4 April 2023
For all firms, contracts define the relationship between you and your clients and the services that are being provided (especially a financial services one who has A LOT of these). The problem is, whilst contracts themselves help define the relationship and manage risk between the parties – accessing the data they contain isn’t easy, and yet that data is critical in helping understand and manage those very relationships and the associated risks. It can certainly feel like a vicious circle.
At Likezero, we’ve assessed the impacts on Derivatives, Securities Finance and Prime Brokerage businesses, and unsurprisingly all areas are impacted by what firms have in their contracts, with a high proportion significantly impacted. Complexity, counterparty risk and operational processes are all heavily reliant on details held within the legal agreements trading counterparts have between themselves.
Given the technological challenges, firms have traditionally focused on a few areas around contract management efficiency – for example, negotiation and manually extracting a limited amount of data that they need for downstream (siloed) processes. However, there is a growing demand for more (and accurate) data in those processes and an ever-increasing number of stakeholders within banks and asset managers looking to leverage it.
Use of contract data in Derivatives, Securities Finance and Prime Brokerage business
To help reduce operating costs and drive efficiency, firms are now increasingly focusing on data mining their contracts and leveraging this more efficiently in their trading, risk management and regulatory reporting functions – where timeliness, data quality, traceability and auditability are critical.
Importantly, along with efficiency benefits, having accessible agreements and data supports the management of market and credit events too, helping with crisis management and providing a tool to support cross-enterprise analytics.
Providing quality contract data capture for both legacy and new agreements, and traceability is imperative. Client’s business and operational stakeholders can take advantage of this to improve life-cycle efficiency and enhance risk management – to reduce it in the first place, and when something does go wrong, they can act with accuracy, speed and confidence.
Given the scope and use of contract data in firms’ processes, having a consistent approach to implementing the extraction and use of contract data, plus a way to manage lifecycle events linked to those contracts, will be key to achieving the benefits available.
Don’t take on the world of legal contracts alone… they are living across every part of your firm’s lifecycle.
