EN ECB -PUBLIC  
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 29 March  2019  
on requiring the consent of borrowers to transfer s of loans secured by mortgages  
on residential property  
(CON/2019/14)  
 
Introduction and legal basis  
On 4 March 2019 the European Central Bank (ECB) received a request from Chairman of the Oireachtas 
(Irish National Parliament) Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach 
(Irish Prime Minister) for an opinion on a No Consent, No Sale Bill 2019 (hereinafter the ‘draft law’).  
The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the third and sixth indent s of Article  2(1) of Council Decision 
98/415/EC1, as the draft law relates to (a) the basic t ask of the European System of Central Banks 
(ESCB) to implement the monetary policy of the Union pursuant to the first indent of Article 127(2) of the 
Treaty, (b) the specific tasks conferred upon the ECB concerning policies relating to the prudential 
supervision of credit institutions pursuant to Article 127(6) of the Treaty, (c) the Central Bank of Ireland 
(CBI) and (d) rules applicable to financial institutions insofar as they materially influence the stability of 
financial institutions and markets. In accordance with the first sentence of Article 17.5 of the Rules of 
Procedure of the European Central Bank, the Governing Council has adopted this opinion.  
 
1. Purpose of the draft law  
1.1 The draft law introduces a new rule to the effect that lenders may not trans fer loans secured by the 
mortgage of  residential property without the written consent of the borrower. It specifies that when 
seeking a borrower’s consent to such a transfer, the lender must provide a statement giving 
sufficient information on how the transfer would affect the individual borrower so that the borrower 
may make an informed decision and be given a reasonable time within which to give or decline to 
give such consent . This statement of information must be approved by the CBI before it is provided 
to a borrower.  
1.2 The draft law sets out the information that  must be provided in the statement of information to a 
borrower, namely : (i) the name and address of the intended transferee, and of any holding 
company applicable; (ii) the relationship, if any,  between the lender and the transferee; (iii) a 
description of the intended transferee and of its business, including how long it has been in 
operation, and details of its involvement in the management of mortgages; (iv) details of the 
                                                 
1  Council Decision 98/ 415/EC of 29 June 1998 on the consultation of the European Central Bank by national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42).  
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2 policies and procedures which will apply for the setting of mortgage interest rates and for the 
making of repayments if the transfer takes place; and (v) confirmation that in the absence of a 
specific consent the existing arrangements will continue to apply.  
1.3 The draft law  also covers transfers in the context of securitisation -type trans actions  where the 
original lender would service the mortgage as an agent of the transferee. In such cases, the lender 
must confirm that the transferee’s policy on handling arrears and setting in terest rates will be the 
same as that of the original lender, and that the original lender will handle arrears as its agent.  
1.4 The draft law also provides that where, following a transfer of a mortgage, the lender would no 
longer have control of setting the interest rates and/or determining the conduct of relations with 
borrowers seriously in arrears, the lender must seek the borrower’s consent notwithstanding any 
previous consent the borrower has given. It also lays down certain requirements for any mortgage 
transfer agreement, including that a transferee must allow transferred mortgages to be redeemed 
without charging a redemption fee and must allow the borrower to arrange their own insurance.  
1.5 The requirements of the draft law do not apply in certain limited  cases, including where  the lender 
is subject to winding- up proceedings , or has been determined by the CBI to be failing or likely to fail 
and the lender has satisfied the CBI that the application of the draft law would not be appropriate 
and that the transfer is being effected on terms which are just and equitable and which a borrower 
would reasonably be entitled to expect.  
 
