Clifford Chance
The Digital Future of Syndicated Loans 2021
Our detailed look
The outbreak of coronavirus or Covid-19 in late 2019 and 2020 has been an accelerator for digitalisation for many aspects of our lives. Is this the case for the syndicated loan market?
In recent years, there has been significant focus on the development of technological solutions (such as distributed ledger technology (DLT) and smart contracts) for the syndicated loan market with the aim of improving the negotiation, execution, administration and trading of loans – ideally through the adoption of single platform solutions. In practice, it appears that the syndicated loan market is adopting technology step by step by investing in various technological solutions which address specific points in the loan life cycle.
A survey conducted in November 2020 by the Loan Market Association (LMA) on the outlook for the syndicated loan market in 2021 shows that 17.7% of the members surveyed is using or looking to use blockchain (a type of DLT) and smart contracts. However, 60.4% of members surveyed are using or looking to use electronic platforms for document negotiation and/or transaction management. These statistics are also largely consistent with an earlier LMA Fintech survey conducted in May 2020. Interestingly, this is not dissimilar to the adoption of DLT by businesses – according to a 2020 Forbes Insights report, only 36% of businesses surveyed are using or exploring the use of DLT, this being the lowest compared to the use or exploration of the use of other technologies but this could also indicate greater room for growth as out of 36%, only 7% are currently using this technology.
Notwithstanding this, financial institutions are using or trialling a range of technology tools in all phases of the loan life cycle, from origination to secondary trading, and in key functions such as loan servicing and risk management. In this article, we explore the benefits and opportunities, as well as the legal, regulatory and practical challenges, of some of the potential technical solutions for the syndicated loan market under consideration.