Evaluating an agent lending provider

Key Takeaways

• A consolidation of providers is underway due to profitability concerns, significant investments in technology and staffing, or a strategic realignment to focus on core businesses. Some agents are making changes to program elements like indemnification, the fee structure, or minimum spread thresholds to shore up their bottom line. As such, RFP activity is likely to rise as firms seek a new agent lending provider.
• Key signs that it may be time to evaluate your firm’s current agent lending provider include declining revenue or consistently underperforming the benchmark, an increase of compliance violations and operational issues, regulatory changes, etc.
• The selection process should examine an agent lending provider’s commitment to and investments in their securities lending program, their capacity to react to regulatory changes, how borrower default indemnifications are handled, and other factors that are meaningful to your firm.
• A deep analysis of the technology and the program is necessary to determine a best fit with your firm’s goals and fiduciary needs. Factors that are important to the analysis are: how advanced the technology is, how is operational risk mitigated, what percentage of lending transactions are automated, how are proxy votes managed, what types of program parameters are customizable, etc.
• A leading agent lending provider should have advanced technology and risk models, deep capital markets expertise, customizable program parameters, operational and service excellence, unique benchmarking and transparency tools, and real-time connectivity and automated reconciliations.