Banking Industry Architecture Network

Banking Industry Architecture Network BIAN Specification Level 1 Business Sub Domain: Contract Management Author: BIAN Working Group Lending Version: V1.0 Last Change: 08.12.2010

Organization Authors Role Name Company Chair Norbert Becker Fernbach AG Vice Chair Dirk Becker SAP AG Vice Chair Communications Ket Moller CGI Version History Version Date of Change Author 1.0 08.12.2010 BIAN Page 2 of 19

Copyright Copyright 2010 by BIAN Association. All rights reserved. THIS DOCUMENT IS PROVIDED "AS IS," AND THE ASSOCIATION AND ITS MEMBERS, MAKE NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT, OR TITLE; THAT THE CONTENTS OF THIS DOCUMENT ARE SUITABLE FOR ANY PURPOSE; OR THAT THE IMPLEMENTATION OF SUCH CONTENTS WILL NOT INFRINGE ANY PATENTS, COPYRIGHTS, TRADEMARKS OR OTHER RIGHTS. NEITHER THE ASSOCIATION NOR ITS MEMBERS WILL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR RELATING TO ANY USE OR DISTRIBUTION OF THIS DOCUMENT UNLESS SUCH DAMAGES ARE CAUSED BY WILFUL MISCONDUCT OR GROSS NEGLIGENCE. THE FOREGOING DISCLAIMER AND LIMITATION ON LIABILITY DO NOT APPLY TO, INVALIDATE, OR LIMIT REPRESENTATIONS AND WARRANTIES MADE BY THE MEMBERS TO THE ASSOCIATION AND OTHER MEMBERS IN CERTAIN WRITTEN POLICIES OF THE ASSOCIATION. Page 3 of 19

Table of Contents Description...5 1.1 Name...5 1.2 Unique Identifier...5 1.3 Place in Hierarchy...5 1.4 Rationale...5 2 Sub Domain Definition...6 2.1 Responsibilities...6 2.1.1 Summary...8 2.1.2 Business Process Context (optional)...10 2.1.3 Out of Scope...11 2.2 Capabilities...11 2.3 Delegation...12 2.4 Service Groups Provided...13 2.4.1 Service Groups Provided by the Sub Domain...13 2.4.2 Consumed Service Groups by the Sub Domain...14 2.5 Comments...14 2.6 Business Objects Referenced...14 Glossary...19 Page 4 of 19

Description 1.1 Name Contract Management 1.2 Unique Identifier <<GUID>> <<URI>> << Concatenated Upper case: Business Area, Business Domain, Business Sub Domain>> 1.3 Place in Hierarchy Related to Service Landscape Version: o Version: V 1.0 o Status: Final Business Area: o Name: o Status: Business Domain o Name: o Status Operation & Execution Approved s Approved 1.4 Rationale Contract Management manages the operational contract related to a loan between a bank and a customer of the bank. A Contract is a contract between lender (financial institution) and borrower (customer), which is based on the borrower s request for a loan. The contract specifies the loan type, borrower s details, general terms and conditions. An operational contract is a view of a customer loan contract to operate the contract in Operation & Execution business area. Contract defines a contract for operational purposes of a bank. The contract contains information which is necessary to operate a contract. Page 5 of 19

2 Sub Domain Definition 2.1 Responsibilities Ref# Name Description Disbursement Rescission Payment Plan Change Commitment Capital Change Deferral Capitalization Payoff Payment Plan Item Waiver Condition Change Manage an operational contract for a customer loan. The domain manages the part of a customer loan contract necessary to operate the contract. Manage a request to disburse a customer loan operational contract. The request ensures consistent disbursement of a loan within this sub domain. Manage a request to rescind (revoke) a customer loan operational contract. The request ensures a consistent rescission of a loan within this sub domain. Manage a request to change the payment plan of a customer loan operational contract. The request ensures a consistent change of a payment plan of a loan within this sub domain. Manage a request to change the commitment capital of a loan operational contract. The request ensures a consistent change of the commitment capital of a loan within this sub domain. Commitment capital is the amount of money that a bank committed to lend. Manage a request to defer payment of due receivables based on a loan operational contract. The request ensures a consistent deferral of payments for due receivables of a loan within this sub domain. Manage a request to capitalize overdue receivables based on a loan. The request ensures a consistent capitalization of overdue receivables of a loan within this sub domain. Manage a request to pay off a loan operational contract. The request ensures a consistent payoff of a loan within this sub domain. Manage a request to waive items of the payment plan of a loan operational contract. The request ensures a consistent waiver of payment plan items of a loan within this sub domain. Manage a request to change the financial conditions of a loan operational contract. The request ensures a consistent change of the financial conditions of a loan operational contract within this sub domain. Page 6 of 19

