Financial agreements digitisation could save industry up to $1.2bn, survey finds
05 August 2021 US
Image: stock.adobe.com/spainter_vfx
An independent market study has emphasised the cost saving benefits of agreement digitisation in financial markets.
The study, the findings of which were released today in a white paper — Are you invested in agreement digitization? An industry view of the cost and value of connecting documents with data? — was commissioned by Acadia and LIKEZERO.
Acadia is a provider of integrated risk management services for the derivatives community and LIKEZERO produces contract risk management and data capture software.
Although the financial industry is starting to embrace digitisation, the report makes clear the swift adoption of agreements digitisation could reap potential industry savings of US$622 million to US$1.19 billion across existing agreements, and US$42 million year-on-year for new Credit Support Annex (CSA) agreements.
The study found digitising agreements saves between $1,100 to $2,100 per agreement or $126m YoY across all types of agreements when considering outright data processing costs. Even with partial automation of data collection and aggregation, firms were split when it came to whether their internal systems are able to take agreement data from multiple sources — just 30 per cent of respondents were confident that internal systems were connected.
While 80 per cent of survey participants indicated their documents were at least partially digitised, many costly manual processes still exist. These manual processes are error-prone and can go unnoticed for years, resulting in the need for sudden and significant adjustment to profit and loss (P&L) when discovered.
Time-to-market challenges impact all participants, the survey finds, as onboarding and negotiation steps slow the process down, which can lead to loss of investment or trading opportunities as markets shift and clients find other counterparties to trade with.
The survey was conducted by Aite-Novarica Group between 11 June and 7 July 2021. The company gathered quantitative data and qualitative information from market participants with firms in the study accounting for 59 per cent of the total CSA agreement volume held within Acadia.
Acadia head of industry and regulatory strategy John Pucciarelli says: “The financial crisis highlighted the importance of data and created a path for both buy-side and other sell-side institutions to enhance their agreement process.
“Nearly 15 years later, financial markets are still living in an age where documents are creating data rather than data driving document creation. Our findings reflect what we are hearing from clients — there’s a strong desire for digitisation in agreements and it’s time to fast-track this movement.”
For example, Acadia and LIKEZERO’s document digitisation partnership, offered via Agreement Manager, captures unstructured agreement terms and presents structured data. This process fosters a data model with a single representation of information and forms a continuous bond between data and documents.
LIKEZERO head of strategy Geoff Robinson says: “The findings underscore the significant demand on the operational and commercial data embedded in legal agreements. Complex operating models and a lack of investment in complete digitisation means too many firms are still reliant on manual workarounds that are error-prone and can lead to significant adjustments in risk profiles and P&L.”
Aite-Novarica research director Audrey Blater says: “While ISDA documents were the focus of our study, we found agreement digitisation stretches across an array of legal trading agreements, including those tied to repo and the TBA markets. ISDA agreements tended to be the farthest along the digitisation maturity curve, despite respondents considering them to be in the early- to mid-phases of digitisation.”
The study, the findings of which were released today in a white paper — Are you invested in agreement digitization? An industry view of the cost and value of connecting documents with data? — was commissioned by Acadia and LIKEZERO.
Acadia is a provider of integrated risk management services for the derivatives community and LIKEZERO produces contract risk management and data capture software.
Although the financial industry is starting to embrace digitisation, the report makes clear the swift adoption of agreements digitisation could reap potential industry savings of US$622 million to US$1.19 billion across existing agreements, and US$42 million year-on-year for new Credit Support Annex (CSA) agreements.
The study found digitising agreements saves between $1,100 to $2,100 per agreement or $126m YoY across all types of agreements when considering outright data processing costs. Even with partial automation of data collection and aggregation, firms were split when it came to whether their internal systems are able to take agreement data from multiple sources — just 30 per cent of respondents were confident that internal systems were connected.
While 80 per cent of survey participants indicated their documents were at least partially digitised, many costly manual processes still exist. These manual processes are error-prone and can go unnoticed for years, resulting in the need for sudden and significant adjustment to profit and loss (P&L) when discovered.
Time-to-market challenges impact all participants, the survey finds, as onboarding and negotiation steps slow the process down, which can lead to loss of investment or trading opportunities as markets shift and clients find other counterparties to trade with.
The survey was conducted by Aite-Novarica Group between 11 June and 7 July 2021. The company gathered quantitative data and qualitative information from market participants with firms in the study accounting for 59 per cent of the total CSA agreement volume held within Acadia.
Acadia head of industry and regulatory strategy John Pucciarelli says: “The financial crisis highlighted the importance of data and created a path for both buy-side and other sell-side institutions to enhance their agreement process.
“Nearly 15 years later, financial markets are still living in an age where documents are creating data rather than data driving document creation. Our findings reflect what we are hearing from clients — there’s a strong desire for digitisation in agreements and it’s time to fast-track this movement.”
For example, Acadia and LIKEZERO’s document digitisation partnership, offered via Agreement Manager, captures unstructured agreement terms and presents structured data. This process fosters a data model with a single representation of information and forms a continuous bond between data and documents.
LIKEZERO head of strategy Geoff Robinson says: “The findings underscore the significant demand on the operational and commercial data embedded in legal agreements. Complex operating models and a lack of investment in complete digitisation means too many firms are still reliant on manual workarounds that are error-prone and can lead to significant adjustments in risk profiles and P&L.”
Aite-Novarica research director Audrey Blater says: “While ISDA documents were the focus of our study, we found agreement digitisation stretches across an array of legal trading agreements, including those tied to repo and the TBA markets. ISDA agreements tended to be the farthest along the digitisation maturity curve, despite respondents considering them to be in the early- to mid-phases of digitisation.”
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