Category: Contract Visibility
This week, DerivSource interviewed Alexandre Bon, Senior Solution Architect at Murex, to discuss the growing needs of an Enterprise View of Data in Financial Service firms. He explains how it is essential in order to comply with both the FRTB and SA-CCR requirements, as firms need full visibility into client and trade data. By concluding Bon’s Q&A, here are the important steps you need to be aware of and follow in order to better comply with these regulations.
1. Improving communication between all departments will build a better enterprise view of risk and capital
By bringing departments together with full transparency into all information, regulation-related strategic decisions can be more efficiently built out. For example, by bringing together the credit, collateral management, treasury and trading departments, will link together how collateral management operates and how trading desks will price the effect collateralization of new transactions. In return, this will provide traders with the information they need to efficiently evaluate which entity they should execute a trade with.
Bon stresses the importance of full transparency into all data at an enterprise level view. Banks need to move to a real time view of their regulatory capital positions in order to properly comply with the FRTB.
2. The SA-CCR has an implementation deadline for many firms
The new standardized approach is scheduled to take effect January 1, 2017. This includes a comprehensive approach for measuring counterparty credit risk associated with OTC derivatives, exchange-traded derivatives and long settled transactions. For more information on what you need to consider in order to comply, you can find it here.
Since a deadline is quickly approaching, more and more firms are beginning to put budgets into place to either build their own system or evaluating enterprise solutions for adoption (take a read through our Build vs. Buy whitepaper for more information).
3. How to integrate departments and getting over that initial challenge “hump”
Integrating departments can be extremely difficult, as further discussed by Bon. It’s no surprise that he mentions the challenges that firms will face, such as how they all operate and run differently, their data sets are incompatible or out date or can be duplicated with inconsistencies. The worst of it- they have no central data repository. He mentions that some firms have built their own regulatory reporting systems on top of data warehouses, but they just don’t cut it.
Implementing a central data repository to allow for full visibility into all data and reporting for every department is essential. It will help establish clear data management processes for maintaining clear, consistent data across the entire enterprise. By moving toward an enterprise view, the information can be used to rationalize processes, understand which businesses are most profitable, and divest those that are not.
Firms will not only be in compliance, but looking further ahead they can develop enterprise-level risk tools for analyzing positions and capital data in a much more efficient way. Banks need to adopt a more innovative approach for dealing with the high cost of regulations, such as managing the total cost of trading. An Enterprise Contract Management System is just that approach.
To learn more about how an enterprise contract management system can help you reduce your firm’s risk, download our Contract Risk Playbook: Risks Hiding in Plain View, an advanced guide for corporate boards and senior executives today.
DerivSource is an independent information source and online community for OTC derivatives professionals globally, with a community of over 15,000 members globally.
*DerivSource, SA0CCR and FRTB: Compliance Drives Renewed Push for Enterprise Data Management. 2016. http://derivsource.com/articles/sa-ccr-and-frtb-compliance-drives-renewed-push-enterprise-data-management-0
Even after eight years since the financial crisis, we are still seeing firms continue to recover and take critical steps to put strategies in place for improvement. Firms are focusing on reducing their costs, while increasing their ability to respond to the changing regulations around ensuring financial health.
In particular, our largest global financial institutions are required to implement Living Wills with Recovery and Resolution Plans to ensure visibility under extreme financial or market pressures, and worst case, regulatory plans should the institution actually fail. While today we see how this only impacts the defined Global 20, it’s critical for these and other institutions to understand their contractual obligations and risks under all scenarios. The work to gain this understanding and visibility can be complex, time consuming, and costly.
Additionally, firms are having to respond to changes in the reporting of OTC derivatives going into effect this year. In fact, one of my global clients is looking at ways to unwind their current contract data to parse out the required details for measurement, reporting and re-papering of OTC derivatives alone. It’s a big job for many of our clients that is just getting started.
However, the well considered and industry-tested Universal Data Model delivered by Exari will significantly accelerate these institution’s view into their risks and minimize costs to analyze and respond. Assets Managers can easily reduce the time it takes to capture and analyze trading agreements, IMA’s, CSA’s and side letters from months to just hours. The Model is already enable our customers, like the one mentioned earlier, to significantly save time and money by managing this in house, rather than relying on outside legal resources.
