Businesses operating in today's financial markets are well-accustomed to macro volatility. However, public companies and global investment firms have the added burden of operating in an ever more tightly regulated sector, says Eleanor Weaver, CEO of Luminance.
The sheer volume and complexity of financial regulation, ranging from antitrust and competition legislation to the sustainability-related Financial Disclosures Regulation 2019/2088, LIBOR transition and economic sanctions, now poses one of the biggest challenges to corporate legal departments and, indeed, businesses today.
The scale of this challenge is made larger both by the unprecedented volume of data and legal content that need to be reviewed during regulatory compliance exercises and complex corporate operating structures that often see relevant data siloed across different storage environments, with key information being fragmented across different employee computers rather than shared to a common knowledge bank.
On top of this, the economic and reputational implications of non-compliance have never been higher - in 2021 alone, the FCA issued fines amounting to a total of £567,765,219 for non-compliance.
Against this backdrop, the need for AI is stark. At present, many corporate legal departments and asset managers still rely on rudimentary tools and traditional ‘manual' review techniques to locate relevant information across their contractual landscape during regulatory compliance reviews.
Not only do such methods result in countless inefficiencies, but they also place businesses at significant risk of missing key information and, therefore, non-compliance.
By contrast, AI can read and understand vast numbers of legal documents in a matter of seconds, presenting key information back to the user and making recommendations for legal professionals to analyse and potentially act upon.
Indeed, the inherent agility of AI is precisely why it is capable of evolving with even the most changeable of regulatory sectors.
AI can understand and recognise concepts even as deeply embedded as LIBOR, which was estimated in 2021 to underpin approximately $350 trillion worth of contracts affecting banks, asset managers, insurers and corporates.
With corporations still required to review vast numbers of contracts to assess LIBOR exposure, AI has proved itself to be a critical tool for preventing contractual risk and non-compliance, providing legal and financial departments with an understanding of what LIBOR retirement-related changes need to be made to their financial documentation.
One such beneficiary was Semperian, a UK-based infrastructure investment and management group that currently holds £1.9 billion worth of assets under management.
Semperian deployed AI across the organisation's contracts to rapidly identify LIBOR-related provisions (for example, provisions pertaining to LIBOR definition; Interest Rate definition; Change in Law and LIBOR fallback) and highlight those that needed to be amended.
The reports subsequently generated by the AI then underpinned Semperian's LIBOR transition strategy, priorities and process. By deploying AI, the firm estimated they had achieved 90% time savings against the equivalent manual due diligence.
The adoption of AI by organisations such as Semperian reflects a wider movement within the financial industry towards embracing next generation technology.
Following the meteoric rise of Fintech, AI-powered legal process automation technology is now emerging as a new and necessary business enabler within the financial industry. With technology that can read and analyse documents, companies are able to expedite the ‘data churn' to gain insight into their contract portfolios and make more informed decisions.
Indeed, AI is now a necessary extension of in-house legal and financial departments, empowering businesses to meet the challenges of the corporate world and ensure risks are both exposed and rapidly mitigated.
We have seen enormous upheaval over the past few years in terms of regulation, policy shifts and pivotal events in the financial industry.
We have seen regulation increase in the wake of recessions and trading scandals, new laws emerge in the wake of Brexit and the Covid-19 pandemic completely upturn the world's financial markets.
In such an unpredictable world, corporate departments everywhere face vast challenges. AI can help organisations to cope with the sheer volume and complexity of regulation, providing a deeper understanding of contractual landscapes and freeing teams up to deal with the other implications that these changes carry.
By Eleanor Weaver, CEO of Luminance