• November 8, 2016

Check the Contract: Saving Time and Money in FSI

Financial institutions need visibility into the contracts that underpin their business. New technologies can help.

Contracts represent an organization’s transactions and obligations, as well as its relationships and opportunities. They’re the lifeblood of most companies and, in the financial services industry in particular, nothing gets done without them. This is especially true for investment banks and wealth management companies.

The problem is that the very contracts that are essential for business can also be a huge liability. In 2014, for example, J.P. Morgan saw its legal expenses increase by 38 percent—up from an increase of just 7.6 percent the year before—due in large part to the challenges of managing its contracts to comply with ever-changing regulatory requirements. That’s because extracting the information contained in the hundreds of thousands of contracts that large financial services organizations may have is no small feat. It’s made even more difficult by the fact that they’re often maintained in silos across different departments and systems.

Since the global financial crisis of 2008, regulators are increasingly demanding that financial institutions be able to accurately report data about their operations and exposures in relatively short periods of time. Accessing the necessary information has traditionally been a highly manual process that can take months and cost hundreds of thousands of dollars.

A Better Way

Fortunately, new technologies that vendors like Seal and Ariba offer are changing all of that. By leveraging natural language processing and machine learning capabilities, they’re automating contract discovery. In the process, they’re also giving financial institutions easy access to the information they need, as well as useful analytics for contract analysis.

These technologies analyze and inventory contracts and identify relationships between terms and concepts. They then use a variety of algorithms to help locate contractual documents across the organization on demand so that the organization can quickly extract the critical information they contain.

The benefits of using such technologies can be dramatic. In addition to allowing the organization to comply with global regulatory mandates, they can help manage the overall risk against defined targets and dramatically reduce the time and cost of contract reviews. In fact, they’re often just as much a risk management solution as they are a contract management solution.

For any financial services company that’s bogged down with a large number of contracts and has no real visibility into the terms, potential risks, and other data they contain, contract discovery and analytics platforms may just be the solution. As more regulations come into effect, or the requirements of existing regulations change over time, the burdens of compliance are only going to grow. Having an effective, seamless, and scalable solution could save a lot of time, money, and hassle.

Like this story? See what the transformed financial services industry will look like.