Asset based finance (ABF) (a term which covers factoring, invoice discounting and asset based lending) has become an increasingly popular type of financing for many businesses in the UK and Ireland, with statistics from the Asset Based Finance Association (ABFA) reporting that the third quarter of 2015 saw the use of ABF in the UK and Ireland hitting a record high, with businesses securing £20 billion through ABF, up 4% from £19.3 billion in the previous year.
The ABFA provides a self-regulatory framework for its members. This framework comprises three key components:
(i) the ABFA Code (together with the supporting Guidance), which sets standards of best practice and professionalism for ABFA members;
(ii) a Complaints Process, which provides an independent mechanism available to clients who believe they have been treated unfairly by an ABFA member; and
(iii) the Professional Standards Council (PSC), which continuously reviews the ABFA Code and the complaints process.
It is estimated that ABFA represents approximately 95% of the asset based finance industry in the UK and Ireland. The ABFA Code is binding on all ABFA members and compliance with the Code is a condition of ABFA membership.
The ABFA Code
The ABFA Code applies to all member ABF services and products delivered since 1 July 2013.
The Code sets out six commitments that ABFA members must meet in their relationships with clients, prospective clients (and guarantors / indemnifiers to clients and prospective clients). In particular, the ABFA member must :
- abide by the Code and all applicable laws and regulations;
- act with integrity and deal fairly and responsibly with clients and guarantors;
- provide clients and guarantors with all appropriate information in a timely and transparent manner;
- ensure that legal documentation issued by them is clearly and unambiguously written;
- provide effective and timely client services in accordance with their legal agreements; and
- operate their own appropriate internal complaints procedures.
The principles set out in the Code are supported by more detailed Guidance, which assists ABFA members in implementing the principles and sets out examples of best practice.
The ABFA Code 2016 Edition – what’s new?
Although the Code itself has not changed since it was first implemented in 2013, the Guidance has since been updated and from 1 January 2016 all ABFA members have been required to adhere to the Code, as clarified by the revised Guidance.
The revised Guidance contains the following new provisions in relation to the first and third of the six commitments listed above:
- Abiding by the code – members must now not only provide adequate training for staff but all staff must now complete annual online training;
- Providing information on fees and charges – the guidance now recommends that, where a member is relying on a Certificate of Indebtedness, it should, if asked, provide at least a breakdown of transactions affecting the indebtedness since the previous statement;
- Notice periods –
- the Code’s guidance has extended its advice to members by suggesting that where an agreement requires a notice period for a client to terminate the facility, such agreement should not impose any other time restrictions which would require an unreasonably excessive period of notice;
- members are also now advised to give reasonable consideration to a request for termination of a facility without any period of notice, particularly where additional liquidity from a new facility will alleviate hardship;
- Providing information on what happens upon breach or at the ending of an agreement –
- where members’ agreements require fees to be paid in the event of a client ceasing to trade, any fees payable should be reasonable and justifiable;
- where a member appoints an administrator, members should be able to demonstrate how they decided to appoint that particular administrator; and
- members should allow clients online access to their account information (unless they can demonstrate that to do so would put the security of advances at risk), regardless of whether notice of termination has been served by either party.