Melbourne Legal Hackers Meetup

Given my past legal training and experience, and my ongoing engagement with technology such as Blockchain, I try to keep up with what is going on in the legal profession, and its use and adoption of tech. But is it LawTech, LegalTech, or LegTech? Whatever, the recent Legal Hackers Meetup in Melbourne offered some definitions, as well as a few insights on current developments and trends.

The first speaker, Eric Chin from Alpha Creates, defined it as “tech arbitrage in the delivery of legal services”. He referred to Stanford Law School’s CodeX Techindex which has identified nine categories of legal technology services, and is maintaining a directory of companies active in each of those sectors.

According to Eric, recent research suggests that on average law firms have a low spend on legal technology and workflow tools. But typically, 9% of corporate legal services budgets are being allocated to “New Law” service providers. Separately, there are a growing number of LegalTech hubs and accelerators.

Meanwhile, the Big Four accounting firms are hiring more lawyers, and building our their legal operations, and investing in legal tech and New Law (which is defined as “using labour arbitrage in the delivery of legal services”).

Key areas of focus for most firms are Practice Management, Legal Document Automation,
Legal Operations and e-Discovery.

Joel Seignior, Legal Counsel on the West Gate Tunnel Project, made passing mention of Robert J Gordon’s economic thesis in “The Rise and Fall of American Growth”, which at its heart postulates that despite all appearances to the contrary, the many recent innovations we have seen in IT have not actually delivered on their promises. He also referred to
Michael Mullany’s 8 Lessons from 16 Years of the Gartner Hype Cycle, which the author considers to be past its use-by date. Which, when taken together, suggest that the promise of LegalTech is somewhat over-rated.

Nevertheless, businesses such as LawGeex are working in the legal AI landscape and other disciplines to deliver efficiency gains and value-added solutions for matter management, e-billing, and contract automation. Overall, UX/UI has finally caught up with technology like document automation and expert systems.

Finally, Caitlin Garner, Head of Innovation at Allens spoke about her firm’s experience in developing a Litigation Innovation Program, underpinned by a philosophy of “client first, not tech first”. One outcome is REDDA, a real estate due diligence app, that combines contract analytics, knowledge automation, reporting and collaboration. Using off-the shelf solutions such as Kira’s Machine Learning, Neota’s Expert System and HighQ, the Allens team have developed a transferable template model. Using a “Return & Earn” case study, the firm has enabled the on-boarding of multiple suppliers into a streamlined contract management, signature and execution solution.

Next week: Notes from New York Blockchain Week

 

Life After the Royal Commission – Be Careful What You Wish For….

In the wake of the recommendations from the Royal Commission into Misconduct in the Financial Services Industry (aka the Hayne Report), one of the four major banks announced that it would be removing bonus payments for its front line tellers. This was supposedly in line with Hayne’s proposal that performance-linked remuneration, financial incentives and sales commissions in the financial services industry need to be restructured.

Image sourced from Small Caps

This prompted a mixed reaction among the public, based on some of the comments I have read on social media. Some felt that the tellers were being made scapegoats for the banks’ bigger failings – others felt that this was an inevitable outcome from the banking backlash.

Personally, I believe the announcement is potentially just one of the many likely “unforeseen consequences” to come out of the Royal Commission – I’m not saying this particular decision is good or bad, just that we need to be aware of what’s likely to happen based on Hayne’s key recommendations. Be careful what you wish for. And, as an underlying theme to this whole debate, let’s not forget that most Australians are shareholders (directly or indirectly via their Super) of the Four Pillar Banks (one of the greatest government-endorsed and legislatively protected market oligopolies around which also helped steer us through the GFC relatively unscathed….).

So, what else might we see?

First, as with financial advice, residential mortgages will move to a “buyer pays” model. Brokers would not be able to receive commissions from mortgage providers or other intermediaries based on the products they sell, recommend or refer – instead, mortgage applicants will be expected to pay for the services of a broker, who will therefore be under an obligation to find the best product for their client. But removing trailing commissions and other conflicted remuneration may also mean that brokers could seek to earn additional fees from their mortgage clients by re-contacting them a year or so later (with permission, of course) to inform them of a better deal. (Even now, lenders are not explicitly obliged to let existing customers know if they have a newer product that may be better for them). Some estimates suggest that fee-for-service will add about $3,000 to the initial cost of applying for a mortgage. Whether this will also lead to more competition among mortgage providers (who will no longer have to pay broker commissions) is not clear.