2. General observations  
2.1 The ECB understands the draft law applies to the transfer of all loans secured by a mortgage of a 
residential property. While the draft law does not define the term ‘residential property’, the ECB 
understands that the draft law appl ies to both owner -occupied and rented or buy -to-let properties, 
regardless of whether the loan secured by the mortgage is classified as  performing or non-
performing. In addition, there are no restrictions on borrowers withholding their consent to a 
transfer ; rather , borrower consent may be withheld in any and all circumstances. The ECB also 
understands that the draft law applies not only to the transfer of ‘ new’ residential mortgages  –
entered into after the enactment of the draft law  – but also applies to transfers of ‘ existing ’ 
mortgages  – entered into prior to the enactment of the draft law.  
2.2 The ECB understands that the draft law applies to all transfers of residential mortgages, without 
distin guishing between the purpose and the means of the transfer. The ECB notes that, under Irish 
law, in order for credit institutions to issue asset -backed securities (ABS s), covered bonds, or 
resident ial (or special residential) mortgage- backed promissory notes, or to create security over 
pools of credit claims, the underlying residential mortgages must be transferred or, in the case of a 
security interest, capable of subsequent transfer. The effect of  the draft law would be to render the 
type of asset transfers required to utilise these financial instruments and techniques effectively 
impossible for Irish credit institutions. However, all of these instruments and techniques are 
essential , both in relat ion to performing and non- performing loans,  for the funding and,  thus the 
day-to-day functioning of the Irish banking sector. As such, t he draft law would make  the use of 
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3 Irish residential mortgages as collateral for bank funding significantly more difficult, if not 
impossible.  
2.3 Moreover, the presence of significant volumes of non- performing loans (NPLs) on credit 
institutions’ balance sheets reduces the ability of those institutions to fulfil their function as 
providers of credit to the real economy , and h ampers the operational flexibility and overall 
profitability that are indispensable  to a well -functioning banking sector. It is essential  that the 
national legal framework enables the efficient transfer of NPLs off the balance sheet of credit 
institutions,  through asset sales, securitisations  and other measures.  
2.4 The draft law is being introduced without the benefit of a thorough impact assessment. O nly by 
making such a prior assessment would it be possible both to i) determine whether the draft law  is 
able to achieve its aim  – presumed to be consumer protection, and ii) mitigate any negative 
implications. However, i n the absence of an impact assessment, it is difficult to be confident 
whether the objectives set by the draft law would be achieved2. Indeed, fo r the reasons outlined in 
this opinion, the ECB has concerns that the draft law would have significant adverse effects on Irish 
credit institutions’ ability to participate in Eurosystem monetary policy operations , as well as on their 
funding situation and capacity to properly manage their balance sheets. In turn, this is likely to 
result in additional costs being passed on to other borrowers ; it could also result in a significant 
impact on mortgage pricing and availability, and even an increase in NPLs , all of which are likely to 
impact financial stability, Irish taxpayers, and ultimately the Irish economy.  
2.5 Finally, the ECB notes that it is not clear whether the draft law applies retrospectively to transfers of 
mortgages which took place prior to the enactment of the draft law. Hence, the draft law may raise 
issues of legal certainty in respect of the validity of such transfers.  
 
3. Specific observations  
3.1 Access of Irish credit institutions to Eurosystem credit operations and effects on the transmission of 
monet ary policy in Ireland  
3.1.1  In accordance with Article 18.1 of the Statute of the ESCB and of the ECB, the Eurosystem 
provides credit to eligible monetary policy counterparties, with lending based on adequate 
collateral. The types of assets which can be pledged as collateral in Eurosystem credit operations 
include marketable assets such as ABS s and covered bonds, as well as non- marketable assets 
such as credit claims, mortgage- backed promissory notes (MBPNs)3 and additional credit claims 
(ACCs)4. 
3.1.2  The ECB notes that Irish credit institutions are heavily reliant on mobilising collateral backed by 
residential mortgages , in particular ABSs, covered bonds and ACCs, to access Eurosystem credit 
                                                 
