Documentation recording the legal rights and obligations of contracting parties of various financial instruments plays a crucial role in the financial services industry. With many institutions moving towards digital transformation and process automation, standardizing and digitalization of legal data is challenging because of the problematic patterns in legal drafting.
The prevalence and impact of problematic patterns of legal drafting arising from a focus on wording rather than comprehensibility for everyone are now only beginning to be understood. The first step in making contracts suitable for automation and application of data elements is to identify and remedy problematic patterns of legal drafting. Lawyers or technologists can leverage a pre-defined taxonomy approach and manual or automated tools to detect these complicated patterns.
In this regard, three Clause Library and Taxonomy projects provide a real-world example of the implementation of this pre-defined taxonomy method. The tasks involved analyzing many documents and, through a series of working groups, identifying critical variants by focusing on outcomes of the clauses pre-defined as part of the standard clause taxonomy. The benefits of leveraging this approach include improved trade reporting processes, implementation of process automation tools or smart contracts, and the ability to respond to regulatory change quickly.
As the financial services industry progresses on its digital transformation journey, it is vital to change how legal contracts are written. Taxonomies to define and detect problematic drafting often found in complex financial instrument documentation is a fundamental step in this process.
Click here to read the original article published by the Global Banking & Finance Review®.
Please give your feedback on this article or share a similar story for publishing by clicking here.
