The financial services industry today faces unprecedented regulatory scrutiny. With the heavy fines and bad PR that come with findings of non-compliance, following strict standards is not simply a goal for banks, but a core requirement.
Contracts, which form the foundation of a bank's relationship with customers, employees, and vendors, are vital to compliance. Yet many organizations, including those in the financial services industry, do not have an enterprise-wide system for managing them. Instead, they rely on manual processes that impede visibility into and control over this vital facet of their business.
Below are four questions every bank should ask about its contract management process and compliance, and ways the right contract management software can help it achieve its compliance goals.
1. Is there system-driven governance and compliance in the contract process?
According to a January 2018 report from the Deloitte Center for Regulatory Strategy, "The largest banks are at varying stages of maturity in their journey to transformation under the enhanced standards and broader governance, risk, and compliance expectations" in the wake of the 2007 global financial crisis. "Most have nearly completed the build phase and have entered, or soon will enter, the critical phase of rationalizing and sustaining what they have built."
With contracts forming the basis of practically every financial transaction, this execution of better governance starts with them. An effective contract management system should not only assist but require adherence to company controls.
A leading contract management system fulfills this requirement. On the Icertis Contract Management (ICM) platform, for example, a bank can ensure that all mortgage agreements contain the latest, approved versions of clauses using a robust clause and template library; track all non-standard or deviated clauses; and trigger reviews of the agreement due to changed language. All of this ensures greater compliance with internal and regulatory rules.
2. How are contracts approved and signed, and what level of visibility is available to both the signers and the approvers?
Deviant or otherwise non-compliant clauses are not the only way insufficient contract management systems allow risk into the contract writing process. Management should also have nimble control over the value and type of contract various roles in an organization are allowed to authorize by themselves, and which should be routed through management or other departments. For example, a bank may want all loan agreements over a certain dollar amount to be reviewed by a manager before they are executed. This reduces the risk of maverick contracts that become a liability for the bank.
With ICM's easy-to-adapt dynamic workflows, banks can route contracts for approval and signature to the proper parties based on type, value, location, and other attributes. Also, when it comes time to sign, the review process is simplified with automated executive summaries that allow approvers and signers to get a quick glance of key terms and deviations before approving or signing. This ensures that nothing slips past and reduces human error.
3. Is there a system to enable contract self-service with the right level of controls?
As mentioned above, risk management and regulatory compliance requires that management be alerted to potentially problematic contracts. However, it is equally true that with the fast pace of commerce in the banking industry, an organization cannot wait for a central team in legal or finance to approve each and every contract.
Instead, systems should be put in place that allow self-service contracts, while maintaining proper controls for every role in the enterprise. Under these circumstances, self-service contracting enables a faster speed of commerce while improving governance and compliance. On the ICM platform, organizations can easily adapt self-service rules to suit their strategic needs. The user interface is simple and intuitive, and can be modified to show key statistics and metrics relevant to each users’ role. This encourages high user adoption rates, allowing an enterprise to fully realize the benefits of an enterprise contract management system.
4. How are contracts managed across all the affiliates? Is there a need for centralized visibility, governance, and compliance processes?
A major strength of an enterprise contract management system is its ability to house all contracts from even the largest global enterprise in a central repository. This allows organizations to have a single source of truth regarding contractual terms, such as obligations, entitlements, and vendor and product pricing.
This means organizations can provide all affiliates with contracting capability, and allows for identification of related contracts across affiliates, vendors, produces and services. Cognitive analytics and machine learning help connect the dots of an organization and drive rationalization of terms for reduced cost and improved risk and compliance processes.
In today's tightly regulated and quickly changing business environment, banks need to find ways to control risk and gain more visibility into every aspect of their business.