2   See paragraph 2.2.2 of Opinion CON/2018/13, paragraph 2.3 of Opinion CON/2012/70, paragr aph 2.3 of Opinion 
CON/2012/40, and paragraph 2.2 of Opinion CON/2010/34. All ECB opinions are published on the ECB ’s website at  
www.ecb.europa.eu . 
3   Guideline (EU) 2015/510 of the European Central Bank of 19 December 2014 on the implementation of the 
Eurosystem monetary policy framework (ECB/2014/60) OJ L 91, 2.4.2015, p. 3.  
4   Article 4 of Guideline 2014/528 of the European Central Bank of 9 July 2014 on additional temporary measures 
relating to Eurosystem refinancing operations and eligibility of collateral and amending Guideline ECB/2007/9 
(ECB/2014/31) OJ L 240, 13.8.2014, p. 28.  
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4 operations. Such ABSs, covered bonds and ACCs are generally backed by perform ing residential 
mortgages , transfers of which are also affected by the draft law.  
3.1.3  By requiring the written consent of the borrower for the transfer of a mortgage, the draft law would 
significantly reduce the possibility for Irish credit institutions to mobilise pools of residential 
mortgage loans under the ACC scheme as collateral in Eurosystem credit operations . Moreover, by 
materially restricting the issuance of residential mortgage- backed securities (RMBSs) and of 
covered bonds, it would also impede the ability of Irish credit institutions to generate collateral that 
could be pledged to access Eurosystem credit operations.  
3.1.4  This potentially relevant reduction in the availability of collateral assets could limit the amount of 
central bank liquidity that Iri sh banks could obtain from the Eurosystem, both in the main 
refinancing operations (MRO) and in the long- term refinancing operations (LTRO). In this regard, 
the Eurosystem’s fixed- rate full allotment policy has recently been extended until the end of the 
reserve maintenance period starting in March 20215. Under this policy, eligible monetary policy 
counterparties can obtain the entire amount of liquidity requested from the Eurosystem. In this 
context, the availability of a sufficiently large amount of eligi ble collateral is crucial for credit 
institutions to be able to participate in Eurosystem credit operations and then to obtain the amount 
of liquidity they need. From the perspective of Irish credit institutions, and given that residential 
mortgages compri se a large proportion of their business, the draft law could therefore severely 
restrict their ability  to access Eurosystem credit operations . This ability  is of fundamental 
importance to credit institutions under normal circumstances , and is critical in t imes of financial 
stress. The inability of Irish credit institutions to generate mortgage- backed collateral would,  de 
facto,  also prevent Irish credit institutions from using mortgage- backed collateral for the purposes 
of accessing programmes under  several  of the Eurosystem’s non- standard monetary policy 
measures, notably for purchases under the ABS purchase programme (ABSPP) and the third 
covered bond purchase programme (CBPP3). This is because the eligibility of an ABS or a covered 
bond under the Eurosyst em’s collateral framework is a necessary condition for determining its  
eligibility for purchase under the ABSPP and CBPP3.  
3.1.5  By reducing the available types of collateral that can be charged by Irish credit institutions, the draft 
law could significantly lim it the effectiveness in Ireland of monetary policy measures intended to 
ensure the smooth functioning of the monetary policy transmission mechanism , and thus, the 
achievement of the Eurosystem ’s primary objective of  maintain ing price stability. Such limitation on 
the effectiveness of monetary policy measures in Ireland could give rise to fragmentation across  
the euro area concerning the extent to which monetary policy measures are reflected in the funding 
costs of Irish banks and then –  ultimately – in the interest  rates charged to borrowers .  
3.1.6  Moreover, t o the extent that participation in Eurosystem monetary policy operations reduces the 
funding costs of credit institutions and increases their  funding sources, impediments to making full 
use of those monetary  policy tools would increase funding costs and decrease funding sources. 
Ultimately, t his could also be reflected in increased interest rates charged to borrowers.  
 
                                                 
5   See ECB press release on m onetary policy decisions dated 7 March 2019 ( link).  
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5 3.2 Implications for bank funding and lending conditions  
3.2.1  If, as a result of the effects of the draft law, Irish credit institutions could no longer reliably access 
Eurosystem credit operations, they would have to increase their market -based wholesale funding,  
either through short -term interbank borrowing or issuance of debt instruments. However, funding by 
way of debt issuance also relies, to some extent, on the ability of credit institutions to securitise 
performing and non- performing loans and to issue covered bonds to be sold to market investors. 
Since the draft law would effectively prevent any future issuance of securitisations or covered 
bonds, Irish credit institutions would need to issue a larger amount of unsecured bonds, which 
would be subject to less favourable pricing than secured debt instruments.  
3.2.2  These factors would then contribute to an increase in the funding costs of Irish credit institutions , 
which may then be passed through to borrowers via an increase in interest  rates. In addition, if 
credit institutions with reduced access to  funding sources encounter difficulties in raising wholesale 
debt funding from the private market, this could,  in turn , lead to capacity constraints in bank lending 
to the real economy more generally.  
 
