Five

Question 1

What are the terms and conditions to protect the lessor? (PR BLOOD)

Answer 1

• Liability arising from the asset = Indemnity clause to protect the lessor in the event of 3rd party liability and lessor may note interest in insurance policy taken out by the lessee to protect itself from 3rd party claims
• Disclaimer of warranty = excluding lessor from liability for the condition of the asset. Holds up in court that lessors interest in the asset is purely financial.
• Part with possession clause = This prevents the lessee selling, using as security, subletting the equipment without prior approval. Exception is vehicles, where they can add sub-lease clause. Risk is dependent on underlying rental stream (possession addendum as lessor takes security over rental stream
• Change of ownership clause
• Maintenance obligation
• Insurance
• Representations and warranties = if wrong doing can be seen as an act of default
• Breach can trigger default (within the confines of Fair Treatment of Customers)

Question 2

What are the various terms included in typical documentation? (HAPPIER REP)

Answer 2

• Introduction = Naming of document and type of product
• Parties to the leasing document - Name and register
• Hiring of the asset - Basic description of letting./hiring the asset
• The equipment
• Acceptance conditions of the asset before agreement goes live
• Payment due on condition of the equipment throughout the agreement
• Rental and payment terms
• Right to end hiring of the asset with notice
• Events of default
• Payments on default of hiring the asset

Question 3

What are the forms of recourse against breach? (2 points)

Answer 3

If several they can issue reservation of rights, which acknowledges the breach but not waiving the right to act in the future.
New terms to convenant can be arranged

Question 4

What are the termination scenarios?

Answer 4

Voluntary termination - lessee request early termination subject to notice period
Total loss - lessee pays termination sum and any shortfall is liability of lessee
Default and breach of contract

Question 5

What are the additional sections for security?

Answer 5

• Guarantee - promise to pay by persons and failure results in liability for the guarantor to the level of what is owed
• Indemnity - more far reaching than guarantee (non-performance does not not affect the obligations) usually combined with guarantee
• Commercial guarantee (clear link and commercial benefit to the lending) and cross company guarantee (two or more related companies)
• Restricted guarantee (e.g. covers the shortfall from an asset valuation)
• Letter of comfort (not as strong as guarantee if defaults) - depends on stature and reputation of the party giving the letter rather than the terms itself.

Question 6

What is a landlord waiver?

Answer 6

It is making the landlord aware that their is an ability for the lessor to claim an interest in the asset - not including assets fixed to the fabric of the building (allows access to the building by the lessor)

Question 7

What do lessors do if the asset is too big to move?

Answer 7

Insitu sale and/or reduce the recovery value on sale

Question 8

Cases for mandatory charge holder waiver? (3 points)

Answer 8

Sale and leaseback (as goods might fall under prior charge)
When hired by a 3rd party lessors will seek interest in end user income stream - could be competing rights to that income stream
If facility provided by the lessor is itself mortgage (chattel, marine, aviation)

Question 9

What are the Account management categories in financial services?

Answer 9

Marketing - attracting new business
Credit - Admin and assessment of credit applications
Customer services - maintenance of active customer accounts
Collections - Handling customer arrears
Recoveries - Legal process of debt recovery

Question 10

How to improve new business origination

Answer 10

Aligning the following:

1) Frequency of customer funding needs
2) Timing of an originators customer contact

Question 11

What are the facilities a client may want during a typical life cycle?

Answer 11

• Asset finance
• Commercial loan
• Re-banking tender
• Commercial mortgage

Question 12

How lessor can assist origination efforts from brokers or indirect introductions?

Answer 12

Service level agreements on credit decision turnaround
Using clear and transparent pricing strategy
Offer broker training days (e.g. in regulation and anti-money laundering)
Organising joint visit with end user customers

Question 13

What are the key processes for deal activation? - - CSI DDF DDCC

Answer 13

Customer due diligence checks
Supplier checks and approvals
Invoice ordering and acceptance
Documentation preparation and signing 
Documentation checks and acceptance
Finance agreement funding, supplier payment and disbursements
Document encoding and archiving 
Direct debit activation
Copy documents and VAT copies
Customer care call/feedback

Question 14

What legislation requires reporting of suspicious activity?

Answer 14

Proceeds of Crime Act 2002 - Must report to the National Crime Agency (NCA)

Question 15

What to check when a customer is opening a new account? - CAUSER

Answer 15

Purpose and reason for opening the account or starting the relationship
Anticipated level and nature of the activity
Understanding of signatories and underlying beneficial owners
Expected source and origin of the funds to be used
Customers occupation or employment
Sources of wealth or income and net worth

Question 16

Why do the JMLSG say asset finance is low risk for money laundering?

Answer 16

Under pure lease agreements lessees cannot take ownership of the equipment during the term of the lease
Payments are usually collected via direct debits and cash not accepted

Question 17

What are the risks for asset finance in regards to money laundering?

Answer 17

HP and lease agreements could be used for layering

The main risk is agreed accelerated repayment schedules whereby a lump sum or early termination is paid

Question 18

Different stages of Anti-money laundering?

Answer 18

Placement - criminal funds enter the financial system into bank account or other entry (Why it is important to confirm the identity of customers and their sources of funds)
Layering - attempts are made to distance the money from its illegal source through layers of financial transactions
Integration - Re-introduction of the illegal proceeds into legitimate commerce by providing a legitimate appearing for the funds