Banking, Financial Services, and Insurance industry has been embracing technology and taking steps to improving customer service through fast, uninterrupted, digitally advanced products and services since the past decade – the proof lies in easy interface mobile apps that we use for almost all banking services, any time of the day. Despite this industry’s efforts to stay on top of technological innovations, it has started to fall behind when it comes to one of the most important aspects of its business, which forms the foundation of all dollars coming in and out of business – contracts.
BFSI industry’s primary commodity which is money, is mainly evidenced through contracts. With industry specific regulations getting more stringent by the day and getting updated all the time, keeping a track of and abiding by all the regulations such as GLBA, BSA, FACTA, PCI, NIST, and guidance from the FFIEC has become a difficult task. Failing to comply with regulations can result in huge penalties and cost financial institutions a fortune. To quote, in 2016, the FCA fined The Bank of New York a massive fine of around $142 million for breach of principle 10. Another example is of J P Morgan who announced that it would take 5,000 employees and $4 billion to clear up its piled up risk and compliance problems. We keep coming across many such cases where financial institutes lose large sums of money along with reputation which is often a greater loss for companies and difficult to win back.
Along with compliance, the many other challenges faced by the Banking and Financial Services industry can be addressed with a robust, integrated contract management solution, as detailed below:
1. High-risk, high-value contracts
Dealing in a large number of intricate financial products have high stakes attached to them. Especially when these form the core of your business, monitoring each of these contracts in your portfolio is of utmost importance. A centralized contract management repository with customizable dashboards gives a 360-degree view into all contracts at one place and alerts the right stake holders in case of any inconsistencies.
2. Large dependence on third party vendors
With the growing complexities in the BFSI industry, financial institutes often specialize in a few services while outsourcing the rest to third party vendors to ensure high quality and varied range of services along with services like legal, IT, auditing, etc. With the industry demanding strict adherence to many regulations, it becomes imperative for these institutions to closely monitor and evaluate their vendor contracts and vendor performance. Advanced CLM, through a customizable third-party portal, provides an easy glance into all vendor contracts and enables vendors to self-service their contracts with the organization.
3. Need for data security
With banks and financial institutions dealing in sensitive customer data, increased privacy regulations and the constant risk of cyber-attacks and hacking, there is an urgent need for an impenetrable data security system. AI-powered CLM solutions make all contract data fully secure through robust technology architecture with secure access controls configurable by role or other parameters ensuring only the right people can view any specific information.
4. Strict internal & external audit guidelines
Considering the strict nature of regulations and obligations governing this industry, there are internal and external audit guidelines demanding all-time availability of audit-ready records. Contract management systems auto-track and store all versions of documents during the authoring, review and negotiations stages to ensure accurate audit trail and audit ready documentation.
5. Poor contract visibility
Despite high technology adoption in the BFSI industry, many organizations, as of today, store their contracts in separate repositories with organizations often working in silos across departments, functions or geographies. This disparity in storage leads to low visibility into all contracts and lack of interdepartmental communication. This can lead to delays and confusion often restricting the otherwise quick and timely service provided by these institutions. A centralized contract repository with integration across ERP and CRM systems allows easy visibility and communication across departments and geographies for a collaborative experience.
6. Need for risk analysis and report generation
With BFSI industry being prone to high risk due to a large number of regulations and increased dependence on third party vendors, there is a pressing need for risk analysis to control and mitigate risk. AI powered CLM solutions can analyze risks associated with contracts, clauses and vendors based on historical data and suggest clause variants and solutions to reduce risk. These CLM solutions can also auto-generate reports based on various parameters like contract performance and utilization, vendor risk management, and commercials management.
Looking at the criticality of contracts in the banking and financial services industry and the many complications they face owing to manual, rudimentary systems, we can conclude that the BFSI industry is in dire need of upgrading its contract management solutions to stay relevant in the ever-evolving financial market.