Optimizing the Recall Fails Process in Agency Lending: A Fairman Consulting Transformation

In the intricate world of securities lending, timely and accurate recalls—particularly in anticipation of corporate actions, settlements, or beneficial owner sales—are essential for maintaining market integrity and client satisfaction. However, Agent Lenders often face operational and systemic challenges when managing recall fails, leading to reputational risk, settlement costs, and strained relationships with beneficial owners.

To address these issues, a major Agent Lender partnered with Fairman Consulting to overhaul its recall fails process, aiming to reduce fails, improve responsiveness, and implement proactive monitoring. This article explores how Fairman redesigned the recall lifecycle and delivered significant efficiency and risk mitigation outcomes.

The Problem: Recalls Gone Wrong

Recalls occur when a loaned security must be returned—often urgently—due to a sale, a corporate action, or a portfolio manager’s instruction. Despite automated recall systems integrated into the Agent Lender Front Office systems through Fairman strategic project with this Agent Lender and borrower obligations, a recall fail can still occur due to:

• Borrowers being unable to source the security in time.

• Inadequate prioritization or escalation mechanisms (often in with internal / close borrowers)

• Poor tracking of due dates and delivery statuses.

• Communication breakdowns between lending desks and operational teams.

For the Agent Lender, recall fails meant breaches of contractual return timelines, loss of beneficial owner trust and potential client attrition and of course penalties or buy-ins under market regulations (e.g., CSDR; recall claims).

Fairman Consulting Solution: End-to-End Process Optimization

Fairman approached the problem holistically, mapping out the full recall lifecycle and identifying friction points across people, process, and technology.

1. End-to-end Diagnosis Review and Root Cause Analysis

The engagement began with a 30-day discovery phase, during which Fairman:

• Analyzed 12 months of historical recall fail data (volume, frequency, asset class, client impact).

• Conducted workshops with operations, trading, and client relationship teams.

• Mapped the current-state recall workflow, including manual touchpoints and escalation.

• Mapped the happy path recall workflow and the remaining scenarios.

Key issues identified:

• Lack of real-time visibility into recall status due to reporting mismatch and data quality issue

• No consistent prioritization or aging logic within the Agent Lender business lines

• Escalation protocols were reactive and inconsistent.

• Borrower communication relied on manual emails (no prematching), increasing lag.

2. Process Redesign and Automation Enhancements

Fairman proposed a multi-pronged optimization strategy:

1.⁠ ⁠Recall Dashboard & Aging Tracker

• Developed a centralized dashboard displaying:

• Open recalls by age through custody settlement messages extraction (e.g., 0–1 day, 2–3 days, 3+).

• Borrowers return status integrating into the Agent Lender systems (BO / FO) 

• High-risk recalls mapped (e.g., sales-driven, specials or corporate action-related).

• Integrated monthly dashboard with the Agent Lender’s collateral and settlement platforms mapping recall fail KPIs including root causes, borrowers and percentage of fails

2.⁠ ⁠Standard Settlement Instructions (SSI) rationalization 

• Reactivate automatic pre-matching email with borrowers including SSI details

• Integration of SSI details on the Agent Lender Back Office system.

• Integration of SSI details on the external vendor settlement platform to speed up process with related counterparties.

• Built logic into workflows to trigger auto-recall rules (e.g.: corporate actions events)

3.⁠ ⁠Proactive Borrower Engagement Protocol

• Monthly Recall Risk Committee to review KPIs and confirm borrower communications strategy.

• Introduced borrower scorecards based on recall fail rates, timeliness, and responsiveness.

3. Governance

To reinforce the operational improvements, Fairman has worked with all key stakeholders to:

• Validate recall fail task and responsibility allocation ensuring each step of the recall fail process is clear and assigned to the correct team including a new Middle-Office focus on recall fails

• Train the settlement department on providing adequate internal KPIs for the recall process (e.g., 95% of recalls returned within agreed T+2).

• Set up a monthly Recall Risk Committee to review aged fails and systemic patterns.

Benefits Delivered

The transformation resulted in substantial improvements across key performance areas:

Reduction in aged recall fails (> T+3) reduced by 50% within twelve months while total fails dropped by 40%, freeing up operational bandwidth. In the meantime, this work also helped to share delivery performance metrics with clients proactively, leading to higher satisfaction scores.

Furthermore, real-time dashboards and automation eliminated manual tracking and follow-ups, reducing reliance on internal escalations and exception management. This operational efficiency was key to get each business line onboard and committed since clear operational benefits were observed.

Finally, borrowers became more responsive due transparent KPIs allowing the Global Sponsor to escalate wisely.

Lessons Learned

Several key insights emerged from the engagement such as data quality criticality. Indeed, centralizing recall visibility empowered both operations and front office to act faster and wiser since not all recalls are equal. To this end, risk prioritization helped focus limited resources on high-impact recalls. Lastly, this work helped to understand how crucial human intervention (communication, escalation etc…) is still, especially in exception handling.

Conclusion

Through a structured, data-driven approach, Fairman enabled the Agent Lender to transform a historically reactive recall fails process into a proactive, risk-aware, and client-centric operation. In a market where timing and trust are paramount, this optimization not only reduced risk and cost—but also reinforced the Agent Lender’s reputation for excellence.

As market regulation tightens and competition intensifies, firms that fail to modernize their recall and settlement workflows risk falling behind. This case study proves that Fairman Consulting, paired with smart technology and governance, can unlock significant operational alpha in securities lending.