Alongside manufacturing and petroleum, finance remains one of the most heavily regulated industries in the world. Indeed, the Financial Services and Markets Bill is due to be enacted in the UK in Spring 2023 and, more recently, the Sustainability-Related Financial Disclosures Regulation came into force, requiring financial market participants to publish their policies on integrating sustainability risks in investment decisions. Remaining compliant with today’s constantly evolving regulatory landscape is a daily challenge that poses substantial risk to organisations if they are found in breach.
Responsible for maintaining compliance, legal departments belonging to financial institutions are regularly tasked with reviewing thousands of contracts relating to investments and transactions. When these are negotiated under different terms and include multiple jurisdictions, many organisations have no option but to turn to expensive external counsel for guidance. The challenge is made harder by complex corporate operating structures: legal and enterprise data is often siloed, whether that be across various cloud storage environments or different arms of the business altogether.
Here, we take a closer look at how next-generation AI is allowing legal teams within the financial industry to gain unparalleled insight into their contractual landscapes, enabling them to react with agility and speed to regulatory changes.
Ensure Incoming Contracts Comply with Internal Standards and External Regulations
Let’s take, for example, a financial risk appraisal when negotiating private transactions. Luminance’s AI-powered Traffic Light Analysis will automatically take a first pass review of incoming contracts and visually indicate to what extent clauses comply with or deviate from internal standards. Where terms may differ from previously agreed wording and fail to meet internal standards, Luminance will suggest alternative, acceptable wording suggestions and, with just one click, users can insert this previously approved wording into new contracts under negotiation. Luminance will perform this exercise even at a sub-clause level, highlighting a specific term period of governing law, for instance, which may or may not comply with organisational policies or regulations.
Lawyers can further add rationale on-the-fly as to why a term has been rejected or accepted. This powerful machine learning approach, allowing Luminance’s AI to automatically update its knowledge as organisational standards change, is particularly useful for large financial institutions with legal teams spanning countries or even continents. In this way, they can ensure that no knowledge is lost or siloed and that junior counsel can easily access essential institutional knowledge regarding their company’s standard positions.
Achieve Complete Insight into Contractual Landscape
One of the greatest challenges facing legal departments at corporate institutions is coping with the sheer volume of documentation that must be reviewed when performing any type of regulatory compliance exercise – an extremely time-consuming and labour-intensive endeavour (and one which often ends up being outsourced to external counsel for a large fee). This issue will be further complicated throughout 2023, as markets dealing in unbacked digital assets will be fully regulated for the first time in the UK. This will require a major shift in compliance and governance for some financial services firms and, in turn, a large-scale review of all related contracts.
Considering the lengthy process of completing these reviews manually or with legacy technologies, many financial institutions are turning to Luminance’s AI-powered contract repository, which provides a comprehensive overview of any organisations’ contractual landscape. Luminance’s AI will automatically highlight out-of-the-box key information within documents such as clauses, dates, parties, financial documents, and governing laws, before displaying this analysis across a series of easy-to-navigate 3D visualisations.
Not only does this provide lawyers with total insight into their financial portfolio from the get-go, but Luminance also automatically labels over 1,000 key data points, including provisions in fund documents such as: Third Party Rights, Ownership, Governing Law, Assignment, Audit Rights, Insolvency and Replacement of Lender clauses. By using an AI approach, corporate legal departments can rapidly zero-in on the information relevant to their review, freeing them up to critically analyse or action their findings.
Crucially, Luminance’s unsupervised machine learning will also flag any anomalies within the documents, such as deviations in clause wording, allowing lawyers to prioritise their review on contracts that pose the greatest risk. This has never been more important for lawyers looking to help their businesses navigate an ever-changing regulatory landscape, where the financial and reputational risk of non-compliance is only becoming greater.
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