It's Time for Smart Legal Opinions

First coined in 1997 by computer scientist and legal theorist Nick Szabo, smart contracts are now widely accepted within the legal sector. Why stop there? Digital data flows increasingly dominate industries like the financial services sector to automate making decisions. Yet legal opinions still run to countless pages of convoluted legalese.

This is especially high-risk for that close-out netting legal opinions necessary to reduce counterparty credit risk. Global regulators require financial institutions not just to attain many close out netting legal options to justify their actions, but increasingly to supply demonstrable proof the advice continues to be applied correctly.

This is an onerous, expensive activity and something the leading financial institutions are increasingly questioning. Because of the growing acceptance of smart contracts, essentially automatable and enforceable contracts, and the maturity of underpinning technologies including distributed ledger technologies such as blockchain, why are legal opinions still so time-consuming to interpret?

Digital Imperative

The depth of expertise isn't under consideration: lawyers exercise their judgement and interpret the law when providing formal written legal advice in legal opinions. The issue is in utilising the opinion. Once produced, in-house legal teams spend immeasureable time assessing this advice, often working their way through convoluted, circular logic, with inconsistencies in the management of scope, assumptions and qualifications. Only then would they start to map the advice to support the requirements of in-house systems.

At a time period of increasing regulatory scrutiny, including demands for data transparency and clarity of audit trail as one example of the critical decisions informed by these opinions, the banking market is searching for legal services and legal opinions that really offer the business and reduce risk.

This legal opinion and legal counsel could and really should get offers for digitally. The time is right for the current legal opinions to be transformed into SLOs which accurately automate the interpretation and application by business of legal opinions.

Reducing Risk

Digitising the present natural language into a structured data form with associated reasoning engines will enable companies to automate the application of legal opinions for their particular circumstances. The potential benefits are significant – not waste time and price but additionally reducing risk. Today the manual process and reliance on multiple individual actions has a direct effect on the level of risk. It is costly, inefficient and error prone – creating additional fears inside a sector that is enduring a rising number of fines and personal responsibility for executives.

The utilization of SLOs would enable institutions to automate the control over legal risk and rapidly leverage information to make better and more informed business decisions. The time and price of interpreting legal opinions could be reduced by 30% to 40%, with the additional advantage of supplying the data transparency and audit trail necessary for regulatory compliance.

There is an extremely real opportunity for legal firms to steal a march available on the market, recognise the demand from businesses and embrace a completely digital data flow. By digitising the development of the legal advice – rather than translating the recommendation – the opinion becomes immediately usable by the business. Key to achieving this shift is definitely an industry-wide standard for producing SLOs that eliminates convoluted and unnecessarily complex reasoning and language and ensuring the successful automation of legal advice.