Second, the increased focus on acting in the best interests of the customer may result in placing all financial planners, brokers, advisors, insurers, and banks (and their officers, agents and employees) under a fiduciary duty of care to their clients – even if they are not directly managing specific assets, selling a specific product or advising on specific services or financial strategies. In other words, advisors etc. will be deemed to have taken ALL of a client’s needs and circumstances into account. (This is largely the result of the miss-selling of financial products, and the charging of fees for “no service”, by banks and their retail wealth management arms.)

Third, the increased cost of compliance will disproportionately impact smaller financial institutions such as credit unions, member-owned banks and other mutual societies, who came through the Royal Commission pretty much unscathed. Those costs will need to be passed on, to customers and members. Of course, there has also been some political debate around the need for some sort of banking levy – which will ultimately be passed on to shareholders or customers (who are often the same people…).

Fourth, and related to the above, the separation of roles between those superannuation trustees who act as both fund trustees and as responsible entities of managed investment schemes will have a knock-on effect in terms of operating and compliance costs. Such dual-regulated entities will have to decide whether to focus on their trustee role, or appoint a separate and independent responsible entity in respect of the asset management.

Fifth, the higher compliance and regulatory obligations may deter or inhibit more competition – either from new market entrants from overseas, or from local start-ups. The recent restricted ADI model (aimed at enabling challenger or neo-bank brands) has not exactly seen a raft of applications, and off-shore banks tend to come and go in successive waves, largely driven by market conditions. If lending standards are further tightened, it may be less attractive for foreign firms to set up local operations. In fact, there have been calls to force some smaller superannuation funds to merge with larger funds, or exit altogether for reasons of scale and efficiency – potentially taking out some of the competition in that sector. And if mortgage brokers have to move to a fee-for-service model, it will likely force some providers to exit the industry, as happened with the FOFA reforms in financial planning and wealth management.

Sixth, at the level of corporate governance, boards of financial services providers will need to be mindful of their duty to act in the best interests of the company – which has traditionally meant the share holders – and the increased duty of care towards their customers, which may at times be at complete odds. Non-executive directors willing to serve on the boards of banks and insurers may also be harder to find, at a time when there is already a high concentration of directors who sit on multiple boards across Australia’s biggest companies. So, board diversity may be even harder to achieve, especially if non-executive directorships become subject to even greater formal qualification, to ensure board members have appropriate professional experience, industry knowledge and technical expertise, as well as financial competence and risk management skills.

Finally, all this is happening as we face something of a credit squeeze (thanks to increased lending standards and greater provisioning for risk-weighted assets) heightened economic uncertainty (slowing GDP growth, lower productivity, wage stagnation, falling property prices), and an upcoming General Election campaign during which the Hayne Report will be held up as a key reason for why “things have to change”. The irony being that, except in a few areas, the complaints aired and wrong-doing uncovered during the Royal Commission could have been addressed by the regulators and enforcement agencies via existing laws on financial services, prudential standards, and general consumer protection (unfair contract terms, unconscionable conduct, deceptive and misleading behaviour). Plus, the Australian Financial Complaints Authority (which combines the remit of the former Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal) has a wide jurisdiction over consumer complaints relating to Credit, Finance and Loans, Insurance, Banking Deposits and Payments, Investments and Financial Advice, and Superannuation. And as with most External Dispute Resolution agencies, AFCA and its predecessors have an obligation to report on systemic issues within their industry.

Next week: Pitch X

Separating the Truth from the Facts

There was almost a look of horror on Rudy Giuliani‘s face when he realised what he had done in saying “Truth isn’t truth”. His reputation as New York Mayor at its most challenging time, not to say his career as a lawyer, may have been completely undone by this latest pronouncement on behalf of an administration that has increasing difficulty in separating facts from fiction (or “real fakes” from mere “fabrication”?).

“Doh!” Photo Credit: AFP/Getty Images/Saul Loeb

In our post-truth age, one where we have had to accommodate “alternative facts” and “fake news”, language, if not the truth, is usually the first casualty in this war of, and on words themselves.

If one was being charitable, it could be argued that the struggle between “facts” and “truth” is like the difference between structuralism and post-structuralism: so, in the former, words have a finite meaning when used in a particular way or structure; whereas in the latter, the same words can have different meanings depending on the context of the audience.

