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A Simple 5-Step Process to Ensure Compliance Among a Mountain of Documents: The LIBOR Transition Use Case

At first, this may seem like an esoteric article aimed only at a financial services audience that deals in arcane concepts like shifting bank rates, currency exchange markets, and the LIBOR transition.

But bear with me, here.

What you’ll find is that the way financial sector companies can manage a voluminous and complex body of contracts and documents is applicable across the board for other document-related compliance triage.

And some of that may be applicable to your business’ regulatory needs. So, let’s examine this real-world use case of the LIBOR transition with the fast-approaching 2021 deadline.

What is LIBOR?

For those of you not in the financial services sector, it’s worth briefly explaining what LIBOR is.

Have you ever read the fine print on your mortgage or home equity loan? Me neither. But you should know that it likely references an Interbank Offered Rate (IBOR) to establish your interest rate. The most common of these benchmarks is the London Interbank Offered Rate (LIBOR).

Across the globe, an estimated $400 trillion worth of contracts are based on the LIBOR number. LIBOR’s importance to the financial sector cannot be overstated. Here’s the kicker…

Amid allegations that multiple global banks colluded to manipulate LIBOR in 2012 and public demand to reform, LIBOR — arguably the world’s most important macro-financial number — will be discontinued by the end of 2021.

The Implications of the LIBOR Transition

With the expiration of LIBOR, insurance companies, banks, and a broad assortment of other financial institutions must identify, review, and remediate all active contracts that reference an IBOR rate. Essentially, before the end of 2021, these organizations need to remove any reference to LIBOR that exists within active financial products or contracts. This path to transition from LIBOR, in a practical sense, travels through a dense jungle of contracts – hundreds of millions – that need to be found, updated, and reviewed.

Mortgages, loans, deposit facilities, derivatives, and floating rate bonds and notes can all reference LIBOR — not to mention ancillary contract terms, company pension schemes, commercial contracts, and discount rates used in valuations. A financial sector company may have thousands of documents with a dependence on IBOR spread across countless repositories, individuals’ laptops, and network folders.

So, the million-dollar question — or $400 trillion question, as the case may be — is this:

How does a company go about tackling a problem like this? How can they efficiently pore through mountains of documents on a deadline?

M-Files has an elegant 5 -step solution to find the documents, make the necessary changes, and facilitate client outreach.

The 5-Step Process to Rescue You from an Otherwise Mind-Numbing LIBOR Transition

The Bank of England provides information and guidance, as well as a shortlist of suggested actions, but technology is available to help organizations tackle the transition and avoid fines.

M-Files has developed the Automated Regulatory Compliance Document Solution (ARC-DS) —which facilitates a simple five-step process that breaks down the LIBOR transition into automated processes, organizing the documents involved, and triaging each case into simple and complex.

Step 1: Discover and Standardize

ARC-DS finds and ingests high volumes of contracts and agreements, from multiple sources across difficult and disconnected repositories and folders. It removes redundant, obsolete, and trivial files from the equation, allowing companies to focus on what is needed. It will standardize what is left, making it fully text searchable and easy to manage.

Step 2: Classify and Extract

ARC-DS is AI-enabled, classifying all relevant contracts and labeling them with metadata. At this point, organizations can extract contract attributes and see the full scope of where a reference to LIBOR is present within all documents, no matter where they reside.

Step 3: Intelligent Controls

Once contracts are identified and classified, customized workflows help manage each case review — allocating individual negotiation to only the cases that need it. Functionality is available for simple and complex verification, authorization, and governance, both internally and externally. The entire way, audit information is captured automatically.

Step 4: Compose and Verify

ARC-DS will create unified replacement documents, with standardization of content and clauses. Employees can review new documents for compliance before they are sent for client outreach and signature.

Step 5: Store the Finalized Documentation

After validating the results, and reviewing any exceptions, ARC-DS will support client outreach, helping with repapering and final client sign off via eSignature. Each document is stored securely and tagged so it can be easily located in the future. The old and new versions of a contract are managed together, simplifying the audit process.

Applying the Process to ANY Regulatory Change

The 2021 LIBOR transition is certainly not the first regulatory event that requires a massive overhaul of documents… and it won’t be the last. Think about other potential examples in other industries:

  • What if a new healthcare regulation required a change to millions of patient records?
  • What if the entire oil and gas industry needed to make massive overhauls to pipeline documentation as a result of a new compliance measure?
  • What if a regulatory change required a new clause to be added to freight documents in the trucking, shipping, and supply chain sector?

Regulatory change is inevitable, and M-Files is the technology companion for a business’s continued compliance or repapering needs. When the next regulatory event comes along, you’ll already be ready with fully digitized contracts and an easier way to make changes across a mountain of documents.