A historical look at how the loan agency services sector has developed since the financial crisis, particularly the recently increased demand and how CSC is a perfectly placed partner.
The global financial crisis in 2008 paved the way for many changes in how the financial sector operates. The loan agency services market has evolved significantly since then, with a rehaul of regulatory frameworks, an increase in non-bank lenders, and the emergence of several new and diverse investment markets in recent years.
Governments and regulatory bodies globally quickly acknowledged the need for new and more robust frameworks to avoid a similar collapse to that seen in 2008. Regulatory frameworks were overhauled with the intention of enhancing transparency and accountability in financial transactions.
Regulatory overhaul
In the U.S., the Dodd-Frank Wall Street Reform and Consumer Protection Act was introduced in 2010 to prevent the excessive risk-taking that led to the financial crisis. The institutions impacted included banks, insurance companies, investment banking firms, mortgage lenders, and credit rating agencies[1].
From an international perspective, the Basel III reforms were devised in 2009 by a group of central banks across 28 different countries to ensure the stability of the banking system.
Designed to improve the regulation, supervision, and risk management of the banking sector, there has been backlash from the banking industry, with many citing it as a threat to the American economy.
The rise of non-bank lenders
Following the changes in regulatory frameworks, banks have had to reduce balance sheets, and this has created a competitive space for non-bank lenders to fill.
The main drivers for loan agency services in Europe, non-bank lenders have been able to provide a variety of options and services to borrowers. This, in turn, has brought a range of new borrowers into the market who would not necessarily have had access to financing previously.
This diversified stakeholder group is playing a role in loan syndication, leading to more competitive loan structures, terms, and payment options. Non-bank lenders can provide different payment terms beyond the standard fixed or variable interest rate options. Flexible repayment options can be made available. For example, borrowers can defer principal and, in some cases, interest payments until the full balance is due, or variable interest rates across the loan cycle can be offered. This flexibility appeals to borrowers in non-traditional situations.
Non-bank lenders may also be willing to take on higher risk in return for charging borrowers a higher interest rate. This trade-off can attract borrowers who may have limited borrowing options.
New investment markets
Due to the range of borrowers entering the market, the last five years have seen the emergence of new and diverse investment markets. These can include some diverse and interesting asset classes – new borrowers where the need for asset financing may not previously have been envisaged.
How can CSC help?
Amid increasing demand for loan agency services, CSC onboarded a centralized platform used globally across all loan agency desks, including APAC, EMEA, and the U.S. By using a centralized platform, every jurisdiction has consistent processing and reporting. Even where the terminology used may differ slightly, we are still using the same solution.
For clients involved in cross-border transactions, we’ve upgraded CSC’s KYC process and system capabilities—a process used globally across all jurisdictions. If a client has been onboarded in the APAC region for example, subject to local law, CSC can often leverage the onboarding pack provided which will help onboard the client more seamlessly in EMEA. In addition, our global capabilities allow for the support of clients across time zones. For example, if a request is received outside EMEA working hours, it can be redirected automatically to CSC’s team in the U.S.
With these technological advancements, CSC is a well-placed partner to support your loan agency requirements. Find out more on our website.
[1] Obama White House Archives – obamawhitehouse.archives.gov
