As financial regulations become increasingly complex, financial institutions are turning to artificial intelligence to improve compliance and reduce legal risk. AI and machine learning can automate the review of contracts, identify regulatory obligations, and streamline repetitive legal processes that once required significant manual effort. By accelerating document analysis and reducing human error, these technologies are helping organizations manage compliance more efficiently while lowering operational costs.
The opportunity extends well beyond contract management. From regulatory technology (RegTech) platforms to large-scale initiatives such as the transition away from LIBOR, AI is proving valuable wherever organizations must analyze large volumes of legal and regulatory information. Institutions that successfully integrate AI into their compliance operations can improve accuracy, strengthen governance, and better adapt to an evolving regulatory landscape.
An interesting article in PaymentsSource written by the founder and CEO of InCloudCounsel, a 2011 San Francisco based startup that specializes in “managing high volume, repetitive legal documents for large enterprises with a virtual network of boutique law firms. It also offers a solution to negotiate and manage routine legal work to help large companies streamline processes, save money, and free up resources.” How can AI help with payments law?
One of the growing areas of VC interest is in the ‘regtech’ space, which by some estimates is expected to have a market size of roughly $50 billion in just a few years. Taking advantage of digital information and capitalizing on AI and ML capabilities is a space unto itself, with dozens of specialty firms as well.
The author makes the case that combined expertise, data and such advanced capabilities are an advantage for firms (including FIs) who need to navigate complex regulatory structures.
‘This has made ensuring compliance across an entire organization a significant challenge that traditional systems struggle to adequately handle. These traditional approaches are not only time-consuming, inefficient, and prone to human error, but they also expose financial institutions to unacceptable levels of legal and reputational risk….Legal technology solutions, enabled by artificial intelligence (AI) and machine learning, are making a huge impact in how financial institutions are handling their routine legal work, including managing compliance with contractual obligations arising out of NDAs, vendor contracts, joinder agreements, and other legal contracts. With the right tools, including contract analysis software, financial institutions can better ensure that they’re complying with all contract terms, while reducing errors and inefficiencies.’
The piece goes on to discuss a number of mostly contract-related scenarios where advanced data analytical capabilities for existing documents can save money and better ensure compliance. Although the article does not get into it, one scenario that we have previously written about that would seem to be greatly enhanced by AI is the coming LIBOR replacement, which is a benchmark for many trillions of global contracts.
According to one source, there were contracts totaling $300 trillion globally that used LIBOR as a reference rate as of April 2019. According to the Fed, at least $35 trillion of this contract value will not be expired by the end of 2021. It seems like a good use of technology to help manage the issue. In any event, digital is the right direction, no matter what area of business one discusses, so the piece is worth a quick read.
‘Compliance is not simply an inconvenience, but a requirement that has severe consequences if not met, including fines and negative actions by the SEC and other regulatory bodies. Harnessing the power of a leading legal tech solution incorporating legal AI and machine learning can finally give financial institutions a way to know not only what their compliance obligations are, but to be sure they’re meeting them in the most accurate and efficient way possible.’
AI is rapidly becoming an essential tool for legal and compliance teams across the financial services industry. By automating contract analysis, identifying regulatory obligations, and improving document management, AI enables organizations to reduce risk while increasing operational efficiency. As regulatory requirements continue to evolve, institutions that invest in AI-powered legal technology will be better equipped to maintain compliance, respond to changing rules, and free legal professionals to focus on higher-value strategic work.
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group
