Draft Account Control Agreement

Skill: Draft Account Control Agreement for ABS Transaction

1. Subject-matter triage

• Confirm the account type first: deposit account, securities account, or mixed cash/investment structure. The control language, bank acknowledgments, and governing law mechanics must match the account type.
• Identify the role architecture before drafting: account bank, servicer, secured party or control party, and any fallback successor. The agreement must work in ordinary-course servicing and in enforcement mode.
• Check whether the base indenture, servicing agreement, rating agency criteria, and drafting instructions already resolve account governance, investment eligibility, qualified institution status, notice mechanics, or default control. Where they do, cross-reference rather than restate inconsistently.
• If the transaction spans multiple jurisdictions, resolve which law governs account control, perfection, and bank duties before drafting operative language.

2. Failure modes the skill is correcting

• Copying the standard-form template without curing known defects in control mechanics, transfer authority, notice delivery, or default-triggered power shifts.
• Leaving pre-default servicing authority vague, so routine collections and sweeps require separate approvals or create operational friction.
• Leaving post-default authority incomplete, so a servicer or account holder can continue to issue instructions after exclusive control should have taken effect.
• Omitting the bank’s acknowledgment of subordination and non-setoff treatment, which can create a hidden path to impairment of the control position.
• Failing to align the account agreement with governing law, the transaction documents, or rating-agency-driven account standards.
• Including investments or successor institution criteria only by implication, which can permit nonconforming cash placement or replacement banks.
• Drafting the cover memo as a summary instead of a true issue-departure memo identifying material changes and remaining confirmation points.

3. Legal frameworks / domain conventions that apply

• Use the UCC control framework that matches the account type. For a deposit account, the agreement should satisfy the applicable control agreement mechanics under UCC Article 9. For a securities account, the securities intermediary must agree to follow entitlement orders from the secured party/control party without further consent from the entitlement holder under UCC Article 8 and the related Article 9 control rules.
• Draft the bank’s undertaking so it is operationally clear, not merely aspirational: what instructions must be followed, from whom, and at what time.
• Pre-default servicing provisions should allow ordinary collection, sweep, and transfer activity without repeated approvals, subject to the transaction documents.
• Post-default provisions should shift exclusive authority to the designated control party upon receipt of a valid control notice, with no residual withdrawal path unless expressly preserved elsewhere in the transaction documents.
• Exclusive control notice mechanics should be defined with delivery method, effective time, receiving address, and the bank’s duties upon receipt.
• If the bank may act only as a qualified institution, incorporate the required standard by cross-reference or definition so that any successor institution must satisfy the same requirement.
• Define or cross-reference eligible investments for trust or reserve balances so account proceeds cannot be placed in nonconforming instruments.
• Address governing law expressly where the account bank’s charter location and the chosen law for the transaction documents differ; do not leave the control-law clause ambiguous.
• Include the bank’s acknowledgment that its own claims against the account are subordinate to the secured party’s interest, including any limitation on setoff or similar rights if required by the structure.

4. Analytical scaffolds

1. Start from the account type and select the correct control model before drafting any operative language.
2. Trace authority by period:
   • pre-exclusive-control notice: who may direct deposits, sweeps, and routine transfers;
   • post-exclusive-control notice: who may direct every movement, including fees, reserves, and investments.
3. Draft the notice provision as an executable mechanism, not a recital:
   • what constitutes valid notice;
   • who may send it;
   • where it is sent;
   • when it is effective;
   • what the bank must do after receipt.
4. Test the agreement against the transaction documents:
   • confirm no mismatch with servicing powers;
   • confirm no conflict with the indenture’s or security document’s default remedies;
   • confirm no missing cross-reference for account standards.
5. Include account-bank acknowledgments that eliminate ambiguity:
   • recognition of the secured party’s control rights;
   • subordination of bank claims where required;
   • no unauthorized setoff or competing instruction path.
6. Verify any defined terms the template uses for qualified institution status, eligible investments, notice addresses, and successor bank replacement.
7. If the account bank sits in a different jurisdiction from the governing law selected for the agreement, expressly reconcile the choice-of-law clause and any UCC control references.
8. Prepare the cover memo as a departures-and-open-items memo:
   • identify each material deviation from the template;
   • explain why the deviation is required by the source documents or market convention;
   • flag any unresolved point needing client confirmation before closing.

5. Vertical / structural / temporal relationships

• Structure the draft so the agreement is internally sequenced: definitions and account designations first, authority mechanics next, notice and default mechanics after that, then bank acknowledgments, governing law, and execution blocks.
• Maintain a temporal distinction between routine servicing and enforcement; language that works only in the enforcement period should not leak into the pre-default period.
• Ensure the control notice changes the operative regime at a clear trigger point, with no gap between receipt and effectiveness.
• Preserve vertical consistency across documents: the account agreement must not grant the servicer powers that the indenture or servicing agreement withdraws, and it must not constrain rights the secured party needs under the transaction structure.
• If multiple accounts are covered, allocate authority and notice mechanics account-by-account rather than assuming one clause fits all.

6. Output structure conventions

• Produce the operative account control agreement as the primary deliverable first, and only then prepare the cover memo.
• The agreement should read as a finalized transaction document, not as a commentary or checklist.
• The cover memo should be concise but substantive, focusing on material departures from the template, the governing-law resolution, and any open issues requiring client direction before closing.
• Use conventional contract organization: parties, recitals, operative provisions, notices, acknowledgments, governing law, and signature blocks, with any form of exclusive control notice as an exhibit if needed.
• Confirm the final package is complete in substance: the agreement file must contain operative clauses, and the memo file must explain the departures rather than merely naming them.