A financial condition, in the context of contractual agreement between a bank and its customer, describes the consequences of transactions in terms of times and amounts (exact credit interest, or quarterly settlement for example) when certain prerequisites (minimum account balance for a given period, for example) are met. Contract Prolongation Contract Process Instruction Calculate a customer loan operational contract loan payment plan Provide information for incoming payment allocation. Enable position management to manage the position related to a customer loan operational contract. Trigger creation of payment orders. Provide information for financial accounting Provide output management with raw data for correspondence. Provide information for contract billing Manage a request to prolong a loan operational contract. The request ensures a consistent prolongation of a loan operational contract within this sub domain. Manage an instruction on how to process operational loan contracts. Calculate a payment plan for a customer loan operational contract and other key figures such as balloon amount, installment amount, and effective yield. Calculations are based on financial conditions. A financial condition, in the context of contractual agreement between a bank and its customer, describes the consequences of transactions in terms of times and amounts (exact credit interest, or quarterly settlement for example) when certain prerequisites (minimum account balance for a given period, for example) are met. Provide information for incoming payment allocation like payment split rules and overpayment capabilities. Enable position management to manage the position related to a customer loan operational contract. More details about Position Management business area: See BIAN Service Landscape. Triggers the creation of payment orders to transfer a disbursement amount. Provide other business sub domains (mainly in Analytics: sub domain Analytical View of Source Data) with information for financial accounting. Provide output management with raw data for correspondence which is triggered by processes within the sub domain. The required address information (like address ID) is retrieved from Business Partner. Raw data is a kind of primary data which is not formatted, for example. Provide information about payment plan items (like installment, interest, repayment, charges) from the payment plan to contract billing on a regular basis (for example monthly). Contract Billing manages the billing of receivables (like interest, charge, repayment) on a contract level, collects billing items from different (debt) contracts (like loan contracts) and creates a (combined) bill. Items on a bill are the basis for due items. Contract billing initiates the creation of due items in Contract Due Item Management. Due items are an input for incoming payment allocation. Page 7 of 19

Provide information for Collateral Agreement Management Inform interested sub domains about business events of a customer loan operational contract. Maintain relation to Business Partner Maintain relation to price list Handle business locks set by Lock Document Management Provide information about a receivable (loan) for periodic verification of collateral agreements. Inform interested sub domains about business events (like creation, change, cancellation, borrower change) of a customer loan operational contract. Maintain relation to business partner in different roles. Required roles are borrower, payer, and guarantor. A borrower is a party who takes up a financial instrument (e.g. loan). A payer is a party (other than the borrower) who pays interest, repayments, and charges for a loan. Guarantor is a party who provides guaranties for a loan. Maintain relation to price list maintained in price master data management. A price list contains financial conditions that specify interest, repayment, and charges. There can be specified various charge conditions like regular charges as well as ad-hoc charges that are levied for a payment plan change, for example. Handle single business locks set by Lock Document Management. The processes within the sub domain have to consider set business locks in the processes. 2.1.1 Summary A bank sells banking products to customers within the Sales & Services business area. When a customer buys a banking product a sales agreement is signed by both parties. Typically a sales agreement includes several base products. An example is an agreement for a consumer loan which consists of a loan itself and residual debt insurance. Once the sales agreement has been signed within Sales & Services, the control is handed over to Operation & Execution business area to operate parts of the sales agreement in different sub domains. Contract Management is responsible for operations involving a Customer Loan which is the focus object of the sub domain. The residual debt insurance contract is handed over to another sub domain (e.g. Insurance Taken Management). Also an operational contract could be created in an appropriate sub domain that operates the cross contract fulfillment dependencies. The customer loan operational contract can be changed during the lifetime of a contract. A change of an operational contract is usually triggered by a change of a corresponding sales agreement. Management supports change processes by providing services for steps of a specific business process (e.g. payment plan change, payoff). There is an understanding within BIAN to make a clear distinction of terms and therefore will use the term contract within Operation & Execution business area and the term agreement within Sales & Services business area. Contract Management is responsible to operate contracts involving loans for customers. Contract Management delegates task to other business areas and business (sub) domains (e.g. financial accounting, position management). The capability of the sub domain Contract Management is to manage customer loan contract Page 8 of 19

operational contract and requests to change a loan operational contract during the lifecycle of a loan (e.g. payment plan change, payoff). The BIAN Service Landscape is currently not complete, and therefore only the business area or the business domain is referenced. Page 9 of 19

2.1.2 Business Process Context (optional) The following diagram provides an overview of processes in order to outline the potential usage of this sub domain. Figure 1: Process view including sub processes for 'Loan Back Office Processing' Page 10 of 19

