Business processes are underpinned by legal data. This might be legal agreement data, regulatory data or legal opinion data. Data is one of the most valuable assets in any business and is core to achieving strategic goals. However, data is of little benefit if it is not collected and collated in an efficient and useable way.
Financial institutions have long understood the importance of the client and transaction data domains. The legal data domain has been overlooked, but brought to the fore by the 2007-2008 Financial Crisis. Through regulation such as BCBS239 (Principles for effective risk data aggregation and risk reporting), Recovery & Resolution, Liquidity Reporting and Margin for Uncleared Derivatives, firms have been forced to address the management of legal data. This however, misses the resource management and optimisation opportunities offered by legal data governance and management.
At D2LT, we have assisted our clients across a number of industry verticals with the recognition of the importance of the legal data domain, aiding in the process management and data governance so that they can drive business and operational efficiencies to unlock business value.
Creation of a Legal Data Domain
Contractual meta-data has often been overlooked. It is challenging for firms to identify the critical data elements that firms rely upon to accurately represent the lifecycle events and to make appropriate determinations based upon it.
As the industry has had to confront a myriad of regulatory changes such as: MIFID II, GDPR, MRUD, BCBS239, and QFC, firms have been confronted by the deficiencies of their legacy data constraining their ability to accurately represent their position.
Frequently this has resulted in an analysis of legacy documentation which is highly manual in nature, therefore expensive repapering exercises which give rise to operational and legal risk.
To provide the level of certainty and clarity around the contractual obligations and business outcomes, D2LT engages with client to design and implement legal data domains to facilitate enhanced legal data management/governance.
BCBS239 – Risk Data Aggregation
As one of many consequence of the global Financial Crisis of 2008, regulatory expectations on data quality were enhanced.
The Basel Committee for Banking Supervision (BCBS), a global forum and standard setter for regular cooperation and regulation of banks on banking supervisory matters, introduced BCBS 239.
BCBS 239 contains 14 principles aimed at strengthening risk data aggregation and reporting at systemically important banks.
D2LT assists clients to assess whether their legal opinion and netting enforceability data is compliant with these standards.
Legal Opinion & Netting / Collateral Enforceability Data
Netting and collateral enforceability has been key to the growth of the derivatives markets. However to create a systematic approach for reviewing the enforceability of netting and collateral presents challenges to clients.
Netting has reduced over-the-counter derivatives credit exposure by over 85 percent; without the benefits of netting, banks worldwide might face a capital shortfall of over $500 billion.
An effective netting approach requires an operating model that connects legal documentation, product and counterparty data with legal opinions from the relevant jurisdictions.
D2LT assists client to develop operating models by leveraging enhanced technology and processes (eg netting engines) for determining the enforceability of netting and to review documentation against opinions.
We engage with organisations to remediate areas of concern and to implement new frameworks leveraging technology that is appropriate for them.
Root Cause Analysis
Legal contract data issues frequently arise as a result of ill disciplined client onboarding processes and data capture, resulting in sub-optimal outcomes for legal data consumers.
Regulatory scrutiny and enforcement action has become increasingly prevalent post the 2008 Financial Crisis as a result of heightened regulatory expectations and the ability to seek a more granular evidence-based data set.
D2LT engages with clients to review their operating models including analysis of end to end onboarding, legal documentation lifecycle and legal opinion/netting determinations. We will then help design and implement an optimised future state operating model incorporating people, process and systems.
Data Governance – Legal Contract Data
Data governance is an important concept for any organisation that relies on data. It is a byword for a set of processes to ensure that data is properly managed, and that designated people are accountable for the data so that it can be trusted and relied upon by users.
Lack of appropriate processes for controlling and storing data is problematic for any institution and the quality of data is inextricably linked to the ability to manage, monitor and evidence that robust processes are in place.
WHAT WE DO
D2LT truly understands the importance of data governance. We have worked closely with clients in ensuring implementation and use of industry leading data governance processes.
We have extensive experience of conducting data governance ‘health checks’ for consumers of legal contract to identify data collateral, regulatory capital, and traded risk in order to identify data quality issues that impact current systems and processes and their stakeholders. With weaknesses identified, we will recommend to clients, techniques to enhance or optimise the data.