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Big Law is Automating Legal Services!?

June 29, 2016, 7:45 PM

Big Law is often ripped for failing to adopt technology that would create greater efficiency in services.

But two little-noticed announcements earlier this month show a few players in the legal sphere are more than willing to jettison the traditional business model and automate services — for the right client.

This month, Allen & Overy and Axiom both announced they have developed proprietary software platforms to help banks prepare for a swath of new regulations on over-the-counter derivatives expected to take effect by 2017.

The regulations come as part of a global push by financial regulators to create new safeguards such as higher collateral requirements on uncleared derivatives, which means any derivative not traded on an exchange — an estimated $500 trillion market . To comply, banks will need to re-write thousands of “master contracts” and take into the complex new regulations. Both Axiom and Allen & Overy have said their software platforms will automate the bulk of the work, which in the past would have required thousands of man hours.

“If you get a premium law firm to do this, we’re talking tens of millions of pounds,” said David Wakeling, a partner at Allen & Overy in London. “And it’s not necessarily hard legal work.”

Axiom’s executive vice president of global banking, Chris DeConti, sounded a similar theme.

“In the old-fashioned, artisanal method, this would have been a lawyer looking on a case-by- case basis,” said DeConti.

Instead, Axiom customized Salesforce’s platform, which it calls IRIS and Allen & Overy customized an off-the-shelf product from HighQ, which it calls MarginMatrix.

Both software platforms contain a set of drop-down menus, so that a person can enter the parameters of a deal and determine the relevant regulations for a particular trade. For example, if the Japanese branch of a U.S.-bank is trading with the UK- branch of a Swiss bank, the software program would spit out a contract that complies with all relevant regulations.

Although they both built automation software, Axiom and Allen & Overy took different approaches to the human component of the work.

The new software generated contracts still need to be re-negotiated between the two parties. And for this, Allen & Overy partnered with Deloitte, which Wakeling said excels at large-scale negotiations.

He explained about his firm’s strategy as “lower-cost efficient legal work.” He said this project required large-scale “low-cost, cheaper negotiators,” which he described as Deloitte’s bread and butter.

Wakeling added that most of Deloitte’s negotiators aren’t lawyers and don’t need to be for the work, which helps lower the cost. When they’ finish, an Allen & Overy lawyers checks to ensure the final negotiated contract is compliant.

That contrasts with Axiom’s approach: It is handling the negotiations and handing the final contract off to lawyers at the UK-law firm Ashurst to issue a legal opinion on whether it complies.

DeConti said that Axiom has hundreds of negotiators, most of whom are lawyers or graduated law school, but he said using non-lawyer negotiators doesn’t have a huge impact on the total price.

“More what lowers the price is the automation,” he said. “The savings associated with the process and automation are well within the millions of dollars.”

Moreover, DeConti said that the negotiations account for 95 percent of the man hours on the project.

Both Axiom and Allen & Overy claim to have signed up seven of the world’s largest banks as clients, although neither would list the names of the banks.

So what does each firm say they get out of the project?

Wakeling said Allen & Overy has positioned itself as “a law firm of real expertise” that can build the best automation system, which he expects will be necessary when other major regulations come online in the financial, healthcare or other sectors.

Axiom’s DeConti said his organization has for years sent lawyers into banks’ in house legal department on a secundment basis. He said helping banks with regulatory compliance projects such as uncleared derivatives represents a major expansion of its business.

“I do think it’s groundbreaking for us,” he said. “Just as importantly, it’s groundbreaking for the [legal] industry. It’s talking about a technology-enabled solution, which we very frankly see as great progress.”

Stephen Poor, chairman emeritus of Seyfarth Shaw, who writes about the legal profession and technology, said it’s not clear whether Axiom or Allen & Overy is taking the rioght approach. What’s different about the industry is that many firms are starting to experiment today.

“Nobody knows exactly where this is going to wind up and the smart ones are trying to find their own way,” said Poor. “You’re seeing it manifested in some interesting business measures that perhaps carry more risk than firms were willing to accept before.”