One of the rare European economies to maintain growth during the latest economic crisis, Poland is also continuing on its path of legislative reform. A number of recent legislative developments are directly relevant to the banking industry. Mortgage law reform Polish Mortgage Law has been significantly overhauled, with a view to improving creditor rights by affording greater flexibility to mortgages. Under the old regulations, two different types of mortgages applied, depending on the nature of the secured claims. In case of secured claims with a strictly determined value, so-called "ordinary mortgages" gave creditors the additional security of a presumption of existence of the secured claim. For future and conditional claims, or claims of undetermined value, a so-called "ceiling mortgage" gave parties the ability to establish security up to a certain maximum secured value, but the mortgagee did not benefit from a presumption of existence of the secured claim. Importantly, the old system also rigidly imposed a "one claim - one mortgage" rule, which meant that in the case of syndicated lending, parties either had to establish separate mortgages for each lender or resort to parallel debt concepts. The reform of the Mortgage Law, which came into effect on February 20 2011, aims at correcting those drawbacks. In particular, the reform has introduced a new "unified" mortgage in place of the previously applicable two different types of mortgage (however, previously established mortgages remain valid and enforceable). The rules applicable to the new mortgage are generally based on the prior regulation pertaining to the ceiling mortgage, which means that all mortgages will now be established up to a certain maximum secured value. The introduction of a single uniform mortgage means greater uniformity of creditor rights for mortgage creditors. In addition, the reform has introduced a number of changes increasing the flexibility of this type of security and further adapting it to the needs of syndicated lending. In particular, it will now be possible for a single mortgage to secure multiple claims and for creditors to appoint a mortgage administrator (security agent) without the need to establish multiple mortgages or resorting to parallel debt structures. The new regulations also introduce a new priority system under which mortgages will gain the ability to dispose of an emptied mortgage place (i.e. once a higher ranking mortgage lapses, mortgages with a lower ranking will not longer automatically 'step-up'). Under the transitional provisions enacted in connection with the introduction of the new mortgage, existing mortgages will continue in existence. As a general rule, existing ceiling mortgages will be governed by the new provisions, save for the provisions on empty mortgage place disposal (i.e. once the mortgage expires, mortgages with a lower priority will 'step up' in order of priority), whilst existing ordinary mortgages will continue to be governed by the old provisions. The transitional provisions provide also for several exceptions and specific rules, which may, however, result in certain uncertainties during the transitional period. Spinoffs of EU credit institution branches A significant and original development in banking regulation is a newly introduced ability for EU credit institutions to spin-off their passported Polish branches into stand-alone separate banking entities. The legislation, effective July 14 2011, enables any EU credit institution pursuing banking activity through a branch in Poland to apply to the Polish financial services regulator, the Financial Supervision Commission (Komisja Nadzoru Finansowego) for a permit to convert its branch into a stand-alone locally-licensed banking entity. Upon issuance of the permit, the credit institution may then establish a wholly owned subsidiary into which it contributes in-kind the hitherto business of its Polish branch. Importantly, the transfer benefits from the principle of universal succession, which means that all assets and liabilities (including customer contracts) are transferred to the new entity by operation of law without the need to seek counterparty consents. Relaxation of outsourcing regime The most recent amendment to the Polish Banking Law, expected to come into effect in Autumn 2011, contemplates a significant relaxation of the outsourcing regime applicable to Polish banks. Once the amendment comes into effect, Polish banks outsourcing their processes will no longer be required provide advance notice to the regulator (as was the case with domestic outsourcing), or seek an advance permit of the financial services regulator (as was the case with foreign outsourcing which entailed a protracted and costly process). Instead, banks will only be required to maintain a register of outsourcing contracts. Notice requirements will remain only in very limited cases (mainly involving service providers outside the EEA (European Economic Area)). A further change is that the amendment expressly permits chain or sub-outsourcing (which the regulator previously deemed to be prohibited), provided the contracts with such subcontractors maintain full recourse for the outsourcing bank in case of any damage caused to the bank or the bank's clients.
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