As a major European bank, Bank F is subject to Article 296 of the Capital Requirements Regulation (Regulation (EU) No 575/2013). This states that, in order to be able to mark OTC derivatives counterparty credit lines as ‘net’, Bank F must make written and reasoned legal opinions available to regulators which support the enforceability of close-out netting within relevant “netting agreements”.
Bank F is also subject to EMIR. Article 2 of Commission Delegated Regulation (EU) 2016/2251 requires “Counterparties” (a definition which includes Bank F) to perform an independent legal review of the enforceability of its netting and collateral agreements AND to establish “policies to assess on a continuous basis” the enforceability of those agreements.
Bank F operates in numerous jurisdictions. As a result, it requires access to virtually every industry standard netting and collateral opinion. However, the scale of its business footprint is such that it also has to procure (and periodically update) a large number of bespoke opinions – over 350 in total. Its bespoke opinions typically provide netting guidance on jurisdictions which are not covered by standard industry opinions or plug gaps in counterparty coverage.
The management of bespoke legal opinions creates a huge administrative burden for Bank F – at a time when headcounts are under pressure. All opinions must be reviewed in a timely manner. The conclusions drawn from opinions must be made available to key downstream stakeholders in a format they can readily consume. A robust process must be implemented to ensure that opinions are periodically refreshed.
Bank F concludes that outsourcing is the only way in which it can maintain the level of service required by key stakeholders. It selects Ark 51 as the strategic solution to help it manage this issue.
Whereas previous legal opinion reviews would take hours (if not days), Ark 51’s AI extraction engine allows Bank F to perform a first pass legal review of all opinions (industry standard and bespoke) within seconds – in a format suitable for further review by qualified members of staff.
Data is presented via an intuitive user interface. Ark 51’s analytics and reporting suite enables key stakeholders to self-serve – allowing them to get the data they need, at the point they need it, in the format they require. Full versioning allows year-on-year changes in opinion data to be analysed quickly.
Ark 51’s theoretical netting engine enables Bank F to generate pre-trade netting determinations – facilitating quicker, smarter decisions as to whether potential trades are a good use of internal resource and the bank’s balance sheet. When allied with Ark 51’s AI-powered repository for executed contracts, Ark 51 generates real-time, dynamic netting determinations for ACTUAL counterparty pairings across Bank F’s entire trading agreement portfolio – reducing RWA usage and optimising allocation of capital.
Infinitely scalable and harnessing the power of AI, Ark 51 future-proofs Bank F against changing legal and regulatory requirements – enhancing compliance, increasing operational efficiency, reducing time to market and enabling it to better capitalise on commercial opportunity.