Loan Servicing – The Impact Of Increasing Compliance Requirements

Loan Agency has always been an area dominated by bank teams, specifically those banks with in-house bank lending and syndication teams. This loan agency back office supported the banks' own portfolio whilst also being an agent for the wider transaction.

However the market has developed rapidly and, at a recent loan agency industry conference in London, TMF Group's Head of Loan Agency Claudia Small joined a panel dedicated to discussing third party agents. The discussion arose out of the significant growth in the number of independent agents, and the alternatives that they can bring to a transaction and the market as a whole.

The differentiating factors of an independent third party Loan Agent

Conflict and focus have to be two of the biggest differentiators between in-house and third party providers. Conflict, particularly in the case of distressed scenarios, as independent agents will be neutral of the loan structure; being neither a borrower nor lender. And focus, where a bank may have multiple roles in a transaction, an independent agent will not. They will purely concentrate on the agent role and will review updates, documents and amendments based solely on the operational aspects of their role. The independent agent can focus their involvement on their area of expertise, bringing added value to practical discussions due to this expertise.

In contrast, a bank agency function sitting alongside potentially a lender or arranger team and under the same corporate governance umbrella, whilst still having the operational expertise within the team and ability to contribute significant operational input, may be hamstringed by differing internal priorities.

An independent provider has the ability to provide services across a portfolio of transactions, not limited to those where a lending role has been taken. This means that the breadth of knowledge and experience can bring added advantages of transferrable operational skills across deals, without impacting on client confidentiality. Team members gain rapid and valuable experience across a breadth of transactions and a multitude of counterparties, structures and credit risks.

Regulatory requirements and compliance

A recent panel at the LMA loan agency conference shared data on what will have the biggest impact on loan operations in the next 12 months – 45.8% stated that it would be compliance issues and 26% geopolitical events such as, but not only, Brexit.

In this context, the ECB "expects credit...