In meetings with senior executives and their in-house counsel, I hear this consistent cry: due to ever-increasing regulations, costs associated with compliance are soaring at commercial banks and at financial institutions that own banks (such as life insurance companies). As a result, “regulatory cost collaboration” is becoming a key strategy for financial institutions with their key vendors. It is a strategy that overlooks a very familiar and expense vendor: lawyers.
This omission will not last for long.
The impact of compliance costs is well documented (look at this report by Thomson Reuters; and this survey of small banks by Hester Peirce, Ian Robinson and Thomas Stratmann at the Mercatus Center [George Mason University]).
It is a story that I hear 100% of the time from senior executives. Here are two examples:
- Regional Bank (top 70 in asset size): it spent over $35million last year in regulatory compliance costs, such as rent, new employees, software and hardware
- National Bank (top 20 in asset size): the compliance group has grown from 100 employees to over 700 employees in the last several years
In response to the growth in regulations, financial institutions are striving to streamline processes, both internally and with their vendors.
In the context of third-party vendors, I call this “regulatory cost collaboration.”
Financial institutions with innovative leadership use “regulatory cost collaboration” like this:
- the financial institution associates specific information, furnished by a specific vendor, with information needed under (or impacted by) regulations or compliance rules; and then
- the scope of work for the vendor expressly requires performance of the vendor’s service or product in a form or format that minimizes the associated regulatory costs to be incurred by the financial institution
Vendors who implement this approach (or better yet, for a vendor who independently identifies a way to do this) are recognized as a “value-add vender” by the financial institution.
Of course, regulatory cost collaboration does not include the lawyers.
No one is surprised.
Lawyers are one of the few “industries” where little has changed since I started in 1981. “What” lawyers do and the “product” that lawyers deliver remains astonishingly unchanged since 1981. Sure, today we have computers (and no secretaries), email (and no life) and instant access to everything (the internet is magical); and instead of paper closing binders, we e-mail the closing documents in a PDF format.
None of these changes meets my definition of the phrase “regulatory cost collaboration.” Indeed, the changes remain lawyer-centric – even the PDF.
Unless the financial institution has specific rules governing the use of PDFs, the use of PDFs actually might be “anti-collaborative” in that it creates MORE work for the financial institution –
- the PDF still must be “searched” in order to locate specific terms and provisions (since lawyers will “drop” a key provision in any location and in any document);
- the PDF might not be in a searchable format;
- even if searchable, the provision might be difficult to locate because the reader may fail to use the “correct” search term or phrases;
- the identifier or name of the PDF itself might be unrecognizable (since it was generated by the law firm document management system); thus forcing the recipient to “open” it and then rename it
Of course, Richard Susskind and others continue to predict some sort of disruptive change, where the legal industry will deliver the product (be it paper or expensive advice) in a manner that assists Companies in conducting business. There were numerous conferences and meetings on the topic in the past year (Harvard Law; Suffolk University Law [Kennedy-Mighell podcast summary]); and various legal tech thought-leaders closely monitor the topic (the ABA Law Practice Magazine, July/August 2014 issue is wonderful; and the ABA Legal Rebels is interesting).
Of course, nothing addresses the practical, real time (right now) need for regulatory cost collaboration by lawyers.
Yet. Stay tuned.
If you see this differently or have something to add, please comment below.