3.3 Effects on the banking sector  
3.3.1  In the context of its direct responsibility for the supervision of signi ficant banking groups within the 
euro area, the ECB closely monitors the stability of credit institutions. The high level of NPLs in 
Ireland has brought large credit losses to Irish credit institutions in the recent past. Thus, it is 
important that NPLs ar e dealt with in an efficient and effective manner –  balancing,  on the one 
hand, the need to ensure observance of the general duty of debtors to meet their payment 
obligations and, on the other hand, the need to provide assistance to individuals in dire financial 
situations6. Risk transfer through asset sales, securitisation and other measures is an important 
part of the toolkit available to credit institutions to reduce NPLs in an effective manner ; these are in 
addition to other tools, such as the originati ng credit institutions’ internal procedures for handling 
the work -out of NPLs.  
3.3.2  Provided that the consumer protection framework remains fully applicable to transfers  regulated by 
the draft law , borrowers should not be worse off in the event that thei r mortgage is transferred to a 
purchaser. In that respect, t he ECB understands that borrowers currently benefit from the 
protections afforded to them under the CBI’s Code of Conduct on Mortgage Arrears 2013 and the 
Consumer Protection Code 2012, as well as  Part V of the Central Bank Act 1997 – as amended by 
the Consumer Protection (Regulation of Credit Servicing Firms) Act 2015 and the Consumer 
Protection (Regulation of Credit Servicing Firms) Act 2018 – which provides for the regulation of 
credit servicing7. The draft law does not appear to provide additional protection to borrowers, as 
the existing consumer protection framework applies regardless of whether the mortgage is held 
and serviced by the original lender, or is transferred to a purchaser and servi ced through a credit 
                                                 
6   See paragraph 2.2.1 of Opinion CON/2018/13 and paragraph 3.1 of Opinion CON/2013/34.  
7   Following the amendments made to Part V of the Central Bank Act 1997 by the Consumer Protection (Regulation of 
Credit Servicing Firms) Act 2018, the term ‘credit servicing’ in relation to a credit agreement is defined to include 
holding the legal title to credit granted under the credit agreement.  
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6 servicing firm8. 
3.3.3 The ECB notes  that, f or a number of reasons, addressing high levels of NPLs has been one of the 
ECB’s supervisory priorities since  the inception of the Single Supervisory Mechanism9. First, NPLs 
weigh on the balance sheets of credit institutions , curbing their profits. Second, NPLs are 
distracting for credit institutions , and represent a drain on their resources. Third, NPLs undermine 
investors’ confidence in credit institutions . In addition, internal analysis by the ECB shows that, over 
recent years, credit institutions with high stocks of NPLs have consistently lent less than credit 
institutions whose loans are of  better credit quality, thereby  providing less support to firms and 
households and the economy genera lly10. Further, high stocks of NP Ls are a macroprudential 
issue and often affect entire economies11. 
3.3.4  It is worth considering in further detail how the draft law may impact the ability to  address high 
levels of NPLs, and why this may raise concerns fro m a supervisory perspective. First, it is noted 
that the other elements of the toolkit available to credit institutions to reduce NPLs include split 
mortgages, mortgage- to-rent schemes and voluntary surrender. However, these solutions rely on 
the engagement of the borrower. Currently, repossession activity in Ireland remains limited, and the 
length of proceedings continues to be protracted12. In such a context, some borrowers may not be 
incentivised to engage fully with these solutions , and the draft law may further adversely affect the 
balance of incentives from  the point of view of borrowers . The protracted nature of some NPL 
workouts can have a significant impact on the balance sheets of the credit institutions  involved , 
given the time value of money: the value of an  asset must be discounted over time until its value 
can be realised. Using even modest interest rates, a delay of several years in the workout of an 
NPL can have a significant impact on valuation due to the compounding  of interest . In those 
circumstances the effect of the draft law would be to deprive credit institutions of the possibility of 
dispos ing of non- performing portfolios  that can be worked out by transferees  which have 
specialised expertise and a specialised business model. Removing thi s possibility would have 
serious implications for credit institutions’ balance sheets.  
3.3.5 Second, the proper management of NPL exposures, in full compliance with both prudential 
requirements and the consumer protection framework, is an expensive process ; it requir es 
specialised expertise which consumes valuable resources that could otherwise be devoted to the 
prudent management of the credit institution . When NPL stocks on credit institutions’ balance 
sheets reach critical levels the burden can become severe and debilitating. Credit institutions ’ 
ability to sell portfolios of assets can alleviate these issues, strengthen credit institutions’ balance 
sheet s, and reduce the costs of capital and funding. However, t he draft law is likely  to impede 
credit inst itutions’ ability to sell portfolios of assets.  
                                                 
