Planning for Brexit? Determine the Contractual Landscape First
Brexit uncertainty continues and it makes business sense for financial institutions to begin their preparations for the business and trade changes that the post-Brexit scenario will unfold. Due to the potential legal and regulatory consequences in the new environment, contract repapering is going to be a massive and onerous task, especially in the fixed transition period that Brexit dictates. Undertaking this analysis manually within the stringent timeframe of Brexit is an almost impossible task. However, a technology‐led approach using artificial intelligence (AI) presents a realistic prospect of success.
As a first step in determining the impact of Brexit on business operations, financial institutions must identify their contractual relationships and obligations in the various EU member state jurisdictions, the governing laws in those regions, and they must also figure out to what extent their contractual associations will be impacted.
As a second step, financial institutions can move on to determine which of those contracts will need repapering. This step, however, requires a detailed analysis of every single contract, which needs to take into account multiple factors, such as the obligations that will persist post Brexit, termination rights triggered by Brexit, any force majeure clauses that can cause the suspension of the contract, custom and tariff changes possible, loss of passporting and so on.
Before this second step can happen though, financial institutions need to embark on the preliminary step of completing the digitisation of their contracts. A technology-led approach is the best way forward for repapering contract success. AI can help in this endeavour, but all financial institutions will have to make sure that the digitising of documents happens first. A partial digitisation will not offer visibility into every single file and, hence, applying AI to only partially digitised records will expose the institution to risk through possible omissions.
Once all contract data is digitised and available for analysis, AI can search according to a variety of data points to determine the necessary scope of repapering. For example, it can search and sort results by contract termination date. Or, it can search – in a more sophisticated way – by searching unstructured data, such as termination clauses or obligation terms, which refer to the right (or the lack thereof) to provide new services under the same contract obligations, without requiring new authorisations.
The reality is that notwithstanding the form that Brexit takes, financial institutions will need to investigate an immense volume of contractual agreements to identify risks. They will also have to prepare themselves to adapt to the new business environment, using processes such as repapering, assignment, transfer or novation. In order to grasp the challenges of a post‐Brexit business world and adapt, financial institutions can choose to adopt AI to interrogate and understand their contractual relationship environment. This is the best, most efficient and accurate way forward.
This blog post was based on the article published in Financial IT, by William Rees, Business Consultant at iManage. For a more detailed analysis of this subject, you can read the Financial IT article.