What is the RFP Process in Securities Finance?

With the increasing complexities of participating in securities finance, the selection of service providers is becoming increasingly important.

It used to be that differentiation between service providers such as agent lenders, was based on the returns made on a portfolio and fees charged.  However now with increased regulatory oversight beneficial owners need to consider so much more.

For many firms regular RFP’s are part of their fiduciary responsibility and need to be undertaken to ensure that their current providers remain appropriate, and whilst there may be no intention to change providers, a market check is required.  In this case, it is important not to see the process as “box ticking” but to undertake a thorough examination of the providers available to the fund.  Using the requirement to consider the potential future state and current inefficiencies, and asking the right questions can highlight areas that need to be developed or addressed immediately.  Even if the existing provider is clearly the best option, the RFP can work to build a road map of expectations and deliverables for the future which ensure the fund requirements continue to be met as the market changes.

Prior to design, the beneficial owner must be able to clearly articulate their risk appetites, requirements and additional requirements of a service provider.  Considerations need to go far wider than collateral criteria, and include decisions around infrastructure, transparency and regulatory oversight and reporting.  Defining the requirements prior to the process is key as well as understanding what aspects are most important to the RFP writer.

For example, take regulatory reporting; how should this be managed?  Will you delegate the reporting or seek to receive the data and report directly?  If you delegate, how can you ensure the service provider is reporting accurately? – an important question when you recognise that you retain liability for the submissions.  Understanding the model that best suits the fund before designing the RFP and ensuring this is detailed in the documents, allows the design to focus on the priorities and enables the service provider to recognise what is important.

RFPs are not about catching someone out but getting the most out of the responders in a way that means comparisons can be made accurately.

Consolo can assist in the design, delivery and analysis of RFP requirements for new participants, seeking new routes to market, or experienced participants who want to ensure their program is future-proof.  We approach the design of an RFP very carefully; by spending time discussing the requirements in details with all areas of the business, from trading to operations, from compliance to IT, we are able to identify the key risks and build bespoke RFP documents and business optimisation processes which we can handover to be managed and/or implement ourselves on behalf of the client.  Our market experience means we know what questions should be asked to enable the client to prioritise and to ensure that responses provide clear and direct answers, so that the analysis is undertaken in an objective and meaningful way.

If you are responsible for RFPs and would like to ensure you are following best practices and maximising the value of the process, our new RFP course may be of interest – Consolo Training