From paper to pixels: How securities finance is embracing legal document digitisation

30 June 2025

The financial world is undergoing a rapid digital transformation, and the securities finance industry is no exception. Likezero attended this year’s ISLA Securities Finance & Collateral Management Conference in Madrid, where a key theme resonating throughout the industry, and highlighted in ISLA’s recent “Paving the Way for Digital Transformation” paper, is the crucial role of legal document digitisation and smart contracts.

For too long, the intricate web of agreements, clauses, and confirmations that underpin securities lending transactions has remained largely paper-based or in PDF files. This reliance on physical documents and file repositories presents a multitude of challenges:

• Operational inefficiencies: Manual processing, endless printing, and physical storage lead to significant time and cost expenditures. Locating specific clauses, reconciling terms, and ensuring consistency across agreements become time-consuming hurdles.

• Reduced collaboration: Distributed teams and remote work are the norm, yet paper-based documents hinder seamless collaboration and real-time access to critical information.

• Security and compliance risks: Vulnerable to loss or unauthorised access. Ensuring compliance with ever-evolving regulations is also more challenging without structured, digital data.

• Limited data leverage: The true power of contractual data remains locked away in unstructured text, preventing firms from fully optimising capital, liquidity, and collateral.

The ISLA 2025 conference has undoubtedly amplified the industry’s commitment to tackling these issues. At Likezero we are actively discussing with clients on how firms are deploying economic capital and building operational resilience, both of which are intrinsically linked to the ability to efficiently manage and leverage legal documentation. The ongoing work around T+1 settlement further underscores the urgency for faster, more automated processes, and digital legal documents are a foundational element to that and many other initiatives.

ISLA, through initiatives like the ISLA Clause Library & Taxonomy and its collaborations on the Common Domain Model (CDM), is actively paving the way for this digital shift. These efforts are not just about scanning paper; they’re about creating a standardised, machine-readable framework for legal agreements. This means:

• Automated document generation and negotiation: Imagine significantly reducing the time spent drafting and negotiating master trading agreements. Standardised clauses and digital platforms can streamline this process, allowing legal and operational teams to focus on higher-value activities.

• Enhanced data extraction and analysis: With contracts in a structured digital format, the industry can leverage AI and Natural Language Processing (NLP) to extract key data points. This unlocks unprecedented opportunities for risk management, capital optimisation, and real-time insights into contractual obligations.

• Improved regulatory reporting: A standardised digital environment for legal documentation will be integral to future regulatory reporting regimes, ensuring accuracy and efficiency.

• Greater transparency and auditability: Digital documents with clear version control and audit trails enhance transparency and simplify compliance.

The transition to fully digitised legal documentation in securities finance isn’t just about catching up; it’s about building a more resilient, efficient, and data-driven future for the industry. Firms that embrace this transformation will be better positioned to navigate the complexities of global markets, optimise their resources, and ultimately, gain a competitive edge.