Stop re-papering over the cracks
“There’s a storm coming,” says Brett Aubin, Managing Director and Head of Regulatory Response at Konexo. “Over the next six to eight months, there are three tidal waves going to hit loans, derivatives, general banking and capital markets products from different directions. The real crisis for our global clients is: how do they responsibly manage this? How do they do it in a cost-effective way?” Before we get onto how to tackle the issues, we must understand what they are. First up: the Libor rate, which is set to disappear after 30+ years as the dominant rate on most of the world’s financial instruments. “That has a lot of contractual implications,” says Brett. “Lenders can’t just swap out somebody’s interest rate without telling them or explaining it to them. The banks and many corporates are going to be impacted by this. The banks have to manage that situation responsibly.
Brexit and Covid
Brexit will also have a part to play. The prospect of a hard Brexit presents a large number of issues which have an impact on contracts with customers and suppliers and they require careful analysis to see if they cater for the changes ahead. That includes who bears additional costs, who is responsible for delay and whether there are Brexit continuity clauses or appropriate relief clauses. Then there’s COVID-19. While the financial effects are being felt already, economists fear the situation will worsen globally as we head into 2021, with large swathes of unemployment, bankruptcy and insolvency likely. This again will have an enormous impact on existing financial contracts. “Any one of those, at any one time, would be an issue,” says Brett. “All three happening at once, all interacting with each other, will make life much harder for our banking clients. Rather than dealing with each one of those in isolation, the time has come for them to take a more holistic view. Start dealing with those things in one go and move away from the piecemeal trigger-by-trigger approach.”
Banks and financial institutions should be seriously considering the pace of their digital transformation.
The challenges facing banks and financial institutions are pretty clear, but what should you be doing about them? The most obvious solution is to put all your data into a single repository, so that contractual issues can be tackled en masse. “Banks and financial institutions should be seriously considering the pace of their digital transformation,” says Brett. “If you had a three-year digital transformation journey for digitizing all your documents, there’s an argument that now, that’s a six-month journey. “You also need to make sure you procure the right technology and services, in-line with your long-term strategy, not just ad hoc to react to one of the tidal waves we’ve mentioned. Everything you do should be building towards a consolidated and sensible future. “Finally, you should consider having a broader contract management strategy beyond responding to individual regulatory changes. Plan for making Brexit changes, IBOR changes and non-performance changes all at the same time, so that you only have to contact the customer once.”
Fortunately, you don’t have to tackle the oncoming “perfect storm” by yourselves. We’ve been advocating a move towards a more digital approach to contract amendment for years, and have subsequently invested a lot of time and money into creating systems and processes that will allow us to save you considerable time, effort and money. “The technology we’ve invested in manages parts of an historically manual process for you,” says Brett. “It manages them automatically with a higher degree of accuracy – and with significantly less cost and time than a human being. Of course, there are very obviously some tasks that can never be done by technology. We’ve become very good at sorting out those that can and those that can’t, which ultimately allows us to utilize technology to drive efficiency and cost-savings for your business.”