What is Banking Law?
Banking law is a subsection of finance law, which encompasses all the different fields of law that involve finance, banking, monetary law, and financial transactions. Financial law is such a highly technical area that it’s necessary for solicitors working within this field to specialise in one or more subfields. Banking law is mainly concerned with transactions between lenders and lending institutions, and loan applicants and borrowers, and this field is itself so complex that solicitors in banking law may specialise even further.
For instance, banking solicitors may specialise in bank lending, acquisition finance, property finance, and other areas.
Bank lending involves transactions between banks and other lending institutions, and individuals or businesses. Loans are heavily structured, with documented repayment terms.
Acquisition finance involves loans made to corporate borrowers where the funds are used to acquire another company.
Property finance involves loans made to individuals or organisations for the purpose of purchasing property or land. The property or land that is being purchased serves as security on the loan.
Asset finance includes loans or financing made for purchasing large assets. The assets being purchased are usually the security for the loan.
Project finance is the financing of public services and infrastructure developments. In these long-term financing deals, the loan is paid using money generated by the project itself.
Financial services regulation: in this field, solicitors work for bank clients to ensure they operate according to financial law.
For banking solicitors, the primary consideration is to represent their clients in a way that minimises the level of risk they take on when the take out a loan or obtain financing, or when they grant a loan or financing to a borrower. In large financial deals between companies and investors or banks, this may involve negotiating loan terms as well as providing legal advice and assistance on all matters relating to the financial transaction.
Processes in Banking Law
The primary process involved in banking law is that of arranging loans to individuals and organisations, a process that is often much more complicated than it seems. While the process of granting a mortgage or loan to an individual is relatively straightforward, granting loans to individuals and organisations for business purposes is not. For the bank or lending institution, as well as the loan applicant, the stakes are much higher, which means there’s a great deal more work involved in preparing to grant a loan for business purposes.
Loans and financial arrangements
Loans and financing arrangements can take many different forms, depending on the parties involved. A private individual or business taking out a loan involves very different processes in comparison to a company looking for investors to finance asset acquisition, for example. However, regardless of the specifics of any given loan or deal, they do involve similar basic concepts.
In all cases, the individual or organisation looking for financing must present evidence that they are a good risk for the lender. For instance, when the borrower is an individual who wants to apply for a mortgage, they must supply information about their income and expenses, and other financial details.
It’s then the lender’s job to perform due diligence as a way of confirming the evidence provided, to ensure the lender isn’t taking on an unacceptable level of risk. For example, when a bank is considering a mortgage application, they will perform due diligence by investigating the financial information the applicant provides, as well as carrying out credit checks and other searches to confirm their financial position.
A solicitor acting for a bank performs a similar process called conditions precedent, in which they collect and examine the documents and information supplied by the loan applicant. They must also perform checks to ensure the loan application has gone through the bank’s internal processes, to confirm the bank has authorised the loan.
Finalising the loan
A solicitor working for a bank or other lender will also be involved in arranging when the money will be made available to the borrower, and how this will be accomplished. A solicitor working for a client who is applying for a loan or investment funds may be involved in negotiating these terms for their client.
The loan or financing can be arranged and finalised once both parties are satisfied with the terms and conditions of the loan. This typically involves drafting loan documents that are then signed and witnessed by the appropriate parties. Depending on the purpose of the loan and the way the loan is structured, additional documents may be needed to set out the details of the lender’s rights over the assets the borrower is using as security for the loan.
How can a Solicitor Help?
The overall role of a banking solicitor or law firm that provides financial law services is to protect their client—whether the client is a lending institution or an organisation or individual seeking a loan—from the risk that comes with obtaining or granting financing. Banking solicitors work in a variety of ways to provide advice and assistance to clients, whether lenders or borrowers.
- Meet with clients and provide legal advice on issues relating to obtaining or granting new financing, or on existing financing deals.
- Prepare legal documents such as loan agreements and documents relating to conditions precedent, where applicable.
- For lending institutions or investors, carry out due diligence to confirm information provided by the loan applicant.
- For loan applicants, ensure that they have completed all the legal steps required to qualify for a loan, and fulfilled any conditions that must be met in order for the loan to be granted.
- Negotiate the terms of a loan to ensure the client’s best interests are represented, and their level of risk is minimised.
- Ensure that all the steps involved in the transaction are completed correctly, and that loan documents are drawn up accurately, and are signed and witnessed as required.
- After the transaction is completed, perform any post-completion tasks such as registering the lender’s rights over the assets the borrower presented as security for the loan.