In relation to syndicated loan activities an Entity acting as a lead manager/fronting bank/agent (“Agent”) of a syndicated Invoice Finance facility would not in itself be sufficient to bring that entity into the Investment Entity or Custodian Institution definition as a Financial Institution, provided no other business activities would bring the entity into that classification.
Where a borrower requires a large or sophisticated facility, or multiple types of facility, this is commonly provided by a group of lenders, known as a syndicate, under a syndicated loan agreement.
To facilitate the process of administering the loan on a daily basis, one bank from the syndicate is typically appointed as Agent. The Agent’s role is to act as the agent for the lenders, (i.e. not of the borrower) and to coordinate and administer all aspects of the loan once the loan agreement has been executed, including acting as a point of contact between the borrower and the lenders in the syndicate and monitoring the compliance of the borrower with certain terms of the facility.
In essence, the Agent performs exclusively operational functions. For example, the borrower makes all payments of interest and repayments of principal and any other payments required under the loan agreement to the Agent and the Agent then passes these monies back to the lenders to which they are due. Similarly, the lenders advance funds to the borrower through the Agent. The terms of a syndicated loan agreement usually entitle the Agent to undertake the roles described above in return for a fee.
In these circumstances the participation of a lender in a syndicated loan, where a UK FI Agent acts for and on behalf of a syndicate of lenders which includes that lender, does not lead to the creation of a “Custodial Account” held by the UK Agent.
The lenders hold their interests in a loan directly rather than through the Agent and, therefore, the participation of a lender does not amount to a “Custodial Account” held by a UK Agent.