12 July 2022
Over the last three decades we have seen several ‘black swan’ events which have caused panic within financial institutions. Lehman’s 2008 left many people with unforgettable memories, last year saw the collapse of Archegos and Greensill, and we are currently experiencing the terrible war in Ukraine.
The popular misconception among many in the industry is we should invest in better ways to identify where the next event will emerge. However, this simply isn’t practical as the very nature of these incidents is they catch everyone by surprise. When unforeseen events occur, too many firms are left unprepared as they’ve spent all their time scanning the horizon rather than fine tuning the tools and processes to deliver an effective response.
One of the remaining data challenges facing financial institutions in Capital Markets is how to access trusted data they can use for rapid decision making.
For too long, financial institutions have left themselves exposed by inadequate control of their legal agreements with counterparties and clients. Often, there is a gap between the unstructured content found in legal documents and the structured data within their operating systems.
When an event occurs, an effective response is delayed as the available data lacks sufficient legal context. A frantic merry-go-round begins as emails are exchanged between decision makers looking for the information they need, while also seeking the opinion of lawyers tasked with making sense of contracts. Each contract will contain subtle differences in the form of amendments and clauses, and may soon become bogged down in a manual and lengthy process.
Meanwhile, those who have calibrated a process which consolidates all the agreement data in one place can act decisively, rapidly adjust their position, and avoid the worst of the crisis.
When a defined procedure is in place, supported by the right technology, managing any event becomes a normalised part of a bank’s standard operation rather than a unique and stressful problem.
Take the imposition of Russian sanctions. All the major institutions have had to work out how to respond, defining the scope of affected entities, collecting appropriate data sets, making decisions and implementing tracking and governance. All of this has to be complete at breakneck speed. Without a system to manage this, the Front Office is left having to manage the impact on spreadsheets and email.
Colin Powell, the former US Secretary of State, famously said:
“There are no secrets to success. It is the result of preparation, hard work, and learning from failure.”
At this moment in time, too many firms have not learned from the errors of the past and are relying on outdated ways of managing their legal agreements. These agreements are the cornerstones from which critical decisions are made when a ‘black swan’ event occurs. More importantly, hundreds of decisions are made each year in day-to-day operations which rely on rapidly accessing the right information in contracts. By using software specifically designed for Capital Markets to deliver trusted data outputs, there is now a simple way to manage the stress which occurs when the unforeseen meets the unprepared.