The Exari Universal Contract Data Model for Financial Services is a game changer and is already being adopted by the industry leaders who want to accelerate the compliance process, minimize risks, and keep costs under control.
For more information on how Exari’s Contract Data Model, please visit our products page
Are you still drafting thousands of contracts manually? In Word? Or storing multiple versions of paper contracts in a filing cabinet? Well, you’re not alone.
Exari recently surveyed 92 Corporate Counsel and compliance professionals about their habits and challenges for contract creation, storage and legal technology. More than 75% reported that they were still creating contracts in Microsoft Word, using some form of “copy and paste” template, while only 1 out of 10 currently use a document generation software to streamline the process. Half of the participants (47%) said they were still using paper filing systems to house corporate contracts. Their top pain points included:
- Slow contract approval processes (59%)
- Little or non-existent insight into risk (39%)
- Missing key milestones (27%)
- Difficulty with internal collaboration (25%)
- Risk of error (23%)
With outdated practices for generating and storing contracts, you’ll lack complete visibility into all of your agreements, increasing your risks such as liability, being underpaid or overcharged and missing key milestones. By implementing an efficient contracting process, you won’t miss a step. Not to mention you’ll be able to pull information during a crisis in minutes, rather than taking hours to dig up and sift through multiple paper copies. Avoid missing renewal rates, reduce the length of sales cycles, streamline negotiations and increase internal collaboration.
Doesn’t that sound better than the ol’ “copy and paste”?
- Deep conditionality and complex business flows. Many of our clients think their contracts are in good shape and straightforward until they dig deeper and get better insight into how their documents are actually drafted, negotiated and approved.
- General document quirks. When automating documents everything becomes a lot more dynamic. What was a simple list, cross-reference or numbering scheme now needs to handle a variety of different conditional possibilities.
- Handling counter party paper. Even when you have your creation and management processes under control, eventually you’ll hit agreements that were not drafted your way or using your terms.
With the right tools these very tough problems disappear. And when they disappear, contracting and business processes improve and require less money and time making lawyers, business-people and clients alike very happy. Exari Hub gets you organised and on the road to understanding your contracts and negotiating processes. Exari Contracts takes the next step and allows you to control everything from creation right through to signature and archive. Come learn what we mean by contract certainty and why we’re pretty happy with what we became when we grew up.
*Editor’s note: This statement has some notable exceptions; automating contracts ultimately lowers the costs of legal work for clients making it more accessible. In a world where the average consumer or small business may struggle to afford necessary legal work, we believe that any measure that reduces the cost of access to the law is a noble pursuit. How’s that for a dinner party spiel?
I’d love to hear from you at @liptonj or leave a note in the comments.
Justin Lipton is CTO and Co-Founder at Exari.
Who cares, you ask?
Well, you should.
Every business runs on contracts. And every business knows their customers (CRM) their accounts (financials) their suppliers (procurement) and their employees (HCM). What do all of these have in common? They are ruled and governed by contracts.
It’s a fact: most companies don’t know what’s in their contracts. Revenue. Risk. Obligations. Miss a commitment and you could lose a customer, an important relationship, your reputation, your job.
Enter Exari Contracts Hub.
With the Hub, you can store and analyze your contracts in a user-friendly and completely secure hosted environment. Using Exari’s patented technology, you can quickly and easily enter your contract data through our unique interview process or use one of our partners to do it for you.
Why the Hub?
We’ve heard over and over again that most contract lifecycle management solutions enforce burdensome workflow, proprietary data stores and cumbersome user interfaces. What do most companies want? One place to go to store, search and analyze their contracts.
Exari Contracts Hub is that place. Easy to store and search contracts. Easy to report on the data buried within. Easy to use for any business user and at a price point sure to make the CFO smile.
All companies – from retailers to hedge funds – know that customers are their number one priority. Client obligations are always the first concern as customer satisfaction is the only reliable road to growth. The 2013 Lloyd’s Risk Index cited “loss of customer” or “abandoned transaction” as the second-most-critical business risk (ahead of cyber risk and behind taxation). First of all, we all know that it is far more expensive (according to some studies up to 10 times more) to acquire new customers than it is to retain existing ones. So businesses spend enormous amounts of time and resources developing initiatives to keep customers coming back.
