Terminology
LegalTech
The conflict between general, abstract laws/regulations and specific real-life situations very often calls for case-by-case considerations and individual interpretations. However, there are repetitive and standardised types of legal work (such as commercial register registrations or similar standard documents, various customer contracts) that are extremely labour-intensive overall.
The term LegalTech refers to the fusion of law and technology and aims to automate legal work wherever possible and thus increase efficiency by minimising the time spent on and costs of certain types of legal work. LegalTech also offers solutions that enable legal work assignments to be efficiently arranged.
RegTech
RegTech is a collective term for innovations and modern technologies in the regulatory environment, especially in banking and financial market regulation.
Since the financial crisis in 2008, the financial sector has been confronted with a tide of regulations. Financial institutions have to devote a great deal of time and money to reviewing, assessing, implementing and monitoring these new regulations. The new regulations (such as stricter reporting obligations for financial institutions) also present challenges for the authorities, however, as they also increase both the need for communication and the scope of supervision.
Against this backdrop, RegTech offers innovative technologies to support more effective and efficient mapping, fulfilment and documentation of regulatory and supervisory obligations and streamlined and direct communication with the authorities. The technology should provide intelligent support for compliance and risk management and optimise processes in these areas.
Please note that there are currently no precise definitions of the two terms, so there may well be overlaps in terms of their content. No standardised terminology has yet been established.
Areas of application
Although the terms LegalTech and RegTech are on everyone’s lips, their specific fields of application and potential for efficiency gains still need to be defined.
Examples of LegalTech applications:
- Arrangement of work assignments (‘Lawyers on Demand’ solutions)
- Contract lifecycle management (automation, drafting, negotiation, cooperation, management and renewal of contracts)
- Legal chatbots, which vastly simplify communication with clients but are not a substitute for genuine legal advice
- Intelligent document management and document analysis tools
Examples of RegTech applications:
- Onboarding of new clients via digital channels and automated formality checks on documents (e.g. automatic extraction of ID/passport data)
- ‘Machine Learning’ in connection with AMLA transaction monitoring
- Verification of international business clients through automated access to international commercial register data and documents as well as real-time checks of PEPs
- Identification and verification of beneficial owners by means of artificial intelligence solutions
- Dynamic and customised creation of client contracts as part of the onboarding process
- Data aggregation of risk information as part of equity and liquidity reporting
- Model simulations and scenario analyses for stress tests
- Automated real-time monitoring and analysis of transactions to identify money-laundering risks
- Automated evaluation of data used to detect market abuse in securities trading or verify compliance with codes of conduct vis-à-vis clients
- Automated applications in the area of trade monitoring, such as ensuring best execution or compliance with risk parameters in trading
Will these technical tools ever replace personal, human interaction? No, because technology needs to be combined with human judgement and emotional intelligence. It is therefore much more of a symbiosis in which human beings are not replaced but are instead freed up to concentrate on more intellectually challenging activities.