Italy’s final rollout of the EU SMD Directive finally gets effective
Italy’s full rollout of the EU Secondary Market Directive (SMD) finally landed on February 13, 2025, when the Bank of Italy (BoI) cemented it into law formalised as Legislative Decree No. 116/2024. The BoI guidelines have been officially published in Gazzetta Ufficiale on March 9, 2025 and the EU SMD is now effective. Italy’s compliance is ahead of seven EU countries referred to the European Court of Justice for non-compliance. The reforms aim to expand secondary market access, enhances market transparency, strengthen borrower protections, and improve regulatory oversight, ensuring alignment with European financial standards.
The new regime extends BoI oversight of NPL sales, purchases, and servicing for EU bank-originated loans, introducing licensing requirements and compliance obligations for servicers and credit investors. It is designed to foster a more competitive, liquid, and efficient secondary NPL market, improve risk management and transparency, enhance cross-border NPL trading, and reduce systemic banking risks. However, the delayed rollout reflects concerns among market participants regarding higher compliance costs, operational uncertainties, and consolidation in the loan services sector.
These concerns, which include legal ambiguities, regulatory burdens, competitive shifts, and cross-border regulatory coordination, have been examined in light of the published Decree to assess where issues have resolved and remain ongoing to achieve an EU-wide harmonised regulatory framework for NPLs. Issues covered were drawn from our previous reporting and this additional review.
1. Legal & Regulatory Clarity
The Decree clarifies key uncertainties surrounding the directive’s interpretation and its integration into Italy’s legal framework, providing greater certainty for market participants.
I. Assumption of rights and obligations: The Directive initially left unclear whether NPL purchasers could inherit all loan contract rights and obligations. This was a concern in Italy, as many defaulted loans automatically terminate contractual obligations. The Decree resolved this by requiring NPL transfers to follow existing Italian law, safeguarding debtors and aligning with national rules.
II. Integration with existing banking laws: Concerns arose about how the Directive aligns with the Testo Unico Bancario (TUB). The Decree introduced a new chapter in the TUB, incorporating SMD provisions without contradicting prior national banking regulations, and notably established the Gestore NPL licence under Article 114.6, to be issued by the BoI, as a key mechanism to regulate entities managing NPLs within this framework.
III. Servicer licensing for self-managed portfolios: Investors questioned whether NPL purchasers managing their own portfolios needed a servicer licence. The Decree exempts banks and registered intermediaries from additional licensing requirements when handling their own NPLs. Similarly, Gestore NPL licence holders may manage their own portfolios as an ancillary activity but must prioritise third-party management. Other investors must appoint a BoI-approved servicer.
2. Operational & Market Impact
The new compliance requirements under the EU SMD framework are reshaping servicer operations and competitive dynamics in Europe’s NPL market. The Decree enhances standardisation and borrower protections while introducing new compliance measures that require operational adjustments. These changes may drive greater market consolidation as firms adapt, but will foster a more structured and transparent market.
I. Outsourcing rules for servicers. Uncertainty over whether BoI-registered servicers could subcontract functions is resolved. The Decree allows outsourcing, with licenced Gestore NPL servicers retaining full liability for third-party actions, requiring enhanced internal controls and reporting to ensure accountability. Specifically, the Gestore NPL can delegate extra-judicial recovery activities –– to companies authorised under Article 115 of the TUB, though these firms cannot implement tasks outside the Directive’s NPL servicing scope, with the Gestore NPL ultimately responsible for monitoring and compliance.
II. Transition timeline: New servicers applying for the authorisation to act as a credit servicer face a 90-day BoI authorisation process to secure the Gestore NPL licence, Targeted companies already active and managing NPLs must iniate the authorisation process within three months of the law’s publication, or they will be required to cease NPL activities in a six-month transition period. Companies acquiring NPLs during this window can continue operations beyond the six months transition period, subject to final BoI confirmation on their submitted request.