While companies prioritize customers by striving to drive loyalty, Forrester believes they fail to take into account those associated risks that end up driving customers away. As cited on CFO.com, a Forrester report says that the “discrepancy” between concern for loss of customer and the priority given to the mitigation of related risks “illustrates the growing gap between strategic business priorities and antiquated risk assessments. Companies with high-value brands may explain in detail their customer satisfaction and brand-loyalty strategies in annual reports, but rarely do they consider the risks that might crush these priorities.”
Where should you start in the battle to reduce the risks associated with customer attrition? The first place is to look at why customers leave. Clients will pull their money out of banks and funds when they do not have complete trust in the institution, and trust depends on maintaining promises and a good reputation.
It should come as no surprise, then, that your contractual obligations to clients are of the utmost importance in earning and preserving trust. A disappointed client is a disloyal client. But more than client attrition, failure to adhere to client obligations can trigger severe penalties such as expensive and distracting legal action, regulatory fines, and crippling brand damage.
Reputation remains a critical element of maintaining client loyalty. Indeed, insurers now offer policies that indemnify against profits lost due to brand damage. Financial services firms and banks risk reputational damage through poor performance, fraud, and, most importantly, compliance failures. In this post-GFC era, as government and industry regulatory bodies impose more and ever-changing regulatory and reporting burdens on firms, the media and regulatory bodies scrutinize compliance more than ever. Failure to comply with regulation send unequivocal messages to clients that the firm may be unreliable or, worse, unable to handle responsibilities.
How can you be in complete control of your regulatory and client obligations? Easy – it’s all in your contracts. Having complete control over and visibility into your contract portfolio means you’ll never miss a commitment. The only way to have a truly uninterrupted view of all of your contractual obligations (and rights) is to utilize a Contract Lifecycle Management (CLM) tool that analyzes contract data, tracks milestones, and sets up triggers so you never miss a commitment.
For more on how CLM helps asset managers and investment managers reduce risk, click here.
To download an illustrative case study on how one asset manager uses Exari CLM for obligation and regulation management, click here.
Hedge funds deal in risk: it’s how they make money for their clients, it’s how they build and prosper. But while hedge funds and asset managers may be experts in managing financial risk, they must come to grasps with the new and evolving risk that threatens their entire business model: the risk of a hack.
Our fearless founder, Jamie, was recently interviewed by online magazine ThinkAdvisor, a self-described “thought leadership destination for financial advisors,” about what hedge funds must do to prepare for cybersecurity threats. Cybersecurity is a topic we at Exari are quite familiar with: our products are designed to provide the contract visibility financial firms need to prepare for and recover from hacks and breaches. We’ve written about it before and we’ll write about it again, as long as threats continue to jeopardize the information and wealth of companies and their clients.
As cyberattacks continue to evolve (see: the recent hack of up to 100 banks), it is increasingly difficult to remain ahead of the threat. The best way for financial firms to prepare is to know as much as they can before an attack occurs, both so that they know where their weaknesses are so they can be remediated, and so that recovery is a reality, not merely a plan. Indeed, FINRA’s executive vice president and chief information officer, Steve Randich, said at a cybersecurity conference held recently in New York by the Financial Industry Regulatory Authority (FINRA) and the Securities Industry and Financial Markets Association (SIFMA) that firms must accept “that breaches will happen,” and that they should focus “not just on prevention but the response” to cyberattacks.
Hedge funds and other financial institutions require complete contract visibility to combat cyberattack for three key reasons:
Responding to Threats
Firms must know where risk lives in their client contracts so that they know where to look to satisfy customer and regulator obligations in case of breach. After all, the firm’s response to a threat will depend on their contractual obligations to clients. In order not to expose themselves to the further risk, firms must be aware ahead of time of the level and timeframe necessary for disclosure in the case of breach. Firms must also be able to instantaneously assess the reach and consequences of a threat so they can avoid unnecessary – and potentially devastating – disclosures to clients and the public where they are confident the threat was benign.