2.1.3 Out of Scope Contract Management is not responsible for handling loan operational contracts between banks (see Introduction to the BIAN Service Landscape). The current version of the document is intended to be used in customer retail banking only. A customer unsecured loan is not in scope of the current version of the specification. An unsecured loan or a line of credit in this context means: An arrangement between a bank and a customer that establishes a maximum loan balance that the bank will permit the borrower to maintain. The borrower can draw down on the line of credit at any time, as long as he or she does not exceed the maximum set in the agreement. An unsecured loan is usually associated with a charge card, a credit card, or a current account (see also http://www.investopedia.com/terms/l/lineofcredit.asp). 2.2 Capabilities Ref# Name Description/ Ref# of according Responsibility Disbursement Rescission Payment Plan Change Commitment Capital Change Deferral Capitalization Payoff Payment Plan Item Waiver Condition Change Prolongation Page 11 of 19

Trigger calculation of a customer loan operational contract loan payment plan. Inform interested sub domains about changes of a customer loan operational contract. Provide information for financial accounting Triggers the calculation of a payment plan for a customer loan operational contract (see also delegations). 2.3 Delegation Ref# Name Description/ Ref# of according Responsibility Management of Bank Account Positions Financial Accounting of Contracts Contract Billing Calculate Payment Plan Management of Due Item Incoming Payment Allocation Managing the positions of an underlying bank account. The account holds funds within a bank and is subject to deposits and withdrawals (sub domain Bank Account Management, business domain Position Management) Financial accounting is delegated to the business area Analytics. The sub domain sends information to the sub domain Analytical View of Source Data in business domain Cross Analytical Data and Methods. Billing of due receivables based on a customer loan operational contract (in sub domain Contract Billing, business domain Billing). Calculate a payment plan in sub domain Payment Plan Calculation (business domain Calculation Services). Management of due items for receivables based on customer loan operational contract (in sub domain Contract Due Item Management, business domain <Unknown>). Allocation of incoming payments to receivables (in sub domain Incoming Payment Allocation, business domain Position Management. Price Master Data Management Management of price lists which are referenced in a customer loan operational contract (sub domain Price Master Data Management, business domain Payments). Output Management Impairment for a Customer Loan Bank Account Statement Creation Processing of Payment Order Creation of any type of correspondence. The sub domain provides required raw data (sub domain Output Management, business domain <Unknown>). Impairment of customer loan operational contract is delegated to sub domain Impairment in business area Analytics. The creation of a bank account statement for a loan is delegated to sub domain Bank Account Position Management in business area Position Management. The processing of a payment order is delegated to Payment Execution, Clearing and Settlement in business domain Payments. Page 12 of 19

2.4 Service Groups Provided The list of service groups provided is not complete. The list of service groups might show which groups could be provided by the sub domain. 2.4.1 Service Groups Provided by the Sub Domain Ref# Service Group Description Manage Loan Disbursement Contract Rescission Manage Loan Payment Plan Change Contract Commitment Capital Change Contract Deferral Contract Capitalization Contract Payoff Contract Payment Plan Item Waiver Contract Condition Change Contract Prolongation Read Loan Operational Contract Process Instruction Read Incoming Payment Allocation Information Notify about Event A service group to maintain a customer loan operational contract. A service group to maintain a loan disbursement request. A service group to maintain a loan rescission request. A service group to maintain a loan payment plan change request. A service group to maintain a loan operational contract commitment capital change request. A service group to maintain a loan operational contract deferral request. A service group to maintain a loan operational contract capitalization request. A service group to maintain a loan operational contract payoff request. A service group to maintain a loan operational contract payment plan item waiver request. A service group to maintain a loan operational contract condition change request. A service group to maintain a loan operational contract prolongation request. A service group to read a loan operational contract process instruction A service group to read incoming payment allocation information for a loan operational contract. A service group to notify about an event of a customer loan operational contract (creation or change of a contract). Other sub domains are notified (e.g. Analytical View on Source Data, Collateral Agreement Management). Page 13 of 19

2.4.2 Consumed Service Groups by the Sub Domain The following consumed service groups are just examples. The consumed service groups are intended to enable the sub domain to delegate tasks to other sub domains. The counterparty sub domain has to provide an appropriate service group. Ref# Service Group Description Payment Order Creation Contract Billing Entry Creation Loan Payment Plan Calculation an Output of a Correspondence Read Price List A service group to request creation of a payment order. A service group to request creation of a contract billing entry. A service group to calculate a payment plan for a loan. A service group to request an output of a correspondence. Correspondence is a written communication to a business partner. This can be a letter, an email, or a fax. A service group to read price list. 2.5 Comments The list of service groups is not complete. Other sub domains could require additional service groups to read information or to maintain the business objects in the sub domain. The list of use cases is not complete. A complete list of use cases is required to define a complete list of service groups. You can find some use cases in the section Reference Documents. Currently there are no specifications available for most of the other sub domains which are required for lending. When the other sub domains are specified additional service groups might be required in order to support their business scope. 2.6 Business Objects Referenced Ref# Business Object Name Description Reference Contract Contract Disbursement A Contract is a contract between lender (financial institution) and borrower (customer), which is based on the borrower s request for a loan. The contract specifies the loan type, borrower s details, general terms and conditions. Contract defines a contract for operational purposes of a bank. The contract contains information which is necessary to operate a contract. Loan Disbursement is a request from a borrower to a Page 14 of 19

