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NEW ISLA STANDARDS PROVIDE THE FOUNDATION FOR RESOURCE OPTIMISATION, EFFICIENCY AND RISK MITIGATION

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Andrew Dyson, CEO, ISLA (International Securities Lending Association) and Akber Datoo, CEO, D2 Legal Technology

 

Modernising the management of contracts is long overdue. While many market participants in the securities lending market have reaped some of the efficiencies and risk mitigation benefits delivered by the use of systems and data for some time, their highly experienced documentation and legal teams are still constrained by manual processes that have remained fundamentally unchanged for decades. The result is not only wasted time and resources but a lack of vital control: day to day securities lending operations are not governed by carefully negotiated contract terms and organisations are still compelled to use outdated methods to provide the required information to regulators, such as under SFTR.

That is all set to change with the introduction of the ‘ISLA Clause Library & Taxonomy’. Introducing standards is an important step in the digitisation journey, which builds on the Global Master Securities Lending Agreement (GMSLA) preprint forms to improve efficiency, reduce the time spent by negotiators and lawyers in the drafting, negotiation and execution of master trading agreements – and provide a new platform for the use of securities lending data that will transform resource optimisation, regulatory compliance and risk mitigation.

The industry is on the cusp of an amazing opportunity. Andrew Dyson, Chief Executive, International Securities Lending Association (ISLA) and Akber Datoo, CEO, D2 Legal Technology (D2LT) explain the changes ahead in the digitisation journey.

 

Standards Imperative

Increasingly sophisticated data, systems and technology underpin every aspect of financial trading. Yet the legal agreements that define business relationships are still created in isolation – stored, at best, on separate document management platforms; at worst, hidden away in individual filing cabinets or MS Outlook folders. There is no integration with the rest of the business (despite the impact these documents have to a number of stakeholders), with no link to the systems used to manage pricing, risk, the transfer of securities, and cash movements.

In addition to the implications on operational processes and risk management, this manual approach compels experienced negotiators and lawyers to spend far too much time on tedious document creation rather than valuable contract negotiation. Institutions are failing to truly align agreements with day to day activity. With the ever expanding regulatory burden, the lack of rapid access to consumable contract information has become a serious operational drain and risk management challenge.

Digitisation is imperative. This is vital and valuable corporate information – automating document creation and management will provide a platform for better monitoring the rights and obligations of parties to a contract.  But that cannot be cohesively achieved without standards – for one, there are at least two parties to any trading relationship. Today, while the GMSLA is the standard master agreement for governing securities lending transactions, every market participant uses its own interpretations, and its own house style, so identical outcomes are expressed in very different ways across the industry. Without standards, it is impossible to capture, compare or share data. Progress on the digital journey demands the creation and widespread adoption of trusted standards.

 

The Role of ISLA

The role of industry bodies such as ISLA has evolved in recent years – and the creation and ownership of standards has become a key requirement to support industry change. In a recent survey asking 105 ISLA members for the key legal developments and enhancements they would like ISLA to develop for the industry, 80% called for a clause library. Institutions recognise the need for a standard approach to contracts to support the digitisation of the GMSLA, because of the opportunities this can bring.

Now published, the new ISLA Clause Library & Taxonomy is a key step in the digitisation journey, providing institutions with a standard approach to mapping contract terms. Adoption is simple – whether firms are simply writing contracts using MS Office and sharing via email or using contract lifecycle management (CLM) tools. Firms can identify, rationalise and align GMSLA document templates to the ISLA Clause Library & Taxonomy – essentially swapping existing clause libraries for the new standard.

The operational implications are significant – especially for those with ‘one to many’ relationships. With no need to spend endless hours negotiating broadly the same point with multiple different borrowers, the efficiency gains will be huge. Plus, of course, negotiators can massively reduce the time spent creating documents, releasing more time to focus on negotiation of material terms and added value activity.

 

Automation Opportunity

However, a standard, digitised approach to document creation and storage is just the start – the next stage is to proactively use that easily consumable data to optimise resources such as capital, liquidity and collateral. The ISLA Clause Library & Taxonomy provides the platform for new efficiencies, allowing firms to embrace document generation and negotiation platform tools. With template management, workflow, approvals and execution facilities, as well as metrics and reporting to help make the documentation process faster and far more efficient.

In addition, with legal agreement terms collated through the negotiation process, they can be automatically provided on execution to collateral, liquidity, risk and operations teams, ensuring the core components of each contract are not only available to all but the key requirements are automatically embedded within day-to-day activities.

With a structured data representation of the agreement, systems can not only be searched to provide a rapid check of agreed obligations and rights, but responses are automatically enforced through direct integration with operational systems and platforms. For the first time, vital legal agreements will no longer be buried but actually used to support business optimisation decisions in real time and conducting “what-if” analysis – and that is incredibly exciting.

