Whitepaper: Leveraging Today’s Technology to Enhance Settlement Times for Broadly Syndicated Loans
The process of settling broadly syndicated loans (BSLs) has traditionally been plagued by slow settlement times, resulting in increased operational costs, counterparty risk, and market inefficiencies. This whitepaper explores how today's technology can be harnessed to address these issues and significantly improve settlement times for BSLs. By implementing advanced solutions such as blockchain and smart contracts, financial institutions can enhance workflows to reduce manual processing, mitigates errors, and streamline the settlement process. This paper provides insights into the challenges of BSL settlement, the potential benefits of technological integration, and a roadmap for adopting these innovations.
Challenges in Broadly Syndicated Loan (“BSL”) Settlement
Several well-known and publicized factors contribute to the slow settlement times in BSL’s such as inefficient KYC intake and validation, the need to sequentially process upstream trades, laborious multi-party approvals including possible borrower’s consent, accurate tracking of global amounts and base rate contracts outstanding and trading blackouts.
Technology Based Solutions to Improve Workflow Processes and Settlement Times
1. KYC Processing Improvements
The ability to capture current KYC documents and establish expiration dates for each document will be key to eliminating multiple checks of verified KYC documents. Providing expiration dates will flag the need to provide updated tax and other forms. In general, the ability to have updated tax forms and other ADF details on demand for each counterparty will help overall settlement times.
2. Efficiently Sequencing Trade Flow
The ability to keep the trading process transparent to determine which entity and participant is dragging their feet is key to a good workflow. A bottleneck analysis which can detail all movements throughout the settlement process allows all entities to determine where the problems are and develop plans to mitigate them. Over time, data tracking trends like this will supply entities with settlement patterns on who is able to settle and at what speed and point to potential proactive workflow process solutions.
3. Accurate Tracking of Loan Data
The ability to integrate on a real time basis with global data providers for credit data, position data and contract data is paramount to timely and error free settlements. Traditional settlement processes involve manual verification, communication, and data entry, leading to errors, delays, and increased operational costs. Data feeding directly into a settlement processor will speed this critical information and will benefit from being error free thus eliminating many time-consuming mistakes.
4. Timely Borrower’s Consent Approvals
The ability to create an agreed upon clock by all parties is key to a timely approval by each relevant borrower. The lack of real-time visibility into the settlement status can easily lead to prolonged settlement periods. Promoting transparency amongst all trade parties will instill discipline to maintain a timely close.
5. Reducing Processing Errors
Reducing required user inputs will ultimately mitigate manual input errors. The more data available to a settlement system (e.g., select KYC forms, global trade information) the fewer errors will occur. An ancillary benefit will be fewer individuals dedicated to the closing process thus saving both time and financial resources.
6. Ability to Deploy Blockchain Technology and Smart Contracts
A blockchain infrastructure ensures immutable information which is verified and transmitted on demand. All relevant KYC data could easily be stored on the blockchain and callable to allow any trade party to check if required forms are up to date thus eliminating the time-consuming process of back checking and verifying up to date information. Substantial human capital will be reduced and or eliminated in the KYC check process. Each step of the trade process could also be captured along with all relevant trade communications.
7. Data Standardization
Standardizing data formats and communication protocols can facilitate seamless data exchange between parties, minimizing errors and delays. This will allow a rapid increase in straight through processing by and among trade counterparties, Agents, Borrowers and Global Data providers.
The proper application of today’s technology will provide the basis to improve workflow processes and reduce unnecessary transaction keying mistakes. An ancillary benefit will include the ability to deploy cash flows more efficiently and lower duplicative carrying costs. A good settlement system will systematically promote automation and straight through processing amongst all settlement parties - trade counterparties, agents, borrowers, and loan data providers - to improve settlement workflows. It will be key for all parties involved in the settlement process to be connected via STP protocols. In the end, the sum of all technology and workflow processes will help to reduce average settlement times. It is 2023, time to implement these changes!!
About HashLynx, Inc.
HashLynx is a cost-effective and purpose-built loan settlement platform catering to Agent Banks, Investors, and Trustees in the syndicated loan market. Our cutting-edge solution combines advanced automation and blockchain capabilities within a scalable software platform, addressing persistent challenges in the loan market. Our goal is to significantly reduce settlement time, cost, and risk while enhancing operational efficiency across front, middle, and back-office functions. Contact us at www.hashlynx.com to learn more and sign up to pilot our platform.
HashLynx Inc. is a member of LSTA