‘Servicer’ responsible for the administrative and financial management of an instrument
According to the AnaCredit Regulation, “‘servicer’ means the counterparty responsible for the administrative and financial management of an instrument”.
Could you please clarify the term “administrative and financial management” and indicate any formal criteria which need to be assessed in order to determine whether administrative and financial management is being carried out.
Under the AnaCredit framework, it is essential to understand which institution is responsible for the active management of an instrument on a day-to-day basis (e.g. which institution collects principal and interest payments from debtors).
Let’s consider the following example:
An instrument is originated by a credit institution and then transferred to another institution. Under the contract between the originating credit institution (the transferor) and the institution which acquires the instrument (the transferee), the transferee has all of the decision-making power in respect of the instrument. However, the administrative processing continues to be performed by the transferor.
Let’s assume that the transferee is a “bad bank” and, being a public entity, is not required to report to AnaCredit. The instrument’s former creditor (i.e. the transferor), which acts as the servicer of the instrument, is required to report to AnaCredit on the serviced instrument. That credit institution carries out all day-to-day business in respect of the instrument on behalf of the “bad bank”.
Even though that credit institution does not have any decision-making power in respect of the instrument being serviced, the work that it carries out is included in the definition of servicing, as explained in Part II of the AnaCredit Manual (see Section 6.4.1, page 151). Consequently, it is that credit institution (rather than the new creditor, which is not a reporting agent in the AnaCredit framework) which is required to report to AnaCredit on the instrument in question.