 

Conclusion

There is still more business value to be unlocked in the digital journey.  In 2022, we hope to see the integration of the ISLA Clause Library & Taxonomy with its Common Domain Model (CDM). In addition to improving the management of legacy contracts that have been created over the past two decades, firms will also have access to a standardised representation of legacy contracts within a legal agreement data model.

This change will also pave the way for the use of data extraction tools with Artificial Intelligence (AI) and Natural Language Processing (NLP) capabilities, allowing institutions to optimise resources such as capital, liquidity and collateral – as well as simplify regulatory reporting and day to day operations.

An integrated Clause Library and CDM will also provide the building blocks for regulators to impose far more rigour over the compliance process with regulations such as Securities Financing Transactions Regulation (SFTR) and EMIR – without overburdening institutions. Rather than demanding a list of information required, regulators will simply be able to provide a piece of code that can be uploaded by the institution and automatically search out and provide the data, in the correct format – digital regulatory reporting. For institutions, no more wading through complex compliance documentation; or embarking upon expensive and resource demanding projects. For regulators, the ability to update and expand compliance demands far more frequently in response to changing risks.

Digitisation is overdue but ISLA legal agreement standards will deliver fundamental change. The future is truly bright – and the best is yet to come. It is now time for firms to embrace the ISLA Clause Library & Taxonomy as part of that journey.

 

Finance

AIRBANK SELECTS YAPILY TO BUILD A FINANCIAL MANAGEMENT SOLUTION FOR SMBS

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Airbank, a financial management solution for European startups and SMBs, has selected open banking infrastructure provider Yapily to help its users manage their finances with ease.

Airbank provides a simple financial management solution that aggregates all bank accounts in one place and delivers more control, visibility, and automation to modern finance teams. Startups & SMBs use Airbank to access bank accounts, monitor cash flow in real-time, create reliable forecasts, and make business payments.

Airbank matches bank transactions with merchant and category data to give finance teams complete visibility into revenues and expenses, thus helping make their lives easier with cash flow budgeting, forecasting, and reporting.

Yapily’s API infrastructure provides Airbank users with a smooth, simple way to connect to more than 1,500 banks across the UK and Europe including Deutsche Bank, Commerzbank, Sparkassen, Volksbanken and neobanks. Airbank selected Yapily for its strong coverage in Europe, with a specific focus on Germany, France, Spain, and the UK. Yapily’s European bank connectivity enables Airbank’s customers to scale and grow across Europe, delivering forecast visibility anywhere they go.

The partnership with Yapily alleviates Airbank’s customers from spending time and resources managing their finances – giving them direct access to all the financial and contextual data they need in one tool. Historically, most businesses created budgets and cash flow forecasts in manual spreadsheets which is time-consuming and error-prone. With Airbank, customers save time and costs to focus on value-adding business tasks.

The partnership also enables Airbank’s customers to use its data enrichment platform and transaction categorisation engine to turn the raw data from bank accounts into meaningful and actionable insights. Airbank reconciles account balances, forecasts financials and helps business owners make smarter business decisions every day. Harnessing Yapily’s leading open banking infrastructure, Airbank can accelerate its adoption of digital banking services.

Airbank’s vision is to simplify financial management for SMBs and to create a unified platform that helps its users with the full cycle of financial management from cash flow analysis and forecasting, to accounts receivables and payables management, and more. Airbank has raised $3m seed funding from leading VCs, and counts hundreds of users in Germany, Austria, France, Spain and the UK.

Open Banking has enabled smooth integrations with banks, which we utilize to offer richer banking and payments experiences for our users. We’re building a business banking solution that connects all your financial accounts in one place. Our partnership with Yapily gives users a smooth and simple way to connect to thousands of banks in Europe, unlocking real-time insights into their cash flow. We eliminate the pains of finance admin so business owners can focus on what’s really important — growing their business.

Christopher Zemina, Co-founder and CEO of Airbank

Airbank helps simplify the daily routine of banking and finance management for small and medium sized businesses. By leveraging Yapily’s open banking infrastructure, Airbank can provide actionable insights to businesses – at a time where it’s needed. As a small yet fast growing company, Yapily is committed to supporting the SMB community and we are excited to see how Airbank delivers the benefits of open banking to many businesses across Europe.

Comment by Chris Scheuermann, Commercial Lead DACH at Yapily

 

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Interviews

COULD YOU PROVIDE US WITH SOME BACKGROUND ON YOUR CURRENT ROLE WITHIN THE FINANCIAL SERVICES SECTOR?

