DRIVING RESULTS THROUGH TECHNOLOGY
Legal leaders at global financial services firms turn to AI solutions to reduce risk in contract management amid tight regulations
By Lucy Saddleton, Managing Editor, ADB Insights
In an increasingly stringent regulatory environment, legal departments at financial services firms are seeking new solutions to improve their contract management capabilities and reduce risk, as they often juggle tens of thousands of contacts.
“With the regulatory landscape from a financial services perspective, you have relatively sophisticated entities operating across multiple jurisdictions, so the sheer volume of data that you have to wrestle with as in-house counsel has increased exponentially in the last four or five years,” says Chris Neill, partner, legal business solutions at professional services firm PwC UK.
Christopher Neill, Partner, PwC UK
The role of the general counsel within financial institutions has also evolved in the same period, often now including a deeper focus on regulatory compliance, together with responsibility for the implementation of AI technology, and ESG initiatives. This places an increased burden upon legal departments - and opens the door for risk as they no longer have the bandwidth to review documents manually.
With this in mind, PwC UK recently announced a strategic collaboration with Catylex - a contract intelligence platform - to provide enhanced contract management solutions for asset managers and other financial institutions. The collaboration combines Catylex’s advanced AI-powered technology with PwC UK’s extensive industry expertise to provide actionable data from complex documentation.
David Rosen, Co-Founder + CEO, Catylex
“The need to apprehend information that’s in complex financial documentation isn’t a new thing, but the difference now is the ability to use technology,” says David Rosen, CEO at New York-based Catylex. “Historically, people addressed the problem with expensive, manual extraction, using law firms and contract attorneys - often waiting until something bad happened.” Rosen notes that even a four-eyed check can fail because the types of mistakes that people make tend to be correlated, so a machine analytics tool will greatly reduce the risk of errors.
While Catylex can help any type of business that needs to extract and optimize contract data, there is a particular need in the financial services space, due to the high risk of error and potentially damaging consequences.
Rosen notes that failure to fully understand the data in contracts prior to a problem arising presents huge risks to financial institutions. Knowing exactly how many contracts are on record, and who those contacts are with is critical to protect the firm. Financial institutions may have to articulate the data from their contracts to adhere to regulatory requirements, and potentially prevent millions of dollars in losses.
“We’ve been focusing on where we think we add the most value, and part of that is subject-matter expertise where the risk is very high and our ability to help with that risk is very strong, so that pushed us towards the financial services space,” says Rosen. “We apply our technology to situations where the client needs to look through very large numbers of contracts that would otherwise be prohibitively expensive to do manually.”
Keeping tabs on contracts and systematically tracking the obligations that sit in those contracts is one of the biggest gaps facing asset managers and financial institutions, according to Neill.
“What we see is very sophisticated entities negotiating highly complex documents in a very legalistic manner, but then falling down in relation to the post-execution part of the life-cycle,” says Neill. He notes that many in-house teams lose track of where their contracts are stored, and have no idea of the timeline for extracting data.
“Even with some of the most sophisticated players in the financial services space where there is a very high commensurate level of complexity around what they do, you see some of those foundational aspects being weak, and I think that is the piece that slows the process down,” Neill adds.
Leveraging Catylex’s platform with one of PwC UK’s big hedge fund clients has enabled them to reduce the implementation journey of a Contract Lifecycle Management program by as much as fifty percent.
“It allows us to very quickly eat through big waves of contract data that, without a tool like Catylex, we would be doing manually,” says Neill.
Hear from David Rosen and other experts at the Legal Innovation Forum’s Financial Services InFocus event in New York City on December 12, 2024. We are bringing together leaders from legal departments in the financial services space to shed light on the unique challenges facing legal practitioners in the sector, and the role of technology in addressing these issues.