Debt Sellers: The Search to Meet New Requirements in Debt Sales

Chris Smith

The debt sale market has been through a turbulent period over the past five years, with the credit crunch impacting both the availability of funding and pricing across the market. However, this storm has now been weathered and at first glance the market currently appears buoyant, with pricing steadily improving. Our discussions with issuers over the past few months have, however, focused on the current storm for the debt sale market; growing regulatory requirements.

The change in attitudes of sellers towards the compliance of buyers post-sale, originates from the regulators’ clarification that the customer relationship is retained post the sale of an account. This has been reinforced by the Comptroller of the Currency’s (OCC) best practice guidelines, (which are likely to be developed into formal regulation) which state that sellers are expected to clearly document processes to audit and monitor their third party suppliers.

This is causing a challenge for sellers, as introducing such mechanisms for auditing and monitoring a wide-scale purchaser panel is resource intensive and costly, with one global issuer quoting “the cost associated with auditing over 100 purchasers across the globe is huge and I am keen to explore any options that help me target my activity where truly required”. One response to this challenge, which has been seen in well publicized examples, is for sales to be delayed or even pulled from the market, but this cannot be the right answer.

A number of issuers are, however, taking a pro-active approach in responding to these growing regulatory requirements; namely by gaining greater visibility of their buyers’ activity. This enables an effective auditing and monitoring process as outlined by best practice, but does result in sellers asking a new set of questions:

• What information should be gathered?
• How can this be obtained from buyers?
• What will be the integration costs of obtaining this?
• How can the data be utilized when it is gathered?
• What complexities does re-sale add into this challenge?

As with any market, this challenge is affecting all entities; i.e. both sellers and buyers. The solution also needs to be driven by all parties to ensure the on-going stability of the debt sale market.

Our position as an industry intermediary affords us the ability to view and understand the opinions of both sides of the market. As such, our next post will discuss how debt buyers are viewing the current challenges across the sector and their thoughts on the solution.