But rather than critical theory, I think we are actually dealing with a phenomenon I first encountered about 20 years ago, while working in China. A report in the China Daily regarding a constitutional matter that was before the courts said that in order to fully understand the issue, it was “important to separate the truth from the facts…”.

Next week: The party’s over

 

Startup Vic’s Professional Services Pitch Night

For the first of Startup Vic’s monthly pitch nights for 2018, professional services were put under the spotlight. There is a public dialogue on the types and numbers of roles that will disappear due to automation (the professions are no different) and here were four startups seeking to engage in that conversation. Assuming that every industry and every occupation is vulnerable to disruption (and should be alert to the potential opportunities that presents), why should accountants and lawyers feel left out?

Image sourced from Startup Vic Meetup page

Myaccountant

With the promise of enabling users to lodge their BAS return from a smart phone, this app is aimed at micro businesses that struggle with bookkeeping and accounting tasks. Since accounting software packages do not support direct BAS lodgement (although expect this to change…), the app charges $39 per BAS, with no bookkeeping or accounting fees, and shares the fee with the accountants who do the lodgement.

The app is able to extract data from vendor APIs such as Expert360, Airtasker, Uber, etc., and connect to users’ bank accounts. Since launching in January, the app has generated 200 sign ups, with very little direct marketing or paid acquisition so far. The app is also aiming to achieve ISO 27000 (information security).

The panel of judges would have liked to have heard more about the acquisition strategy, and how the app deals with income and expense categorisation, different tax rates, zero rated items, and export sales etc. They also wondered about the competition, and overseas markets

Contractprobe

Developed by Neural Contract, this product uses machine learning to review contracts in 60 seconds. Using a scoring model, it rates documents according to established best practice and bench-marking, suggest sample text for missing clauses, and identifies problems found.

The service is available for ad hoc use, under a monthly subscription, or as custom packages.

According to the founders, the service can save 40% of the time usually spent on contract reviews. It offers a high level of privacy – the uploaded contract, report and transaction ID is deleted upon completion (although it wasn’t clear what records are retained for the purposes of clause analysis, data and analytics – including client profiling and user context.)

To reassure any lawyers in the audience, the product stills relies on human input to apply judgment to the choice of clauses, for example. However, a clear value of the review process is ensuring that phrases and key words are properly defined in the contract.

The judges wondered where this product fits in with open source documentation and pre-drafted documents, whether there are specific verticals more suited to this service, and what trust and liability issues might arise. Is it more of a “clause-spotter” rather than an expert system? How does it address statutory clauses, and the question of whether clauses are actually enforceable?

The service has about 40 clients, including law firms, and is now moving into corporate clients.

Businest

This product is designed to help with cashflow management, which the founders describe as an “iceberg” issue. They point to data that suggests 87% of SMEs have issues with cashflow.

Claiming to use AI to coach SMEs and accountants, the goal is to allow business owners to focus on what they do best, and move accountants from “compliance to advisory”. Applying its own algorithm to cashflow analysis, the service also provides training content to advisors.

Offering both SME and advisor pricing models, the founders have launched a pilot with MYOB. They also point to market research and commentary (CEDR, AFR, CPA, CA…) that indicates the market wants it.

The judges felt that the banks won’t rush to endorse the service (although under the open banking data protocol, they won’t be able to prevent customers linking their accounts) because they are used to the interest they charge on overdraft facilities and credit cards.

Brandollo

This is a marketing tech start-up, aimed at SMEs that struggle to access tailored advice. Targeting B2B clients, in the professional services sector,  with less than 80 staff.

Briefly referring to the use of AI and ML, the service claims to reduce marketing costs by 80%. It offers a brand gap analysis and makes recommendations, that can be implemented without external help. The process looks at execution issues, content requirements, and actual solutions.

Aiming for 200,000 clients in 5 years (currently standing at 200+), the main competitor is Benchmarketing. Brandello offers a freemium model, with a 3-tier paid-for service. They can connect clients to experts, provide a quote to execute and then take a commission on the resulting solution.

 

Based on the judges’ verdict, the winner was Myaccountant. While the people’s choice was a tie between Myaccountant and Contractprobe.

Next week: The General Taxonomy for Cryptographic Assets