Managing Third Party Vendor Risk
Firms must have full visibility into their supplier contracts, because no matter how well they may attempt to defend against hackers, the third parties they engage may not have such stalwart measures in place. Firms must be able to identify which of these vendors lack adequate data security, and fix the issue before it becomes as disaster. “You assured the investor you would meet all these levels of security,” says Jamie, “but if you now have a network of dozens of suppliers and they’re not under the same obligations, then you’re automatically in a precarious situation because you haven’t properly understood the weakest link.”
Regulators will come after un- or under-prepared firms. “Understanding the contracts with the investors tells the hedge fund what it has agreed to do,” according to Jamie. “Understanding the contracts with the suppliers tells it what it has passed down the line, and allows it to plug any gaps quickly before something bad happens.” This ability to quickly assess client obligations across hundreds or thousands of individual, negotiated contracts, can only come from having a Contract Lifecycle Management (CLM) system in place that collates all contracts and contract data in one central, searchable online repository so that the information firms need is just a few clicks away.
The scariest part of this Halloween season might be what’s lurking in the dark.
We’re not talking about spiders and skeletons, ghouls or goblins; we’re talking about all the important – dare we say critical – information about your business that is kept hidden in filing cabinets, inboxes and shared drives. That’s right: contract data. The phrase alone may be enough to send chills up the spine of every General Counsel and Chief Compliance Officer in companies where contract data remains buried, disregarded, left for dead.
Indeed, far too many companies do not have any useful or meaningful way of analyzing the data in their legacy and active contracts – those common yet complex mechanisms by which nearly all of your external and internal affairs are governed. And when you have no way of knowing what and how many contracts you have, where you have them and what they say, you are exposing yourself to the most bone chilling word in today’s business world: risk.
One way to bury risk is to gain visibility into your company’s existing processes, knowledge and data. Visibility is the light bulb in the basement, the candle in the attic, the flashlight in the graveyard, the car keys in the abandoned truck with a full tank of gas.
With time, CM software vendors will grow to match the breadth of the existing opportunity.
In a recent poston his blog, Commitment Matters, Tim Cummins of IACCM observes that, while the usage of contract management (CM) software has increased substantially in recent years, it hasn’t quite lived up to the original hype. As a CM software company, we agree that many vendors and companies alike have been slow to recognize the full range of potential benefits from CM. Instead, vendors have specialized on one or two dimensions of CM – such as centralized storage or speedy drafting – while neglecting other parts of the contract lifecycle. The degree of customization thought necessary to meet individual corporation’s unique needs has often led to a cumbersome end-user experience, which discourages use, thus undercutting the inherent value of the solution.
But before you resign yourself to an eternity of contract blindness, there is hope. Many companies actually do get many things right. Tim mentions some areas – here in quotation – that he claims could jumpstart adoption, namely:
We’ve been talking a lot about the rise of legal technology and how it will help corporate lawyers – and the businesses they work for – in exciting, invaluable ways. In this, the first in a two-part series, we’ll briefly explore the rhetoric surrounding the relationship between legal technology and the longevity of the legal profession.
While there are new and evolving technologies affecting all areas of law, we’ll mostly be talking about contracts because they represent tangible and meaningful outputs throughout the law. And because, frankly, they’re what we know best.
Advancements to the profession provided by legal technology have proved nothing less than thrilling (for us, anyway). As the practice of law has become increasingly bogged down in regulation, paperwork and mountains and mountains of documents, technology eases the pain of dealing with what could otherwise become convolution. In the contract world, for example, automation and lifecycle management saves lawyers significant time otherwise spent on low-level tasks, from digging through filing cabinets to drafting standard contracts. As technology becomes better at completing rule-based jobs such as easing document creation, collaboration, sharing, storage and analysis; compiling clauses in searchable libraries; setting notifications for renewal and expiry; flagging high-risk/non-standard clauses; cleaning up and recording changes made in negotiations; and accumulating and reporting on data, lawyers have more time and wherewithal to dedicate to engaging legal work. In the realm of civil litigation, e-discovery software effectively automates what were once hugely expensive, drawn-out manual discovery processes, leading to significantly reduced costs. In general, by reducing time spent (dare we say wasted?) on value-poor tasks, technology can and will lower the overall cost of access to legal experts.