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Top 10 things for financial institutions to consider when outsourcing master agreements

Daniel Marks, Director
Financial Markets, Thomson Reuters

Increasing cost and regulatory demands on the financial industry have brought pressure and complexity in legal responsibilities to a new level in financial institutions. As financial institutions adjust, they are evaluating their current processes and exploring new, better ways of doing business. One function on the minds of in-house counsel in the industry is master agreements.

Documentation teams are a vital legal function in a financial institution’s client onboarding process, and impacts the ability of the business to trade with counterparties. Compounding more work on these already stretched legal teams is not a viable solution. Whether it is for temporary assistance to support regulatory-driven remediation exercises or to find more cost-effective and innovative ways to support certain functions, more corporate counsel are looking to outsource high-volume contract work coming to their legal documentation unit such as ISDA and other ancillary documentation supporting over-the-counter (OTC) derivatives.

It is vital that all master agreements are not only accurate, but timely and easily accessible. Outsourcing complex, time-consuming tasks can allow in-house legal and documentation teams to renew their focus on higher value, strategic work.

As in-house counsel look for assistance in their legal documentation efforts, there are several points to keep in mind during their selection process. Listed below in no particular order, are the top 10 things financial institutions should consider when outsourcing master agreements.

1. Expertise

Negotiation terms and documentation of OTC derivative trading can be complex, so it makes sense to place your documentation in experienced hands. Not doing so can have severe repercussions to you and your company. Trusting your contract drafting and revisions to non-professionals exposes you to the risk that important clauses or relationships in your contracts will be misrepresented or used inconsistently.

Current legal and financial expertise in ISDA documentation is necessary in an outsourcing provider to fully grasp the implications and potential consequences at hand. This establishes a stable foundation made up of quality people with the trusted experience to draft, revise, and negotiate contracts. A mix of experienced resources not only allows you to maximize scale within your budget, but also includes senior negotiators to provide an additional layer of quality assurance, reducing your risk of costly errors.

2. Institutional Knowledge

Outsourcing fees have the potential to add up quickly when putting forth the time and energy to get started on the job. It can take some time to get up to speed on a company’s culture and current status each time assistance is needed. Your business is unique, and so are your policies and contracts. To save on costs and ensure you efficiently process negotiations and documentation efforts, it makes sense to work with an outsourcing provider that understands the importance of institutionalized knowledge and creating a method to transfer that knowledge going forward.

For example, a third-party service provider might develop a custom playbook for your institution that establishes a standardized approach to negotiating and drafting contracts. Clear communication means that all issues are identified and incorporated in the playbook. This is then an asset to your organization that you can continue to reap benefits from regardless of when you are outsourcing. In other situations of outsourcing, institutional knowledge may be lost with no knowledge-sharing requirement in place for future engagements. In addition, any knowledge learned may actually be additional charges to the client.

3. Employee Motivation

Vetting a partnership for documentation outsourcing directly impacts your business. The methods behind the service fees and employee motivations could affect the cost and work product you receive. If the outsourcing provider is billing clients by the hour, there is an incentive to negotiate all terms requiring additional billable hours. Not only does this add to your fees, but it can also create an unnecessary delay in completing negotiations and contracts. This results in an increased risk that a financial service misses a deadline or loses an opportunity.

A structure set up in which employees are incentivized to improve the process will yield better results for all parties involved. There is a shared, vested interest in quick and successful outcomes.

4. Cost

Building off of the employee motivation point are the fees associated with outsourcing. Cost is a typical factor to examine when selecting an outsourcing provider. A law firm may have higher cost with billable hours including the cost of junior associates under the supervision of a senior associate, calls, and research time. Temp resourcing is at a medium cost hourly and daily rates with no cap on time/cost and must absorb overhead costs including desk space and technology. Other third-party service providers might have a low-cost fixed price per agreement. Not only does the price per agreement model keep costs in check, but it also makes costs more predictable.

5. Documentation Management Process

Some outsourcing providers have established an award-winning process using Six Sigma methodologies and quality control review to ensure accuracy. The documentation management process you choose to set in place should include the capability to continuously test, evaluate, and then adjust based on results to make workflow more efficient.

Financial institutions cannot afford mistakes in their contract drafting and negotiation. It is worth it to work with a partner that brings peace of mind in their uniform process best practices providing consistency.

6. Technology

Access to accurate agreement terms when necessary can be a large challenge for financial institutions. An established OTC documentation management process utilizing a tech-enabled approach allows for uniform workflow with memorialized templates. There is no guessing where something is in the process; you know where it is.

Ensuring your outsourcing provider operates with tools specialized in OTC documentation in their management of workflow provides a level of assurance with retrieval of agreement data on demand. Knowing you can quickly extract accurate data from your contract terms results in less time spent searching in separate tools that may not speak, let alone provide, the right terms on demand. An issues list and a deviation tracker are maintained to provide a snapshot of the state of your agreements, including those that may be outside of your original scope. The automation, standardization, and innovation provided by a tech-enabled process can position you on a path to cost-effective negotiation visibility.

7. Ongoing Partnership

Choosing an outsourcing provider should be about choosing a partnership with a dedicated team. If you are putting time into the selection process, why not partner with the intent of cultivating a relationship with the option to return when help is needed? As time continues to change, it makes sense to have access to a devoted resource, ready to assist when needed. Just because your previous engagement ended, doesn’t necessarily mean the relationship should be temporary. The partner already knows your company’s policies, procedures, and negotiation framework and can jump right in on the next assigned job. The trust is already established, giving you the confidence to focus on other pressing matters.

8. Global Coverage

Global coverage in an outsourcing provider may offer up to 24-hour access to negotiation and documentation services. With a global team by your side, a diverse bench with options in delivery center locations is available to assist in meeting regulatory and business deadlines. This builds the foundation for additional scalability, allowing the right tasks to be performed by experienced professionals at a lower cost. The flexibility to scale up or scale down as your projects require is certainly a factor to consider when outsourcing documentation.

9. De-risk Financial Hub Footprint

Most financial institutions have established internal legal documentation units in high-cost financial hub locations, such as London, New York, Hong Kong, and Singapore. While this is where many of the historical talent resides, the industry is starting to see talent emerge in other locations across Europe, the U.S., and Asia. The strongest managed service providers have started to capitalize on this talent pool by building out delivery capabilities in these alternative locations to provide financial institutions with more cost-effective and viable options to support daily documentation processes and regulatory remediation needs.

Identifying a service provider that has an established presence and a commitment to invest into these locations will lead to significant cost and efficiency gains over time. This approach will also allow internal teams in those financial hub locations to be focused on higher value, strategic work.

10. Customized, Extension of Your Team

An optimal option would be to outsource to a dedicated team with the ability to act as an extension of the financial institution. The partner team adopts your policies and procedures to ensure you are set up with a customized and standardized process going forward. The outsourcing provider is a good fit and understands the financial industry and the challenges facing financial institutions today.


Choosing your OTC documentation outsourcing path doesn’t have to be burdensome. By using the aforementioned criteria to carefully select your chosen strategic partner, a financial institution should be able to successfully identify which vendor best suits their requirements.

The partnership should benefit the in-house legal team, its internal stakeholders, and the customers of the financial institution by minimizing costs, establishing more efficient processes, and ensuring no detrimental impact to the current daily operations during transitioning.