III. Servicer reporting and debtor communication requirements. The Decree includes a standardised template for servicers to submit semestral reports to the BoI, ensuring consistent oversight of NPL servicers. These reports must detail credit transactions, debtors, guarantees, portfolio performance, and contract characteristics, reinforcing regulatory transparency. While the Decree does not introduce an explicit borrower notification requirement for loan transfers, servicers remain subject to existing Italian transparency and consumer protection laws, which may mandate borrower notifications in specific cases. This framework enhances regulatory supervision and enables the BoI to track NPL sales on a semestral basis, but also introduces additional compliance obligations for servicers.
IV. Fund segregation requirements. Servicers must separate debtor payments into escrow accounts, ensuring these funds remain protected and cannot be accessed for other operational uses. While this strengthens borrower safeguards, it could impact liquidity management, delay fund transfers, and create administrative burdens in high-volume portfolios.
V. Loan pricing and transaction speed. The Decree introduces stricter oversight, enhancing professionalism and standardisation in NPL transactions. The transition period may introduce short-term execution delays as servicers adapt, but in the long term, these regulatory enhancements will improve market discipline, transparency, and investor confidence. For example, rising compliance costs – such as servicer licensing and fund segregation obligations – may influence portfolio pricing and extend deal closing periods, while also reinforcing investor confidence through higher servicing standards. This greater institutionalisation could support capital flows into the secondary NPL market over the long-term. In the near-term, the impact on liquidity will depend on how efficiently market participants integrate these regulatory enhancements into their operating models.
3. Market Structure & Competitive Dynamics
The SMD’s implementation marks a fundamental shift in Italy’s NPL market, expanding participation beyond institutional investors and introducing greater transparency and oversight to servicing activities. Higher compliance requirements are designed to enhance professionalism, risk management, and borrower protections, supporting a more mature institutional secondary NPL market.
I. Liberalisation of the NPL market. The Decree widens access, enabling non-bank entities, private individuals, and non-institutional investors to acquire NPLs from banks and financial intermediaries authorised under Italian law. The introduction of the Gestore NPL licence ensures that all market participants meet clear servicing and compliance standards, reinforcing market confidence and governance.
II. Supervision and transparency enhancements.To strengthen oversight, the BoI has introduced a public registry of licensed servicers, including cross-border entities, enhancing visibility into market participants. The Gestore NPL licence comes with periodic BoI inspections and stricter operational standards, ensuring that servicing activities meet the highest governance and risk-control benchmarks. The new reporting framework described above further enhances transparency and regulatory supervision.
4. Regulatory fragmentation
The SMD advances EU market integration, but national variations in implementation have led to differences in compliance, posing challenges for cross-border servicers and investors.
I. Cross-border compliance and harmonisation. The Decree introduces passporting across all 27 EU member states, allowing servicers authorised in one country to operate without needing additional approvals elsewhere. This simplifies regulatory procedures, reduces administrative burdens, and facilitates greater cross-border investment for pan-European NPL servicers. Non-EU investors must appoint an EU-based legal representative for compliance oversight. While this introduces an additional procedural step, it aligns with broader EU financial regulations and ensures a consistent regulatory framework across jurisdictions. The SMD is a major step toward a unified NPL market across the EU. While national variations in servicer obligations remain, passporting significantly reduces regulatory friction for firms operating across borders. As implementation matures across member states, the directive is expected to further align standards, supporting a more seamless and efficient secondary market for distressed assets.
Conclusion
Italy’s rollout of the SMD marks a significant step toward greater harmonisation, enhancing transparency, professionalism, and investor confidence in its secondary NPL market. By introducing clear servicing standards and strengthening borrower protections, the decree supports a more efficient, institutionalised marketplace.
At the EU level, the SMD strikes a careful balance, offering a compromise on previously unresolved legal, operational, and regulatory issues. While national differences remain, Italy’s Decree lays a strong foundation for greater alignment with other EU member states, fostering investor confidence, capital flows, and cross-border efficiency. Its adoption reinforces Italy’s role as a key player in the rapidly maturing European secondary NPL market.
Debitos Gmbh is part of NPL Roundtable in Bruxelles and found an efficient solution to establish a servicer in the market and fulfil Credit Servicer Directive. We invite our current and future customers (Banks, servicers, investors) to evaluate a professional advice with Debitos on this crucial topic for future NPL transactions.
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