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– Shanker Ramamurthy, Global Managing Partner – Banking at IBM, BIAN Executive Board Member

 

I lead the banking consulting practice across IBM Consulting, focusing on banks’ digital transformation, core banking, and payments. Additionally, I am the President of the IBM Industry Academy, a dynamic and diverse community of IBM’s industry experts aiming to form new solutions to help our customers win in a constantly evolving industry landscape. The Academy offers IBMers the chance to work together and collaborate with industry experts from all areas of IBM.

Since my career began almost three decades ago, I have been lucky enough to work across six continents in various consulting and leadership roles in the financial services sector. This experience, coupled with my current role, has provided me with a unique insight into the digital trends affecting all industries and enables me to serve IBM’s financial services clients better.

 

Can you explain more about your recent appointment to BIAN’s Executive Board and BIAN’s role in the industry? 

BIAN stands for the Banking Industry Architecture Network. It is a collaborative, not-for-profit organization of institutions and professionals from the financial and technology industries, including leading banks, technology providers, consultants, and academics from all over the globe. Member organizations are committed to lowering the cost of banking and increasing the speed of innovation adoption in the industry. Members draw upon their combined industry expertise to define a revolutionary banking technology framework that standardizes and simplifies banking architecture to overcome limitations preventing growth and efficiency and encourage ease of management in their existing environments.1

The opportunity to become a member of the BIAN board was an invitation I could not turn down. I am honored to be part of BIAN’s executive board to provide counsel and support their work in helping financial institutions negotiate this time of immense opportunity and disruption. For the financial services industry, BIAN’s open framework, services-oriented architecture, and standards model are more critical than ever before.

 

Shanker Ramamurthy

After working in the financial services industry for a number of years, what is it that makes you so passionate about the industry? 

I am delighted to see the impact of exponential technology on financial services because these innovations provide an opportunity to bring positive change to people’s everyday lives. I am also a strong advocate for financial inclusion and emphasize its importance as part of my practice. Financial services should be accessible for all, regardless of financial means and where you are in the world. In this respect, I am committed to helping banks widen the availability of banking services and reduce the cost point of doing so.

 

The importance of financial inclusion is evident. But what measures can global banks take to increase the availability of banking services and keep cost points low?

The financial services industry still has much to do to achieve inclusive banking globally. Having said this, incumbents, fintechs and techfins have made significant investments in technology and innovation, with this end in mind. Unfortunately, we live in a world where globally, billions of people still do not have access to basic financial services. Critical areas such as payments – particularly cross-border payments – remain costly, and access to credit continues to be a challenge for so many.

Global financial institutions will find success for their own business processes and their customers through a technology and business strategy to support the bank of the future and by prioritizing innovation powered by hybrid cloud and AI. Although there is much work to be done, it is encouraging that the combination of innovation will help democratize and transform finance like never before.

 

What can banks do to prepare for the future? 

Banks are facing an evolving landscape due to COVID-19 and changing regulatory environments. This is something banks and fintechs are navigating. At the same time, the financial services industry is being shaped by new consumer trends – from the rise of a cashless society to the pandemic-driven shift towards online banking and mobile payments.

The focus on technological development to accommodate these changes will continue. The banks that succeed will be the ones who have a technology and business strategy to support the ‘bank of the future,’ in which much of the middle and back office gets almost entirely automated and focus shifts to customers and customer value-adding functions. This transition requires rapid digitization and the adoption of exponential technologies powered by the hybrid cloud and AI. BIAN has an essential role in helping banks do just this.

 

What does the shift towards digital banking, including the increasing use of mobile contactless payments by customers, mean for the bank of the future?

Digitization drives innovation, new business models, and efficiency while simultaneously enabling extreme competition from traditional and non-traditional competitors. In tomorrow’s banking eco-system model, the value is increasingly accruing from customer-facing functions supported by platform-based business models. By extension, this has meant competition from both fintech and importantly, techfins (large technology companies that are moving into the less regulated aspects of financial services such as payments, electronic wallets, BNPL – buy now pay later models and more).

Banks in the future will automate extensively, and likely extend their business models to create ‘beyond banking platforms’ to support their customers in areas outside of the traditional banking value chain. The future of such models is being written in Asia by banks such as DBS in Singapore, State Bank of India, among others as they evolve their business models to combat the growth of ‘super-apps’ like Alibaba, Tencent, Grab, Gojek, and more in that part of the world.

 

How can the industry find its footing after such a change?

Banks have several natural advantages that come from incumbency, customer loyalty, and material regulatory barriers preventing non-traditional competitors from quickly breaching their businesses. Regardless, mastering the future will require banks to ask themselves three questions:

  1. Is our strategy ambitious enough?
  2. Are we executing fast enough?
  3. Do we have the talent and capabilities to win?

Answering these questions honestly and then putting in place programs to execute relentlessly is the only way for the industry to continue to thrive and take advantage of the extensive opportunities in the near future.

 

 

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