8   See also paragraph 2.4.1 of Opinion CON/2018/31 and paragraph 2 of Opinion CON/2014/69.  
9   See the speech by Danièle Nouy, Chair of the Supervisory Board of the ECB, and Sharon Donnery, Chair of the 
ECB’s High Level Group on non -performing loans, ‘Introductory remarks to the public hearing on the draft addendum 
to the EC B guidance to banks on non- performing loans’, Frankfurt am Main, 30 November 2017, available on the 
ECB’s Banking Supervision website at www.bankingsupervision.europa.eu .   
10   See ‘European banking s upervision three years on,’ Welcome remarks by Mario Draghi, President of the ECB, at the 
second ECB Forum on Banking Supervision, Frankfurt am Main, 7 November 2017, available on the ECB’s website 
at www.ecb.europa. eu. 
11    See paragraph 1 of Opinion CON/2018/32.  
12   European Commission, Post -Programme Surveillance Report. Ireland, Spring 2018, 6 July 2018, page 17.  
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7 3.3.6  Third , the draft law may have an adverse impact on current and prospective Irish borrowers  
generally . When pricing mortgages and setting interest rates, credit institutions take account of 
many factors  including:  the actual and future cost of funding;  expenses and overheads ; the cost of 
capital ; and expected credit losses. By depriving credit institutions of an important tool available for 
the workout of NPLs, additional costs would be generated. These additional costs are likely to be 
passed on to other borrowers and could result in a significant impact on mortgage pricing and 
availability  – further increasing interest rates charged to borrowers in Ireland, including holders of 
variable rate mortgages –  and potentially leading to higher levels of NPLs.  
 
3.4 Effects on secondary markets for credit institution assets  
3.4.1  The ECB has been a strong proponent of the development of secondary markets for credit 
institution assets –  particularly NPLs  – as reflected in t he action plan of the Council of the 
European Union to tackle NPLs in Europe13. In the context of the large stocks of NPLs that remain 
on the balance sheet s of some European credit institutions, and as part of a comprehensive 
solution to NPL resolution14, the development of secondary markets may contribute to reducing 
NPLs. Looking ahead, well -functioning secondary markets may also prevent stocks of NPLs from 
building up in the future.  
3.4.2  Moreover, a well -functioning secondary market for credit institution  asset s may have a positive 
effect on financial stability to the extent that it could facilitate the transfer of NPLs off credit 
institutions’ balance sheets. As noted above, t he presence of significant volumes of NPLs on credit 
institutions’ balance sheets reduces the ability  of those institutions  to fulfil their function as 
providers of credit to the real economy , and hampers the operational flexibility and overall 
profitability that are essential to a well -functioning banking sector. It is essential  that the national 
legal framework applicable to secondary markets enables the efficient transfer of NPLs off the 
balance sheet s of credit institutions.  
3.4.3  From a procedural perspective, further consideration should be given to the practical implications of 
the draft la w on the process for transferring portfolios of mortgages , whether performing or non-
performing. The provisions of the draft law would mean that a credit institution could only approach 
borrowers to obtain their consent after the completion of negotiations  between the transferee and 
the credit institution,  and the conduct and completion of due diligence in respect of the portfolio. 
Thus, consent could only be sought once various terms of the transfer , including the price, have 
been agreed. If one or more borrowers in the portfolio refuse to grant consent, the agreed terms 
would have to be renegotiated. This is likely to render such transfers effectively impossible and, in 
any case, increase costs and impede the functioning of secondary markets for credit ins titution 
assets.  
3.4.4  In this context, the draft law must carefully balance the benefits of creating well -functioning 
                                                 
