BNP Paribas, BNY Mellon, HSBC, ING and State Street are among the institutions working with financial software specialists Finastra on a distributed ledger technology service for syndicated loans, powered by R3's Corda platform.
The Fusion LenderComm aims to deliver transparency into 10% of syndicated loan market from launch. The DLT-based system exposes real-time credit agreement, accrual balances, position information and detailed transaction data to lenders, directly from agent bank loan servicing platforms such as Finastra's Fusion Banking Loan IQ.
Fusion LenderComm initiative also backed by Loan Syndications & Trading Association and TenDelta LLC. Finastra was formed in 2017 by the combination of Misys and D+H.
The move will slash the operational cost and burden of agent-to-lender administration and deliver self-service capabilities to lenders, providing accurate information on the demand to optimise loan portfolios, said a statement.
BNP Paribas, BNY Mellon, HSBC, ING and State Street have joined the global community, with real-time data already exchanged between agents and lenders in the pilot phase.
Simon Paris, Deputy CEO at Finastra, said: "No more will lenders find themselves an underserved part of the syndicated loan value chain. Where they have struggled with a lack of transparency and speed in accessing critical deal positions, Fusion LenderComm opens up new data plains beyond position reconciliation.
"The community of banks already on board covers approximately 10% of the global syndicated lending market and demonstrates the appetite to make this market utility a success. As more participants join, we will quickly gain the critical mass to develop this into the leading marketplace for syndicated lending and loan trading."
Ian Morris, Head of Product Management – Corporate & Syndicated Lending at Finastra, added: "The sheer amount of manual effort that goes into information exchange in this market means that quickly accessing deal data, providing transparency into accruals, interest rates and fees, is a real challenge. DLT enables lenders to see a personalised view of positons across agent banks and reduces the operational risk involved in managing multiple participations. From day one, Fusion LenderComm will mean fewer emails and phone calls and an immutable record of transactions during the lifecycle of deals."
Ivar Wiersma, Head of Innovation at ING Wholesale Banking, said: "Exchange of information in the syndication lending market is predominantly done manually. This means that accessing deal data, including transparency into accruals and interest rates, can be a time-consuming process. The initial focus of Fusion LenderComm is to automate the predominantly manual process of information sharing and to offer better insight in deal data.
"Further along the line, Fusion LenderComm will ensure a further increase in speed and cost reductions, which may lead to smaller participations in syndicated deals and new investment opportunities for our clients."
Robert Waddell, Global Lead of Syndicated Loan Products for State Street, said: "Fusion LenderComm has the potential to solve a problem whose solution has eluded the loan market since inception: distribution of loan information in a structured, timely, transparent manner that comes directly from the content creators – the agent banks.
"As a consumer of large amounts of this information, the prospect of eliminating labor-intensive exercises, combined with the additional benefits of increasing efficiency, data accuracy and reducing operational risks, is not only very important for State Street, but all market participants and regulators as well."
The Fusion LenderComm pilot phase enabled agent banks to publish loan data to the DLT platform, to extend these self-service capabilities to lenders. Through their own portal, agents can define and then publish lender-specific deal position data to Fusion LenderComm, so individual lenders can drill down into the data without needing to query positions on the phone or via email, as is typical today. Fusion LenderComm digitises communication with lenders – driving efficiencies in the process, saving agents time and money, and eliminating operational risk, said the statement.
Philippe Boulas, Head of Financing Solutions within CIB, BNP Paribas said: "We believe that the distributed ledger is appropriate in syndicated lending to deliver one single position that is immediately updated when a contract is being handled. The Finastra-led utility, Fusion LenderComm, would allow us to share position data more efficiently and pave the way for a more fluid industrialisation. This will enable us to innovate our transactions and will support all the participants in the syndication of a structured finance deal."
David E. Rutter, CEO at R3, said: "Syndicated lending is exactly the type of market that will derive huge benefits from DLT. Transparency, efficiency and risk are major concerns with current systems and processes. We built Corda specifically to tackle issues such as these, whilst meeting the unique privacy and security requirements of regulated financial institutions."
Ellen Hefferan, Senior Vice President of Operations & Accounting at the Loan Syndications & Trading Association (LSTA), said, "We welcome innovative tools that will help the market settle trades quicker and make information readily available to lenders who need it. A portal and network like Fusion LenderComm that brings more efficiencies to the loan market, and the agent banks that service it, has significant potential."
The Fusion LenderComm platform is expected to launch next year. It promises an open utility for all banks involved in syndicated lending, including users of Finastra's FusionBanking Loan IQ and other loan servicing software. The long term road map for the platform will transform the whole syndicated loan value chain, from bookrunning to delivering a marketplace for faster loan trading and settlement.
Bhavik Katira, CEO at TenDelta LLC, said: "This latest move by Finastra supports what we're continuing to see across the syndicated loan market: a growing enthusiasm for tackling longstanding market inefficiencies, with new approaches driven by creative solution-seekers. As a fierce advocate of innovation, it's an exciting time for us to be a Fintech organisation in the capital markets."