Legal practice managers across the board are alive to the danger of regulatory non-compliance and the burgeoning scope of risk-related considerations that are brought to bear on corporate decision-making. The trend is clear – recent surveys suggest that the regulatory burden in the finance industry is set to grow by 15 per cent per annum in the coming years. The regulatory landscape is evolving, and with it the need for sophisticated methods to stay compliant.
Reports of ‘compliance fatigue’ are emerging as businesses fail to keep up with advances in regulation. Irrespective of the business line, effective records management is a headache for both the businesses and the control and surveillance functions. Contracts are the blood vessels of the business and contain all the information required for effective compliance management – if contracts are compliant, delivered on and monitored, risk is reduced. Process, technology and the appropriate use of data analytics can reduce processing time and increase compliance dramatically.
Connecting contracts with litigation
Astute legal practice managers have established the connection between contracts and litigation as part of the same cycle. Poorly managed contracts present a risk in a number of ways, not least of which are lost revenues associated with unenforceable contractual rights (for example a missed break clause in a lease agreement). A significant portion of commercial litigation flows from differences around the interpretation or enforcement of a contract, or indeed poor records-management. So getting contracts right at the beginning of the cycle reduces litigation costs.
Clearly there are sound risk and compliance- related reasons for prioritising a vital contracts- management programme within an organisation. However, the overarching challenge is to find or build a risk and compliance platform across multiple business disciplines, appropriate for the business’s current state but also scalable to its growth both organically and through acquisition.
In the paradigm of contracts management, procurement decision-makers will have to consider three broad challenges:
- Gathering current records (including contract and other templates).
- Identifying a repository that could: provide and allow management of a hierarchy of user access; provide appropriate version control; allow information and access to be shared globally or across certain regions that complies with regulatory requirements and privacy concerns; be supported easily by IT staff; and ideally be ‘plug and play’.
- Managing cost, which is always an important consideration. It is key to demonstrate good business sense and operational efficiency, and ease of connection with clients rather than simply going down the line of “It’s the cost of non-compliance”.
Where success is contingent on the quality of the output as it feeds into business analytics, each of these considerations is significant. One poorly implemented phase can at best erase any potential revenue gains, and at worst expose the business to even greater sanctions in the event of regulatory breaches.
Contract lifecycle management and compliance
A versatile solution to the challenge of risk reduction through proper contract management is already available. By outsourcing this function to specialist third-party providers, businesses are effectively buying in expertise, optimised processes and scalable resources to suit their unique needs.
The benefits of delegation do not end there, though. Increasingly, the technology utilised by specialist providers can be adapted to keep pace with the changing function of risk and compliance managers.
For example, in addition to client-centric key terms or contractual provisions, the software can be coded to flag material relevant to, or even specified by, regulatory bodies. Crucially, essential regulatory parameters can be kept up-to-date by the supplier rather than the client, presenting a raft of benefits to smaller or resource-constrained businesses.
Conclusion
Risk and compliance presents a mounting burden for businesses, while the threat of sanctions for non-compliance increases steadily. The challenge is to find a solution that meets the unique needs of the business and can scale and grow as those needs evolve over time.
From a risk and compliance manager’s perspective this may sound like a tall order, but the organisations offering outsourced contract management services owe their existence to finding innovative solutions to new challenges. Some are now stepping up to the plate to support the risk and compliance function by leveraging adaptations of existing contracts management technology.
These contract management specialist providers are the ideal strategic partners for risk and compliance managers wishing to tackle the mounting challenges presented by today’s business environment. The benefits are readily achievable and outweigh the challenges.
Written by Nicola Stott, Global MD, Exigent for The Lawyer (view the digital version here).
