I recently met a senior legal advisor at a networking conference, and we got into an animated discussion about legal processes in the financial services industry. I casually remarked that he must have his hands full, given the legal reviews and assessments he makes due to the size of his organisation. He responded by saying what really keeps him up at night is not so much the legal opinions, but rather the continual need to respond to regulatory demands.
It’s a concern I’ve heard far too often.
Having spent 10 years in the contract solutions and enterprise resource planning (ERP) markets, I’m very familiar with how expensive and time-consuming it can be to respond to regulations. The truth is that most industry regulations (and their subsequent amendments) take organisations by surprise, and turnaround time for regulatory responses can be extremely tight.
Changing regulatory directives, such as those from the European Banking Authority (EBA) as well as the U.S. government, require swift attention in the research, determination, planning and execution of the needed changes. Many new mandates (or changes in existing ones) impact how banks do business with their clients and other institutions – including the EBA Bank Recovery and Resolution Directive (BRRD) articles 55 and 44, which include a “write-down clause” for EBA banks doing business with other institutions, plus the ever-evolving Dodd-Frank in America. Because contracts represent those relationships, these directives require reviewing and amending often large quantities of contracts.
To locate the applicable contracts across a large organisation means finding and extracting clauses and paragraphs of written text, and using tools to determine if they require amendments to be compliant. So, instead of allocating legal resources to higher-level and strategic initiatives, the department becomes part of a massive review process, poring over information line by line, page by page and contract by contract. Because many organisations we work with have concerns about sending sensitive contracts to external resources, they must suffer through internal manual reviews, which are very costly and time-consuming.
Where are your contracts?
What I’ve been describing – the review of contracts to achieve regulatory compliance – is the second problem of changing government mandates. The first problem is just locating all an organisation’s contracts.
We often find that successful organisations have grown up deploying different (and disparate) types of contract repositories – often at the department level, with grassroots processes for creating, executing and storing them. So, in order to access each and every contract, a legal professional must wade through an array of tools, processes and systems that spread throughout the business – not an easy task.
Once they are found, the organisation must now get to the locating the pertinent information within the contracts that needs amending. It could be a word, a clause or even a paragraph. With the manual reviews mentioned above, there is a certain subjectivity in the reviews that is different across reviewers based on their training, experience and perceptions, leading to errors and omissions on top of the significant costs and time.
Now imagine doing this process every time there is a new piece of legislation or a new regulation. No wonder this is keeping my legal advisor friend awake at night!
Contract discovery and analysis
At Seal Software, we advise our customers to take an entirely different approach to regulatory compliance, and to contract management in general. Our system can discover contracts wherever they are in the organisation, centralise them in a single repository and “read” them – extracting specific clauses, obligations, liabilities and performance metrics, and providing that information to users in an intuitive interface.
So, when a government regulation changes, an organisation only has to search through their contracts for relevant terms and clauses, and then make the necessary amendments. This process is reduced to minutes, from what used to take weeks or even months. The benefits are risk reduction, much lower costs for contract reviews and a much shorter timeframe to ensure compliance by imposed deadlines.
Our customers also regularly find revenue opportunities when they analyse their contracts by identifying performance incentives and discovering auto-renewals they didn’t realised they had.
We have written some recent blog posts specific to the topics of EBA and Dodd-Frank regulatory compliance, which can be found at: http://contractdiscovery.com/
Image credit: Flickr, Keith Williamson
Laurie Mascott, Vice President EMEA, Seal Software
Latest posts by Laurie Mascott, Vice President EMEA, Seal Software (see all)
- What’s Keeping Legal Experts Up at Night? - August 25, 2015
