Technology
What legal technology can teach the world of finance
Global Banking & Finance Review®
Company
By Richard Mabey, co-founder and CEO at contract automation platform, Juro
Richard Mabey, co-founder and CEO,Juro
Technology has disrupted the gap between law and finance. The rise of legaltech and fintech have enabled innovations in one to inform the other. And, while the world of finance – fast, global, progressive – is generally thought to lead this dynamic, in fact it has a lot to learn from its traditionally more conservative cousin in law.
The role of automation
Robotic process automation (RPA), a key principle of modern fintech, is based, partly, on technologies first used in the legal sector. RPA assumes it is possible to automate any repetitive task susceptible to human error. That assumption – originating in the automation of legal documents – today informs a number of technologies from which both the legal and financial sectors, priding themselves on consistency and an eye for detail, can benefit.
Fundamentally, both sectors have an interest in using technology to speed up administrative processes. Highly paid, highly skilled jobs can add more value by automating repetitive tasks and shifting focus back to time with clients. Contract automation, for instance, lets businesses create, automate, negotiate, sign and analyse routine contracts. Done manually, this is a time-consuming manual process that accounts for 600 hours a year of administrative work per person. Automation saves on average 30% of the time that contract administrators spend on these tasks.
Fintech could learn a lot from this. By some estimates, large financial services companies each lose an average of £10 million or more per year due to processing agreements manually. This could prove especially onerous now, as soaring credit borrowing due to the cost of living crisis. According to Gartner, 89% of general accounting operations and 72% of financial controlling and external reporting operations could be automated.
Risk averse industries
So why the slow uptake? One explanation is that change management is really hard, particularly in a sector where change is often associated with risk. This creates suspicion around disruptive new technologies. The first wave of smart contracts, moreover, were more cumbersome than today’s, taking longer to implement.
Old habits die harder when new ones don’t immediately endear themselves. Many, too, are based on cryptocurrency blockchain, and these currencies can be vulnerable to hackers: in 2021 MonoX Finance was robbed of nearly £26 million when a hacker took advantage of a bug in the company’s contract automation software.
Still, there are lessons fintech can learn. The financial sector would do well to observe the ways in which contract automation has served the legal sector, in which automation software fuels not just contract automation but e-filing, e-discovery, and compliance and risk management. The same diversity of applications could easily be applied to fintech if embraced with care.
Anti-money laundering analysis, for instance. Currently, banks spend vast sums on resourcing teams of analysts to tackle this problem manually. One bank, Thoughtonomy, spent £1.2 billion a year on over 1,500 analysts investigating over 60,000 transaction alerts each month. And 50% of their time was spent collecting data rather than actually investigating it. A virtual, automated auditor, by contrast, could work 24/7 and would liberate human workers to do more thoroughly what machines can’t.
A new era of efficiency
Equivalent efficiencies could be introduced to claims processing, customer checks, shared services (e.g. back-office duties such as mid-term adjustments and periodic screening), and policy quote generation. Again, the current financial climate makes these solutions necessary. The sector is growing (£21 billion at present, to a projected £31 billion in 2026, according to the Financial Services Global Market Report 2022). In case of new regulatory frameworks – Brexit being a good example – many financial processes, including interest rate provisions, would benefit from greater efficiency.
This pattern of one industry’s technology informing another isn’t new. For example, encryption software – the basis of so much of fintech already – was born in legaltech, when in 1861 morse code was used for the first time to agree legally enforceable contracts. The first electronically signed legal agreement between nations then came in 1998 between the U.S. and Ireland about the growing importance of e-commerce. Encryption technology – developed for law – is now used across fintech, with platforms like PayPal using encryption to keep user information and transactions secure.
Legaltech is a dark horse: a candidate about whom little is known but who unexpectedly succeeds. Fintech should take note. The digital revolution is here and it does not discriminate.
Robotic Process Automation (RPA) is a technology that uses software robots to automate repetitive tasks, reducing human error and increasing efficiency in various processes, including finance and legal sectors.
Contract automation is the use of technology to create, manage, and execute contracts automatically, streamlining processes and reducing the time and effort required for contract management.
Compliance in finance refers to adhering to laws, regulations, and guidelines that govern financial practices, ensuring that organizations operate within legal frameworks and maintain ethical standards.
Financial technology, or fintech, encompasses innovative technologies that improve and automate the delivery of financial services, enhancing customer experiences and operational efficiency.
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