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What will large scale automation of banking documents look like?

Posted by Gene Turner on 04-Jul-2016 11:27:36


Last week, I wrote about the opportunity to create substantial savings for banks and their customers through use of common documents. Advantages would include:

• reducing the substantial costs banks incur in preparing the documents;

• reducing the costs of updating and maintaining them, and increasing the number of people with incentives to continuously  improve them;

• making it much faster, easier and cheaper for lawyers to advise clients on the terms of loan and security documents – meaning borrowers can access their money quicker, and with lower costs; and

• making it easier and more efficient to buy and sell loan and security portolios.

These benefits have been available – if not taken up - for some time. However, with increased availability of technology, two other substantial benefits are now available:

• standardised documents are more easily automated, particularly if they are drafted with automation in mind; and

• although it is early days, it appears that “smart contracts” based on blockchain technology would ideally be based on – and require - standardisation and automation.

Two great examples of standardisation, crying out for automation

I noted last week that there are existing examples of standardised documents. Two of these are ISDA agreements, and the recently updated Banking and Financial Services Law Association’s transaction closing opinions.

I have already been helping a colleague in London, who is an ISDA expert within a major bank, to automate an ISDA 2002 Schedule because it is such an obvious document to automate, given its widespread use and modular design. In a timely example of how substantial the benefits with ISDAs can be, this story (Big Law is Automating Legal Services!?) notes how Allen & Overy and Axiom are using document automation to help banks prepare for a swath of new regulations on over-the-counter derivatives expected to take effect by 2017. To comply with new regulations, banks will need to re-write thousands of “master contracts”. Allen & Overy ‘s David Wakeling said this would usually cost tens of millions of pounds for a premium law firm to do in a traditional way, even though he said it is “not necessarily hard legal work”.

Axiom’s executive vice president of global banking, Chris DeConti said it is automation which is mostly responsible for the reductions in price, to the extent that 95% of the person hours on the project are now negotiations, instead of documentation.

I never did much work with ISDA Agreements – I tended to leave these to ISDA experts like Adam Jackson. However, I signed a lot of banking transaction closing opinions and really didn’t like them. Coming at the end of a transaction when you are often at, or above, your fee estimate you are acutely aware of the cost and value of the opinion, and the difference between them. In my view, they cost too much, and add very little value. While the banks often perceive them as a “sign off”, in reality they are so packed with assumptions and qualifications that they are more a formulaic limitation of the scope of the firm’s responsibilities, and an explanation of all the reasons why the few actual opinions given might not be correct in any event!

I was so keen to see a standard opinion developed that I even attended one of the early BFSLA sessions that started the process – at 7am after a very late night out – and was greatly disappointed given the state I was in to find that not only was such an opinion not being handed out to attendees, or even likely to occur in the short term, but given the extensive “precedents committees” that existed in each firm and how wedded they were to “their form”, it was quite possible it would never occur.

Against that background, the BFSLA committee have done an excellent job on the opinions, which is not surprising given the involvement of the “Walrus Committee” made up of Allens, Ashurst, Herbert Smith Freehills, King & Wood Mallesons and Norton Rose Fulbright and the efforts of heavyweight Australian banking lawyers such as Diccon Loxton and Nuncio D’Angelo. But even though they are greatly cut down from the earlier forms that used to prevail, they are still difficult documents to work with, with the secured opinion containing 127 sets of square brackets, 46 end notes, and many optional selections which - if relevant - need to be copied from the end notes (or elsewhere) and inserted and completed in the correct location. I felt this great initiative could be so much better with automation, so that’s what I’ve started.

A glimpse into an automated future

Although there is a lot more to be done, I believe we have made a promising start. The videos below, together with this example of the NZBA priority documents, give a brief glimpse of what an automated banking legal documents future might look like. There’s no reason why even very complex banking transactions could not be substantially automated.

I would certainly be happy to work with the BFSLA to implement automation of the opinion documents, but the obvious issue is that they’re only designed for use in Australia! We need a Walrus Committee in New Zealand too! 

Some local ISDA expertise is also needed to enable the ISDA Schedule we are working on to be able to be used in New Zealand or Australia.

If you would like to help LawHawk:

• finalise the automated 2002 ISDA Schedule for use in New Zealand and/or Australia
• finalise the automated BFSLA Australian opinions
• draft and automate a New Zealand version of the BFSLA opinion

get in touch

BFSLA Opinion

A demonstration how how quickly a transaction opinion could be prepared. Much of this information could be prepopulated from other transaction information.


2002 ISDA Schedule

A demonstration how how quickly an ISDA schedule could be prepared. Much of this information could be prepopulated by the Party preparing it, as they will already know their usual positions.


Topics: Banking and finance

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