchasers (NPL Directive) was adopted to address the large amount of non-performing loans (NPLs) that have burdened the banking sectors of a number of EU member states as a result of the global financial crisis that started in 2008.

In early 2024, the NPL Directive was implemented into Swedish law mainly through the new Act on the acquisition and management of non-performing credit agreements (2023:714) (NPL Act), and partly through amendments to several existing laws such as the Debt Collection Act (1974:182), and the Consumer Credit Act (2010:1846).

The NPL Directive is part of the efforts to strengthen the EU’s economic and monetary union. It creates a framework for the transfer of non-performing credit agreements and for the management of credit agreements after a transfer within the EEA. The directive aims to achieve effective management of these loans while establishing a high level of protection for borrowers, with the purpose of reducing the share of non-performing loans in the banking sector and prevent accumulation of such.

In Sweden, some entities, such as AIFMs, that are supervised under regulatory frameworks other than the NPL Act are exempt from the NPL Directive. Entities supervised under the Debt Collection Act, however, may be required to obtain authorisation under the NPL Act, depending on the nature of their business activities.

Swedish NPL Act

The following definitions are essential for the purpose of understanding Sweden’s NPL Act:

• credit purchaser: a natural or legal person other than a credit institution that acquires a non-performing credit agreement in the course of its business;
• credit servicer: a legal person with regulatory authorisation in the EEA to carry out the management of non-performing credit agreements on behalf of a credit purchaser in the course of its business;
• credit institution: the definition in the NPL Act aligns with credit institutions or foreign credit institutions according to the Banking and Financing Business Act (2004:297), meaning a bank or an institution with regulatory authority to conduct financing services; and
• non-performing credit agreement (NPL): a credit agreement (or the rights of a creditor under such an agreement) entered into with a credit institution as lender, which is classified as a non-performing exposure under Article 47a of the EU Regulation 575/2013, meaning, for example, a loan that is more than 90 days due, or a loan unlikely to be paid in full without the realisation of the underlying security.

The main characteristics of the NPL Act includes that:

• prior to the acquisition of an NPL, the credit institution (i.e. transferor) must inform the credit purchaser of the NPL and any underlying security;
• credit institutions must on a semi-annual basis inform the Swedish Financial Supervisory Authority (SFSA) of transferred NPLs, credit purchasers, outstanding receivables under the NPLs, and underlying security;
• credit purchasers must appoint a credit servicer for NPLs under which the debtors are consumers or small corporations;
• credit servicers must be authorised by the SFSA;
• credit purchasers and credit servicers must enter into a credit servicing agreement, which must include certain obligations listed in the NPL Act, such as undertakings to treat debtors fairly and with care;
• credit purchasers must inform the SFSA of appointed credit servicers, and of any transfer of the NPL to another credit purchaser;
• before taking any enforcement measures, credit purchasers must inform the debtor of any transfer of the NPL to another credit purchaser in a manner detailed in the NPL Act; and
• credit purchasers and credit servicers must generally treat debtors professionally, with integrity, and provide correct and clear information.

Sanctions for non-compliance with the NPL Act include, inter alia, administrative penalties corresponding to:

• 10% of the company's turnover;
• twice the profits made by the company as a result of the relevant violation; or
• SEK 50 million.

In some circumstances, a natural person, such as a board member of the company in question, may also be subject to administrative penalties.

Summary

The NPL Act implements various new obligations for credit institutions selling NPLs, and parties acquiring or servicing NPLs. The Act will likely impact banks trading with non-performing mortgage loans and consumer credits. The purchase of receivables (i.e. factoring) will only be affected, however, if the receivables are initially created under a credit agreement with a credit institution as lender.

Parties involved in transfers or the servicing of NPLs should review the NPL Act to identify the new obligations, including any requirements for authorisation by the SFSA, reporting or information undertakings, and measures to treat debtors fairly and with due care. Furthermore, the NPL Act may cause a need for credit purchasers, credit servicers and credit institutions to establish or update standard documentation in order to comply with information requirements.

For more information on Sweden’s adoption of the NPL Directive, contact your CMS client partner or these CMS experts: Per Englund and Enar Persson.