By Simon Patteson, VP UKI & The Nordics, Icertis,

The Banking and Finance industry are embracing digital transformation, as anyone with a banking app on their phone well knows. Yet digital transformation in the finance industry goes much deeper than mobile customer experiences. Emerging technologies are transforming even the most stagnant business processes—first among them contract lifecycle management (CLM). For years, as the world around them digitised, contracts continued to be managed manually, stifling innovation, and creating risk. Thankfully, advances in AI and automation are now empowering finance organisations to address these foundational documents and achieve true digital transformation by putting digital contracts at the top of the 2022 agenda. For example, technology like Natural Language Processing (NLP) has led to tech giants like Amazon launching Amazon Comprehend to help businesses automate workflows and speed up processes, indicating the importance of prioritising contract management to avoid getting left behind.

As we move into a new year and organisations continue to adapt to operating in today’s Covid reality, business is moving faster than ever, and proper management of contracts is crucial. CLM systems improve business processes by allowing users to automate the entire contract lifecycle—from drafting to signature routing—and also connect contract data to other systems for effective post-execution management.  CLM systems make contracts searchable and easily amendable, which, in scenarios where large financial organisations are faced with analysing thousands or even tens of thousands of contracts, can be not only a huge time saver, but a cost-saver too.

Managing Risk and Compliance

When it comes to a bank’s internal processes, few are as important as the management of contracts, particularly when it comes to compliance and risk management – one of the biggest challenges for banks and financial organisations. Risk is inherently part of business operations and can have a devastating impact on brand reputation, financial loss and customer trust if not managed properly. Full contract visibility and automated processes enable organisations to quickly and compliantly onboard vendors and customers in line with region-specific regulations. Having this kind of control and visibility is especially valuable for the banking industry, where, along with the accelerated pace, organisations face extremely strict regulatory environments and compliance monitoring.

Risk and compliance are continuous considerations that run through every business transaction but with CLM a bank can ensure that all agreements contain the latest, approved versions of clauses. Using a robust, comprehensive clause and template library, legal teams can track all non-standard or deviated clauses; and trigger reviews of the agreement due to changed language. All of this ensures greater compliance with internal and regulatory rules.

This is likely to become even more important in 2022 as new Brexit and environmental regulations come in. For example, it is expected regulations like the EBA Action Plan on Sustainable Finance will come into force during the next 2 years, meaning financial institutions will be expected to integrate ESG risks into their business. Fortunately, CLM enables companies to orchestrate ESG programs via the binding business agreements that define how they operate. Whether it’s cascading sustainability mandates down the supply chain, or scaling ‘Know Your Customer’ (KYC) compliance globally, CLM can operate as a system of intelligence and impact that delivers a comprehensive layer of orchestration to even the most ambitious ESG efforts.

Speeding up processes

CLM can help to speed up onboarding and improve relationships. The onboarding of vendors, channels and customers can often be complex and fragmented if not standardised, which can hinder compliance with KY regulations, the mandatory process of identifying and verifying the client’s identity when opening an account.

Contract automation can greatly accelerate contract turnaround time, even when contracts are non-standard or involve negotiations. According to one global analyst firm, by 2023, artificial intelligence (AI) will bring 30% more efficiency to the contract negotiation and document completion process in organisations that deploy leading contract life-cycle management solutions. As AI technology becomes more readily available, developments like visualisation, natural language processing and artificial intelligence will allow easier interaction, better contract execution, and increased business value.

In one recent example, a high-street bank’s legal team were looking for a robust CLM platform that could not only manage umbrella and derivatives agreements, but seamlessly integrate with the bank’s existing enterprise systems. They needed a system that would make it easier to manage both its contractual obligations and reduce risk.

The installation of a CLM system integrated with specialist procurement tools, process utility programmes and a word processing programme already in use by the bank, combined with already enabling self-service capabilities and integrating a contractual workflow, meant the procurement team were free to focus on higher value tasks. It also streamlined the contracting processes throughout the organisation –across markets, corporate, retail, buy-side and sell-side use cases.

Beyond procurement, a CLM system that is able to address challenges with banking trading teams via a single platform takes contract management to a new level. A CLM system that can assist with buy-side, sell-side and legal is a huge benefit, but the bank also benefited from a contract intelligence platform that addressed the ability to deal with ISDA’s Derivatives and other trading agreements, creating opportunities for trading teams. As most banks will have some sort of trading entity this will allow greater visibility and improve process management.

Visibility and data analytics

Despite the fact that they impact business until they expire, contracts are typically stored in a repository and forgotten after they are executed. It is therefore easy for commitments and obligations to be missed. Banks and financial organisations could be missing out on potential cost-savings and revenue-generating opportunities, or worse, make themselves vulnerable to non-compliance sanctions or breach of contract. A contract lifecycle management system not only offers this visibility, so it is easy to see track obligations and commitments in real-time, but organisations can improve the actual performance of contracts by pulling deep insights into contract performance based on asset class, counterparty, risk or credit score and service type.

In 2022, CLM is a key business trend that should be a focus for finance organisations to make sure that they are optimising business operations and ensuring protection against risk. For those with digital transformation goals, CLM will be a key component the value of which shouldn’t be underestimated.