Asset Finance - Rethink the asset register: Part 3

In part one and part two of this series, we have seen how we can create unique asset identities for any asset and how we verify them. Together they provide us with a solid foundation to create an asset register. However, we have missed a large part of the picture: ‘the financed asset’.

Of course, we have discussed assets throughout the series, but we have only discussed identifying one from the other. We haven’t touched on issues beyond identification, such as accurately representing an asset digitally in all its glory. Often assets aren’t just one solid piece of material. Instead, they are constructed from component parts. This poses additional risks to a funder.

This article will discuss why it is a risk and how we can mitigate it while maintaining the principles outlined for proper asset identification.

The problem

The problem with ‘assets’ is that they are rarely simple. They are made of component parts that combine to create the overall asset, and we refer to these as ‘collections’. It is this collection that is often the actual ‘financed asset’. The asset collection can include parts required to make the asset function, like a hard drive in a computer. In other instances, they are attachments to an asset that serves as a secondary function. Almost always, they can be replaced to upgrade or downgrade the performance or function of the asset. More importantly, they can be removed.

Let’s look at an example:

VIN: VF1JZ1S0646123456
Make: Renault
Model: T380
Value: £50,000
Description: Renault lorry loader with loading arm

The primary asset can be identified via its VIN, make and model. However, the loading arm is detachable and can be replaced depending on the material the lorry loads and carries. The problem is that the loading arm is of significant value, and the value of the lorry would decrease if sold without the loading arm.

Another example is the component parts of PCs, servers and supercomputers. The CPU (central processing unit) often accounts for the majority of the value of the asset. These items can be easily removed and replaced. If replaced, it would function as expected, but its performance may change significantly, affecting the asset’s value.

Ultimately, attachments and components pose a risk to the funders because the asset’s value could be significantly reduced. Therefore, due diligence processes should also be applied to attachments and components due to the risk.

The solution

Open Assets allows you to link asset identities to resolve this issue. Linking asset identities can give us a full view of the financed asset. Thus, all linked asset identities are returned when you search for any asset component on the asset register.

Using the example from before, we can see the assets

Asset: Renault T380
Description: Renault lorry loader with loading arm

 Asset identity 1

OAI: OAI-RT9A16-BTMGQ1-YR710Z
VIN: VF1JZ1S0646123456
Make: Renault
Model: T380
Children: OAI-T3H2H4-TBJTKJ-F9GA0X

 Asset identity 2

OAI: OAI-T3H2H4-TBJTKJ-F9GA0X
VIN: 002981723-49
Make: Hiab
Model: XS 144 B-2 HiDuo
Parent: OAI-RT9A16-BTMGQ1-YR710Z

In this example, the primary asset (the Renault lorry) has a children field populated with the loading arm’s OAI (Open Asset ID). Likewise, the loading arm’s identity has the OIA of the lorry in the parent field.

Of course, this doesn’t make sense for all component parts of an asset. For example, a vehicle’s lug nuts hold little value and are insignificant to the financed asset’s value. However, components of significate value should have their own asset identities if they can be removed or replaced easily. Thus protecting you as the legal owner during title disputes and reclaim scenarios.

Open Assets offers an asset management product that allows you to manage complex asset arrangements and register interest in them to secure your interest in each chosen part of the financed asset. As you’ll see in the next article, it is also a concept that underpins our solution for an asset register that works for all asset types and scenarios.

Conclusion

We have seen how your fraud risk can increase in scenarios when assets have high-value attachments or components. This poses a risk because the attachments or components can be sold while under finance. However, creating asset identities for high-value components and linking the identities together as part of the registration process can protect a funder’s interest.

The next article in this series is the last, and we’ll finally answer the question, “can an asset interest register be created for the asset finance industry?”

If you want to learn more about the Open Assets Asset Management product, don’t hesitate to contact us at hello@open-assets.co.uk. It would be great to hear from you.

All parts of this series:

1. Asset Identity - a common way to represent any asset digitally

2. Asset Identity Verification - confirming the identity matches the real-world asset

3. You are here → The Financed Asset - the combination of asset identities and additional data that create a complete picture of an asset

4. Open Assets Register - a database of assets and the parties with a financial interest in them

Read part 4 now →