13  See the Council of the European Union’s press release of 11 July 2017 on the ‘Council conclusions on Action plan to 
tackle non- performing loans in Europe’, available at: http://www.consilium.europa.eu/en/press/press-
releases/2017/07/11/conclusions -non-performing- loans/ . See also Opinion CON/2018/31. 
14  See, for example, Special features, Section B of the ECB’s November 2016 Financial Stability Review, available at: 
https://www.ecb.europa.eu/pub/pdf/other/sfbfinancialstabilityreview201611.en.pdf . 
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8 secondary markets against the need to protect borrowers. The draft law would impede the transfer 
of NPLs off credit institutions’ balance sheet s and impede the development of secondary markets. 
As noted above, if credit institutions (or secondary market purchasers of assets) are deprived of 
efficient tools to work out NPLs in an effective and timely manner, th e result could be unnecessarily 
high levels of NPLs and private sector debt, which in turn have an adverse impact on financial 
stability and could undermine future credit supply15.  
 
3.5 Effects on financial stability  
 The implementation of the draft law would entail financial costs for the banki ng sector. Given the 
scope of the draft law and the importance of mortgage portfolios in total credit institution assets, 
these factors would have a negative impact on the profitability , capitalisation and future lending 
capacity of the credit institutions  affected, and ultimately may have implications for financial 
stability. Combined with the potential impact of a shift away from stable, relatively cheap, central 
bank funding towards more volatile wholesale markets, the  draft law could undermine financial  
stability.  
 
3.6 Effects on the Irish economy  
In view of the above considerations, the draft law is likely to adversely affect the future supply of 
credit and the pricing of mortgages. Credit institutions may respond to the likely increases in 
finance costs resulting from the draft law  by unduly tightening lending conditions, in particular by 
charging higher interest rates and by decreasing lending volumes  – with a potentially negative 
compositional effect in terms of credit allocation. This could reduce econom ic capacity in Ireland.  
 
3.7 Impact on tasks of Central Bank of Ireland  
The draft law does not confer genuinely new tasks on the CBI in the area of prudential supervision 
or consumer protection. Rather, it complements the CBI’s existing tasks, in particular i n the field of 
supervision of regulated financial service providers and regulated businesses. For example, in 
respect of retail credit firms and credit servicing firms, the CBI already has powers to authorise and 
supervise such entities, to make them subject to CBI codes or directions, and to take enforcement 
measures against them  – including for the purposes of protecting natural persons and micro, small 
or medium -sized enterprises that have entered into credit agreements16. Consequently, the  
question of  whether new tasks conferred on a national central bank constitute government tasks in 
the context of the prohibition of monetary financing does not arise17.  
 
3.8 Compliance with Irish constitutional and other legal principles  
It is for the Irish authorities to assess whether the draft law , including its  potentially retroactive 
                                                 
15  See paragraphs 2.2 and 2.3 of Opinion CON/2015/14.  
16  See sections 28 to 36N of the Central Bank Act 1997, as amended. See also the recent  Consumer P rotection 
(Regulation of Credit Servicing Firms) Act 2018.  
17  See paragraph 3.1 of Opinion CON/2018/27.  
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9 character,  complies with Irish constitutional and other legal principles, in particular property rights. 
For its part , the ECB notes that introducing measures with retroactive effect  would undermine legal 
certainty and not be in line with the principle of legitimate expectations.  
 
 
This opinion will be published on the ECB’s website.  
 
 
Done at Frankfurt am Main, 29 March 2019.  
 
[signed]  
 
The President of the ECB  
Mario DRAGHI