Navigating a Changing Regulatory Landscape with AI
Businesses across London and around the world are grappling with a changing regulatory landscape and new compliance responsibilities. The sheer volume and complexity of regulation, ranging from data protection legislation to financial regulation such as LIBOR (The London Inter-Bank Offered Rate), ESG (Environmental, Social and Governance) requirements and global sanctions now present one of the most pressing challenges for both businesses and the legal teams that sit at the heart of them.
The scale of this challenge is clear, and compounding it is both the growing volume of legal documents that need to be reviewed during regulatory compliance exercises and complex corporate structures that often see important data siloed across different storage environments, with key information commonly sat fragmented on each employee’s computer only to be lost when they leave the business. What’s more, the economic, reputational and moral implications of non-compliance are only continuing to increase.
So, what tools do modern law firms and organisations have at their disposal to tackle this growing challenge? Many still rely on rudimentary tools and traditional ‘manual’ review methods to locate relevant information. Not only do these methods result in countless inefficiencies, but they also place lawyers and the businesses they represent at significant risk of missing important information. Against this backdrop, next-generation technology is proving to be a gamechanger. AI can understand vast numbers of legal documents in a matter of seconds, flagging key information and recommendations for lawyers to analyse and potentially act upon.
Let’s take the recent sanctions imposed on Russia as an example. Law firms and in-house legal teams have been under pressure to take immediate action to assess their level of exposure to sanctioned entities. With its ability to instantly understand legal documentation, AI can provide a holistic overview of an organisation’s business activities, identifying all geographies present within contracts and displaying any contractual ties to Russian entities. AI not only surfaces documents in the Russian language, but also any reference to Russian places or legal structures within English or other language documents. So, if a lawyer searched for mentions of ‘Russia’ within their documents, AI could, for instance, recognise that words such as ‘Russian Federation’, ‘Ruble’ or ‘Moscow’ would likely also be relevant to the search, and thus should be included.
And in light of recent accusations of ‘greenwashing’ by organisations, we have seen AI work to this effect for a relatively new yet critical compliance responsibility: ESG reporting. AI can provide an instant understanding of a company’s existing ESG position by, for instance, highlighting out-of-the-box all regulatory requirements across contracts and allowing lawyers to easily identify exposure to any volatile regions or countries that have not, for example, signed up to the pledges made at COP26 late last year.
Indeed, the inherent agility of AI allows it to stay on top of the even the most changeable of regulatory sectors, such as the financial sector. London-based infrastructure investment and management group, Semperian, recently used AI to identify concepts even as deeply embedded as LIBOR, away from which the financial sector has now shifted. With next-generation technology, lawyers can quickly identify LIBOR-related provisions (for example, provisions pertaining to LIBOR definition; Interest Rate definition; Change in Law and LIBOR fallback) highlighting which provisions need to be amended, allowing legal teams to review the entirety of their contracts and understand their risk exposure to mitigate the impact of enhanced regulation.
From increased financial regulation in the wake of recessions and trading scandals, to data privacy becoming one of the most important issues of our time and new laws emerging in the wake of Brexit, the Covid-19 pandemic, and sanctions, businesses are experiencing enormous upheaval in terms of regulation and policy shifts. In a constantly evolving and unpredictable world, legal teams everywhere face vast challenges. AI can help lawyers cope with the sheer volume of regulation, providing enhanced contractual understanding and freeing businesses up to deal with the other implications that these changes carry.