Clifford Chance

On 17 June 2021, the Loan Market Association (LMA) held its second Fintech Conference for loan market professionals. Clifford Chance was delighted to be a Platinum sponsor of the event, engaging with delegates on the day through our Global Head of Innovation, Bas Boris Visser and Tech Group Partner Kate Scott's participation in the opening panel on trends in the loans market, through conversations in networking rooms and at our virtual exhibition booth. Clifford Chance's law tech solutions specialists were available to discuss and demonstrate some of our products, including our loan and wider automation tool CC Dr@ft.

These are our key takeaways from the day on recent and upcoming fintech developments across the loan market:

1. The pandemic has been a catalyst for the adoption of new and existing technologies, with loan market participants quickly adapting to offer new and improved services enabled by technology. However, the large corporate and syndicated lending markets are still reliant on manual processes and we are some way from seeing a market-wide end-to-end digital solution for negotiation, execution and performance of these loans. Many institutions are instead focussing on quicker and cheaper point solutions to improve specific processes, for example around execution or reporting.
2. New technology risk issues arise due to the adoption of technologies like blockchain or distributed ledger technology, smart contracts, big data and artificial intelligence (AI) by loan market participants and more broadly. Regulated firms are rightly focussed on operational resilience (i.e. ensuring that they retain the ability to provide important business services, including lending, in times of operational disruption). This is critical, where services are outsourced or new technologies are adopted. In some cases regulators are introducing new tech-specific regulation that may apply, for example, including the recently proposed EU AI regulation. Broader existing legal considerations are also relevant for the adoption of new technology. For example, in the context of contractual formalities, the introduction of e-signatures and smart contracts pose questions around enforceability that firms may need to consider.
3. When adopting and utilising new technologies, market participants should seek counsel from trusted legal advisors throughout the process. Legal advisors will be able to spot risk issues early on and provide solutions while these processes are being rolled out, rather than trying to address these after they have been implemented.
4. Collaboration between loan market participants is needed for new technologies and automation to produce real value for the loan market. Existing processes, whether automated or manual, are currently fragmented as to date firms have opted for bespoke solutions which are ultimately difficult and expensive to scale and standardise. Some market participants have started to work together rather than relying on siloed innovation, in recognition of the need for interoperability between these processes and among market participants. In addition to the practical challenges, institutions working in partnership must be mindful of antitrust and other legal considerations, seeking specific legal advice where necessary.
5. Taking security over digital assets is an issue that needs to be addressed for loan market participants, as companies are increasingly holding digital assets that they may wish to use as collateral in lending arrangements. Both legal and practical challenges currently exist, and law reform may be required to provide the market with certainty. See this snapshot interview by partner Faizal Khan for an overview of some of these issues from an English law perspective.
6. While developing better processes is important, the starting point of creating a reliable end-to-end system is accurate and reliable data that is collected at the source and throughout the lifecycle of a loan. Data can aid the lending process, for example, facilitating efficient negotiation, credit decisions, automation, and workflow management.       
7. Standardisation of processes, documents and data is needed to help enable such collaboration and innovation in the lending market. Standardisation facilitates the development of technologies which are universally compatible and understood. One example which illustrates this is data. Digital data means that market participants could make use of open APIs and allow systems to interact with each other while also making use of data collected by other market participants. Doing so in a way that is both legally permitted and ethically justifiable is key and will need to be carefully considered.

For more on the impact of fintech on corporate lending and acquisition finance, please see our recent briefing on The Digital Future of Syndicated Loans which gives an overview of tech developments across the loan market and in analogous markets, and explores a number of these themes in more detail.

Contributing author: Keagan van Wijk, Trainee Solicitor.