Why Investment Firms Need Smart CLM For Securities Management

contract management software for investment firms

Contract Management for Financial and Investment Firms 

Banks, venture capital firms, insurance businesses, financial institutions (FIs), money markets, and other sectors make up the Financial Services industry. These organizations contribute to the successful operation of businesses in nearly all industry segments. Contracts are used to arrange transactions in this industry, which is governed by external and ever-changing state and national legislation. 

Investment firms facilitate the movement of financial instruments such as securities within the market. The transfer of securities and other assets is governed and recorded primarily using contracts. This is the reason why contract management in securities plays an essential role in the financial sector. 

As the number of formal investors increases the world over, the volumes of securities being moved around and the volume of the corresponding paperwork have both ballooned. Banks and financial services are now leveraging AI-powered contract automation solutions to deal with the large and complex volumes of contracts that are produced. 

By employing AI to expedite contract management processes, the firms and financial institutions attempts to achieve considerable benefits. This helps reduce risks, increase revenue, improve compliance, and better understand contractual duties and milestones.

Financial firms manage necessary contracts and subsequent information consisting of sensitive data, a myriad of clauses and details, and material about dates, monetary values, and renewals that must be accurate and thus thoroughly and precisely checked. 

Given the volume of contracts that the BFSI sector deals with daily, such a process might be overwhelming. On the other hand, financial contract management software can streamline and optimize these processes, reducing stress and assuring accountability and proper due diligence.

Securities Regulations in India

Due to the sensitive nature of the data collected and processed by FIs handling securities, several regulations have been formulated to adequately regulate the investment sector and protect investors

Such regulations form the basis of the regulatory compliance requirements of FIs, and frequently create major sources of friction when not managed the smart way. 

The Securities Contract Regulation Act, India, 1957 for CLM in Securities

The Securities Contracts (Regulation) Act, 1957, generally known as SCRA, is an Act passed by the Indian Parliament intended to prevent unfavorable securities exchanges and regulate India’s stock exchange. It went into effect on February 20, 1957.

The act defines a contract as “an agreement relating to the sale or purchase of securities.” The types of contracts when specified when it comes to securities are as follows:

  • Spot Contracts

A spot contract, often known as a spot transaction or just spot, is a contract for the immediate purchase or sale of a commodity, security, or currency on the spot day, which is usually two business days following the trading date. The settlement price is referred to as the spot price.

  • Ready Delivery Contracts

Ready Delivery Contracts provide for the delivery of goods and payment of a price either immediately or within eleven days of the contract’s execution date. Such contracts are subjected to any conditions specified by the Central Government.

  • Forward Contracts

A forward contract is a tailored agreement between two parties to acquire or sell an item at a specific price at a future date. FIs often use a forward contract for hedging or speculating, but due to their non-standardized character, forward contracts are best suited for hedging.

Contracting Challenges In Financial Securities

FIs involved in contracting for securities in the BFSI sector face several drawbacks and challenges that need to be addressed.

The majority of these challenges are due to poor contract management practices that result in lax security and ineffcient document management:

  • Lack of Prior Inspection

Contracts governing financial securities are typically dense and cover several important aspects, meaning that the clauses used are usually carefully inspected before moving to the next stage in the contract lifecycle. Due to the large volumes of transactions processed by FIs on a daily basis, several contracts do not undergo prior inspection, resulting in shoddy contracting and non-compliance. 

  • Compliance Challenges

Compliance is a huge issue when it comes to high value financial instruments such as securities. Several compliance regimes exist that govern the transfer of securities and FIs need to comply with all their regulations. These organizations include – Consumer Financial Protection Bureau (CFPB), Bank Secrecy Act (BSA), Know Your Customer (KYC), ASC 606 (Revenue Recognition), IFRS 16 (Lease Obligations), and more.

  • Data Security Issues

With sensitive consumer data and rising privacy rules, the demand for data security for contracts involving securities is very high. Contracts that haven’t been digitized simply don’t offer the sort of security required by the modern fast-paced financial ecosystem. 

  • Strict Audit Guidelines

Internal and external audit criteria are strict and require audit records to be available at all times, as per the guidelines of contract securities. Manual contracting procedures, with their reams of paperwork and slow process completion rates, are antithetical to strong auditing standards. 

  • Lack of Central Storage

Due to the lack of centralized digital storage across regions and departments, the visibility of contract securities remains poor and collaboration stagnates. 

  • Visibility & Versioning Challenges

Contracts are frequently altered during their lifecycle, either to keep up with regulatory standards, amendments during negotiations, or updates from stakeholders. Without a system to track and manage these changes, businesses will face massive drawbacks when attempting to organize and document their processes. 

Why Financial Institutions Need CLM in Securities:

Proper contract management in BFSI plays a massive role in addressing the challenges in contract management in securities and stocks.  

  • Locating Potential Risks and Damages

An innovative CLM software helps businesses plug in any leaks in their contracts, estimate contract risk, and follow up on these estimations by tracking contract performance. In the securities market this is especially useful due to the complex nature of the contract content. Further, risk identification is driven by smart contract analytics and contract data. 

  • Maintaining Transparency

A smart CLM helps preserve transparency in the contract process by ensuring total contract visibility and contract version maintenance. Administrators can keep track of lifecycles for a number of use cases including supply, procurement, onboarding, financing, and more. 

  • Availability of Ready-made Templates

The availability of configurable templates and a clause library helps reduce contracting expenses and saves time for legal and sales teams. With AI-powered clause suggestions to guarantee that all the necessary contract terms and conditions are included, smart CLM expedites and automates drafting.

  • Costs Cut & Time Saved

Contract lifecycle management helps cut both time and costs in generating and drafting a contract until its execution. By automating the process – from negotiation through signature and execution – CLM cuts the TAT involved in contract lifecycle management by more than half. 

  • Confirming Compliance

By creating a strong virtual audit trail that records all key instances of contract changes, CLM guarantees compliance for regulated businesses. Integrations with eSign workflows serve to further bolster the audit capabilities of smart CLM solutions..

CONTR.ACT: Contract Lifecycle Management For Finance 

With SignDesk‘s smart CLM, FIs can automate and accelerate contracts in seconds. Our End-to-end contract management solution – CONTR.ACT – offers custom templates for instant drafting, intelligent approval, restricted user access, digital negotiations, and more to help businesses streamline their contracting procedures. 

CONTR.ACT offers eSignature and eStamping integrations for quickly and securely completing contracts, smart algorithms to track contract performance and contract analytics to offer key insights to executives.  

Manage large contracts and enable a smooth workflow process while cutting TAT by more thab 50% and join thousands of clients who have reduced contracting expenses by more than 70% using contract automation.

Contact one of our sales professionals to learn more about our contract lifecycle management with a free demo. 

Get a 30-day free trial now!

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