Contract Rescission Contract Payment Plan Change Contract Commitment Capital lender (financial institution) to transfer money from the loan operational contract to a receiving account at a specific time. The borrower or a loan officer can decide to withhold money from the gross disbursement amount to pay due items or planned items. Items can consist of installments or charges. A disbursement request offers several functions, such as full or partial disbursement withholding of items Loan Rescission is a request from a borrower to a lender (financial institution) to rescind a loan operational contract. Loan Rescission handles a rescission of a loan operational contract and calculates the amount necessary to execute the rescission considering all disbursements. Loan contract rescission request is capable to reverse the business transactions which have already taken place since the creation of the contract. Loan Payment Plan Change is a request from a borrower to a lender (financial institution) to change payment conditions (due date and/or repayment amount) for a loan operational contract. Changes in a payment plan can lead to skipping installments (skip), extending the due date for one or more installments (extension), changing the loan term (maturity period of a loan operational contract), frequency of installments, installment, etc. Skip, extension and a general payment plan change are main types of a Payment Plan Change. Contract Commitment Capital Page 15 of 19

Change Contract Deferral Contract Capitalization Change is a request from a borrower to a lender (financial institution) to change the commitment capital of a loan operational contract. Contract Commitment Capital Change is used to increase or decrease the current contract capital for a loan at a given date. Loan commitment capital change request contains essentially the change date and the amount by which the current contract capital is increased or decreased. Charges can be levied. Contract Deferral is a request from a borrower to a lender (financial institution) to defer payment of due receivables based on a loan operational contract. Contract Deferral is used to create and execute a deferral request. Contract Deferral contains references to those due items in Contract Due Item Management that are subject to deferral, deferral interest rate, fees and other deferral details (e.g. date of first deferral payment, number of deferral payments). During creation and execution of a loan operational contract deferral request, deferral agreements can be calculated. Contract Capitalization is a request from a borrower to a lender (financial institution) to capitalize overdue receivables based on a loan operational contract. Contract Capitalization is used to create and execute a capitalization request. Main information is contained in loan operational contract capitalization request is the list of due items that are subject to capitalization Page 16 of 19

and business operation specific fees. When a Loan contract capitalization request is executed the relevant due items are closed in Contract Due Item Management and the loan's commitment capital is increased. Contract Payoff Contract Payment Plan Item Waiver Contract Condition Change Contract Payoff is a request from the borrower to a lender (financial institution) to fully or partially pay off a loan based on a loan operational contract. The request enables the borrower to pay off the loan. A payoff is the amount required to pay off the balance of a loan. This figure includes the loan principal, the amount of interest that has accrued since the last payment and any unpaid charges. Contract Payment Plan Item Waiver is a request to waive payment plan item(s) of a loan operational contract. Payment plan item(s) can be waived either on specific request of the borrower or by lender, for example as a measure of goodwill. Payment plan item(s) that have already been billed or are to be billed in the future can be waived either partially or in full. Contract Condition Change is a request to change the financial conditions of a customer loan operational contract. Contract Condition Change is used to create a condition change request for a loan starting at a given date. Customer loan contract condition change request contains essentially the change date, all the changed (financial) condition data and references to the changed conditions. Page 17 of 19

Contract Prolongation Contract Process Instruction A Contract Prolongation is a request to prolong a loan operational contract (Rollover). Loan contract prolongation is an extension of one or several timelimited parts of the contractual relationship between the lender and the borrower. Loan contract prolongation involves one or several of the following: extension of the maturity period, new term agreement(s), new incoming payment agreement(s) of a loan operational contract. A new term agreement will involve new interest, charge, amortization and waiver conditions. A new Incoming payment agreement involves changes in the payment period and corresponding payment conditions. Loan contract prolongation also typically involves adjustment of conditions themselves (interest, charges etc.), in addition to the periods. A Loan Process Instruction is an instruction on how to operate a loan operational contract. Each loan operation contract is based on an instruction. Different type of loans (e.g. mortgage, consumer, or amortizing loan, bullet loan) can be operated differently. Page 18 of 19

Glossary Glossary of sub domain specific terms. Term Disbursement Rescission Payment Plan Change Commitment Capital Change Deferral Capitalization Payoff Payment Plan Item Waiver Condition Change Prolongation Process Instruction Description Page 19 of 19