Unit 3 - Topic 6

Question 1

What are the Account management categories in financial services?

Answer 1

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 2

What is the single differentiator within asset finance to other financial offerings?

Answer 2

Good customer service as asset finance has a transactional lending relationship

Question 3

Stages of the Asset finance process?

Answer 3

1) New business origination - Marketing, business development,, deal negotiation, quotation and sales follow up activity, credit applications and submission for approval
2) New Business process - Anti-money laundering due diligence, deal documentation, deal fulfilment and supplier payment, deal encoding and payment process
3) In-life account management - Customer service as needed, audit and in-life reviews, early settlement
4) Collections and recoveries - Collections and arrears, specialist relationship management, default and arrears
5) End of lease - end of lease and contract termination, asset disposal

Question 4

How to improve new business origination

Answer 4

Aligning the following:

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

Question 5

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

Answer 5

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

Question 6

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

Answer 6

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 7

What are the key processes for deal activation? - 8 points - DSI DSD CC

Answer 7

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 8

Different stages of Anti-money laundering?

Answer 8

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

Question 9

What banks are more rigorous with Anti-money laundering checks?

Answer 9

Bank owned asset finance providers due to PRA regulated status of parent bank

Question 10

Who governs the Anti-Money Laundering agenda

Answer 10

The Financial Action Task Force (FATF)

Question 11

What legislation requires reporting of suspicious activity?

Answer 11

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

Question 12

What are considered offences of Money laundering?

Answer 12

• Knowledge or suspicion of money laundering activity or criminal activity
• Do something to assist another in dealing with it
• Fail to make a (SAR) suspicious activity report

Question 13

What the systems of checks when payments are made, to tackle money laundering?

Answer 13

Does the payment request make sense in the context of the overall business
Is it line with expectations

Question 14

What are the checks for Know your customer? 4 points

Answer 14

What they do
Who are the key shareholders/directors
What transactional activity is expected
Any significant change in the business needs to be documented

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

How to screen new prospects?

Answer 16

Ensure verification and documentation

Check for complex structures such as large group structure or overseas or in tax havens

Question 17

What entity assists in interpreting regulations and countering money laundering?

Answer 17

JMLSG (Joint Money Laundering Steering Group)

Question 18

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

Answer 18

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 19

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

Answer 19

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 20

What are the stages of in-life account management? 3 points

Answer 20

Less interaction expected due to automation of payments

1) Asset inspection
2) Interim review of lessee performance
3) Early settlement, termination

Question 21

What if the lessor has no arrears in its portfolio?

Answer 21

Could mean underwriting is too strict resulting lost opportunities

Question 22

Stages of arrears?

Answer 22

1) New account default (missed first payment)
2) Early arrears (up to 60 days in arrears)
3) Worsening arrears (over 60 days in arrears)
4) Late-stage arrears (over 90 days in arrears)
5) Notice of default

Noticing the timing of default is critical
If not selling or disposal of the asset may be the best route for lessor to minimise the losses
Can be avoided through customer relationships and noticing early

Question 23

What are the 3 stages of arrears and their signals?

Answer 23

1) Early stage
Slowdown in sales growth
Reduces working capital
Trade creditors increase
Trade losses 
Late filing accounts
late payment to the suppliers
Repeated settlement requests

2)Worsening stage 
Sales reducing and stock increasing
Reducing market share
Returned direct debits
Moratorium request = payment postponement
Hardcore bank overdraft
Convenant breaches
Supplier credit terms shortened

3) Late stage
Over 3 months in arrears
Attempted to refinance assets
Lapsed insurance policies
HMRC penalties and fines
Qualified auditor opinion of on-going concern statement
Defaults or recovery with other asset funders
Attempted conversion of assets without prior settlement

Question 24

What are the turnaround options for a business? CRAB FC

Answer 24

Cost efficiencies
Asset retrenchment
A focus on firms core activities
Building for the future
Reinvigoration of firm leadership 
Corporate culture change

Question 25

What is liquidation and the process? 3 points

Answer 25

Similar to bankruptcy for an individual and can be voluntary or compulsory
They can trade to complete progress but in time they will cease to trade
Any actions for recovery of debts are restricted, except orders of the courts (lessor can’t get payment but can get the asset to sell)

Question 26

What is insolvency?

Answer 26

A situation in which liabilities exceed assets or an organisation or individual cannot meet their liabilities within a reasonable period of their falling due

Question 27

What is receivership? 4 points

Answer 27

• When a company fails to meet its obligations
• Holder of the charge over the company assets can appoint administrative receiver to run the company
• Receiver acts in the interest of the debenture holder rather than the creditors of the business
• Receiver may prefer to retain the business assets to get payments for the debenture holder

Question 28

For regulated business what is the rule for repossession of assets? 2 points

Answer 28

When the customer pays over a 1/3 of the lease, it can’t be repossessed without a court order.
If breached by the lessor, customer could reclaim all monies paid under the agreement