Financial Services Institutions are facing an increasingly uncertain environment. On onside, it is the stiff competition from extremely agile, digitally native, fintech start-ups and on the other side is the massive regulatory changes such as the retirement of LIBOR in 2021.
LIBOR has been the cornerstone of the global financial system since its inception. LIBOR also forms the foundation to over 350 trillion in financial contracts worldwide. With the LIBOR retirement fast approaching, most Financial Services Institutions are making huge efforts in weaning away from LIBOR and adopting the ARRs (Alternate Reference Rates). However, it is no secret that the efforts are falling short of expectations. Although, the Financial Services Institutions have always been at the forefront of investing and adopting new technologies for its ROI; they are now struggling to leverage traditional, large legacy and rule-based systems to solve the LIBOR transitions.
Financial Services Institutions are planning to invest billions of dollars in the transition by leveraging existing technology and a team of legal proficiency. This approach can solve the problem; however, this huge undertaking will be extremely time consuming and unlikely to meet the transition timelines. As the process of reviewing all agreements, across asset classes, determining the right ARR, and running amendment operations is manually intensive, requires coordination across functions and roles resulting in difficulties to manage it across geographies.
There are multiple technology providers approaching Financial Services Institutions with their solutions, frameworks, and accelerators. The market is witnessing many categories of players coming together to offer their services for the LIBOR transition and retirement. Law firms are tying up with software companies, management and advisory consulting companies to offer a strong legal-tech solution. But all these options are leading Financial Services Industry into a state of confusion over choosing the right solution.
One of the possible and effective solution of overcoming the above set of challenges could lie in the implementation of Artificial Intelligence (AI) in the right way. Some of the significant advantages of implementing AI could be listed as below.
- AI can process millions of documents in an extremely short span of time.
- AI would efficiently extract information from contracts related to LIBOR and interpret context by deciphering the intent and validating transition requirements.
- Classifying contracts and documents depending on LIBOR exposure to ascertain risk and liabilities will be quicker and easier via AI.
- AI insights can recommend the next course of action to experts and process owners.
- Leveraging AI will be helpful to automate actions, like identifying the right ARR in compliance to the companies and government regulations.
- AI can automate the generation of appropriate amendment templates and automatically reach out to customers or syndication partners for approvals.
- Application of AI across the entire lifecycle of transition right from discovery to contract amendment and finalization, automating majority of the process steps.
Expected business benefits by leveraging AI
- Lower costs – Adopting an AI systems will drastically reduce the requirement of manual processing, restricting manual involvement to oversight and review. Saving billions of dollars form reduced billing.
- Speed – Given, the variety of contracts, various functions and customer types, the variations in language across contracts, having to processes it manually is very expensive. This whole process will be accelerated given AI’s capability to parallelly processes multiple documents, understand context in really short time intervals, thereby accelerating the whole process.
- Building Data as an Asset- Unstructured data that earlier wasn’t accessible for analysis will become accessible for further explorations and can drive insights to enable better.
- Reduce Errors – With reduced manual touch points, errors associated with manual processing will drastically reduce enabling better compliance and significantly improve accuracy.
Financial Services Institutions across the globe have already started considering AI as the most efficient and economical solution. Application of AI to the LIBOR transition could be the ideal way for Financial Services industry to harness technology and drive towards positive outcomes.