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Regulation Could Drive A Major Contract Review Initiative And Drain Resources

Ulf Zetterberg, Founder and Chief Executive Officer, Seal Software

Global Financial Services organisations continue to face closer scrutiny from governments and regulators. Such scrutiny is often the result of a minority bending the rules, or even blatantly ignoring them for their own gain. For the rest, the practical implication is that more regulation, legislation or guidance is drawn up.

While it’s quite true that markets, clients, intermediaries, brokers and others should have protection from rogue elements, the very people and organisations that are intended to be protected are the ones that have to pick up the cost and suffer the consequences.

Time and again, systems and processes, checks and balances, record-keeping and audit trails all have to be reviewed and updated to keep pace with the incoming regulations/legislations. One of the latest regulations is from the European Banking Authority (EBA), which has recently launched a consultation on the minimum requirements for record keeping of information in financial contracts. There is little over one month until the consultation period closes on 6th June, and then who knows how long before any changes will be imposed on the financial services industry as a result.

However, just because this could result in an exercise requiring the dusting off of tens of thousands of contracts to extract key data points for reporting, analysis and record keeping, it doesn’t mean that it’s an annoying, costly and potentially fruitless effort (from the business point of view at least).

The longer-term problem is that, irrespective of the drivers pertaining to this legislation, you cannot predict what contractual data points will be required in new legislation around the corner. What will happen next quarter or next year? No one really knows. History tells us there is a strong probability (or even inevitability) that yet another expensive, manual review process will be needed to extract, capture, record and manage even more data points from the thousands of contracts currently in force. To make matters more complicated, what if next time legacy contracts are in scope, too? A contract review nightmare!

In the past, when an event spurs the need to extract specific information from a multitude of contracts, the same process typically ensued. Amass a team of lawyers or paralegals in a room,give them the contracts and have them review the documents – one at a time – looking for, isolating and recording the information needed. This is as low, error-prone and expensive process to undertake. What if, months later, an extra data point is needed? You guessed it! Dust off the same set of contracts yet again, pull together the same review team… you get the picture.

Rather than just extracting what you need now, why not extract as much as you possibly can AND on a need-to-extract basis in the future? This way, you’re much better positioned to meet unknown needs down the road. You also gain a much greater ability to analyse and report on your unstructured contract data. You can reap benefits a plenty, including unearthing hidden revenue opportunity and identifying risk that you were not previously aware of. If you take a more holistic view, you may very well find yourself in the position of offsetting the cost of the exercise to meet the immediate driver, but also put yourself in much greater control to efficiently and confidently meet the needs of drivers in the future.

So, how can you do this? Fundamentally, the answer lies in contract optimization technology that goes beyond contract management and e-discovery. Contract Lifecycle Management (CLM) solutions typically only handle contracts executed since the solution was deployed, and even then only record a minimal set of data points, providing minimal analysis. What about your legacy contracts or contracts brought into the business by merger or acquisition? E-discovery solutions are basically designed to answer simple and single yes/no questions. What is needed is the ability to extract, present and utilize unstructured pieces of contract information such as clauses, contracting parties, governing laws and more – all while being able to answer complex queries involving multiple data points and multiple contracts.

The answer lies in the emergence of machine learning, artificial intelligence and other Natural Language Processing (NLP) techniques to leverage technology that – unlike a room full of humans – never tires, works 24/7 if needed and inevitably doesn’t make the subjective errors that tiring, monotonous, repetitive manual reviews entail. What we’re talking about is Contract Discovery and Analytics.

Ulf Zetterberg, Founder and Chief Executive Officer, Seal Software

Ulf co-founded Seal Software in 2010 and drives the company’s strategy and execution. He brings over 25 years of enterprise software and services experience in global as well as entrepreneurial environments. As a serial entrepreneur Ulf is passionate about innovation, growth as well as driven and committed to a strong customer first culture. Prior to Seal Ulf held several senior executive positions at companies like Open Text, Legato, EMC, Kazeon and Proact .Ulf studied Economics at Stockholm University.

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