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Insights by Richard Barton – Head of Product Management, AcadiaSoft

The agreements space is an area of risk management where rapid progress is being made towards digitization and automation. Digitization solutions such as AcadiaSoft’s Agreement Manager enable fast, scalable consolidation and affirmation of legal and operational data.

As firms look for ways to improve their risk management solutions, agreements are a great place to start on the path towards digitized, collaborative risk management solutions across the industry.

Here are five key trends to watch on digitization in the agreements space that ensure you stay in control of your data:

Integrated workflow management

Typically, a firm’s legal team, onboarding team and risk team are all interacting with the agreement but doing so separately from one another. This siloed approach greatly increases the possibility of teams potentially inputting or interpreting the data differently, which can lead to a scenario where there are different interpretations of important clauses in these agreements across the firm.

With digitization, the contract only needs to be entered once, and the data flows throughout the firm’s operations, eliminating the possibility of internal disputes of interpretation between teams. In this respect, digitization is the oil that allows for firm-wide integration of a risk management workflow that runs smoothly, rather than having operations be siloed as has traditionally been the case. Digitizing agreements allows firms to go directly from creating the agreement with the counterparty to being operationally ready in the fastest time possible.

Tip one: Capture data during the negotiation and/or digitization process in a way that can be useful and leveraged by downstream applications.

A collaborative process for managing agreements between counterparties

While unilateral digitization projects can be useful within a firm, they can only reach their true transformative potential as part of a community-based push towards implementing digitization and standards. A legal agreement is by nature a collaborative process between two parties, and there’s no reason the collaboration should stop once the agreement is signed.

AcadiaSoft’s Agreement Manager ensures that both parties are working from a true “golden source” of data, which creates uniformity in the information being fed into downstream processes. A mutually agreed upon golden data source eliminates disputes and differences that were previously caused by downstream systems interpreting data differently at each firm.

Tip Two: Ensure a firm-wide standard representation of data and work collaboratively with your counterparty network to validate that you maintain that same interpretation of your agreements.

Progressive firms are reviewing both standardized representation and standardized interpretation of legal clauses for agreements

The industry has seen a push to create standard data models for representing logic and key data attributes within a legal agreement. This is important for an efficient process but without standardized interpretation of the same legal clauses into that data model firms can still end up with different representations of the same agreement resulting in operational inconsistency and potential future disputes. This wastes valuable time and money resolving these issues as they arise.

AcadiaSoft, through partnerships with Document Digitization Providers, Online Negotiation Platforms and Vendor Systems, has created standard adaptors and processes that interpret legal clauses the same way every time. This ensures consistency across contracts, saves time and reduces costs. Provided these standards address the complexity inherent in these agreements, the entire industry will benefit from the enhanced consistency.

Tip Three: Leverage industry standard adaptors to assist with a consistent interpretation of legal clauses

Digitization is not just about new agreements but existing agreements as well

There is a growing trend for firms to digitize existing agreements including the required amendments, as well as digitizing new agreements as Phases 5 and 6 of the Uncleared Margin Rules come into effect in September 2021 and September 2022, respectively. Because each phase will bring a wave of new agreements that firms will be required to track and record, many are looking to digitization to manage the influx of agreements.

The Agreement Manager application allows firms to easily look at the data pulled from agreements, while also still being able to view the original contract itself, so users can not only see how the various clauses are interpreted, but the original language of the clauses. Combined with the ability to make the data available to counterparties and reduce disputes in interpretation, digitized agreements save time, cut costs, and significantly improve the efficiency of a firm’s risk management operations.

Tip Four: Legacy agreement digitization is equally important as having solutions for new agreements

More agreement types are being digitized now than ever before

As digitization rises in popularity, the range of agreements that can be digitized continues to expand. At first, the catalyzation for digitizing agreements was the Uncleared Margin Rules, so initial demand was primarily for ISDA and OTC agreements, such an initial margin and variation margin, as well as digitizing legacy agreements.

However, we are now seeing an increased variation in the types of contracts that firms would like to digitize. Firms are looking to digitize agreements such as repo and securities lending agreements, as well as cleared derivatives agreements. Firms are moving towards a holistic approach to agreement management, and whilst this may take time, we see a general trajectory in that direction.

Tip Five: Broaden your digitization program to include a wider set of agreements to reap the full benefits

We’re on the cusp of an industry shift towards the consolidation of almost any legal agreement into a common centralized source. Firms want the ability to capture data and extract the rules and underlying contract information necessary to catalyze an integrated flow of data across a wide variety of agreements. At AcadiaSoft, we’re working with our clients, partners and Industry Associations to expand the types of agreements that can be digitized to meet this growing demand.

To learn more about Agreement Manager and to read our case study, click here.

About Richard Barton
Richard Barton is Head of Product Management at AcadiaSoft. With many years of experience in Collateral Management in both the vendor and banking sector, Richard has spearheaded AcadiaSoft’s Agreement Manager application design over the past two years and ensured that best-in-breed technology providers are fully integrated to maximize client value.

About AcadiaSoft
AcadiaSoft, Inc. is the leading industry provider of risk management services for the derivatives community. Its industry-wide repository of margin and collateral data helps firms to mitigate financial risk and optimize resources across the entire trade life cycle.

AcadiaSoft’s suite of analytics solutions and services helps firms measure the quantitative aspects of risk management. Through an open-access model, AcadiaSoft brings together the top derivatives banks and asset managers, along with several market infrastructures and innovative vendors.

Backed by 16 major industry participants and market infrastructures, AcadiaSoft is used by a community of over 1600 firms exchanging more than $1 trillion of collateral on daily basis via its margin automation services. AcadiaSoft is headquartered in Norwell, MA and has offices in Boston, Dublin, Dusseldorf, London, New York, and Tokyo.

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