Outsourcing Legal Processes

Legal Process Outsourcing (LPO) firms have evolved and moved up the value chain in the last few years, overcoming initial skepticism around data security and privacy. Most LPO firms successfully addressed privacy concerns by obtaining International Organization for Standardization (ISO) and Information Security Management System certifications. This measure has positively impacted the industry – a trend substantiated with findings from an ORBYS survey in 2011 of in-house counsel heads, which revealed that the majority of respondents used or would consider outsourcing legal processes.

Global spending on LPO continues to increase within the financial services industry as many legal departments have resorted to downsizing and tightening of budgets amid volatile markets and cost pressures. According to a Forrester Research report, the global market for LPO was approximately 250 billion USD in 2012 and is predicted to grow an average of 30 percent for the next three years. The North American market, consisting of U.S. companies and law firms, accounts for more than two-thirds of this market share.

Drivers and Benefits of LPO

Cost savings is the key driver for LPO and one of the most important benefits of outsourcing legal work. Other drivers/benefits for outsourcing legal services are:

Economic Environment: As a result of the global financial catastrophe and ongoing regulatory scrutiny, the financial services industry has witnessed growing numbers of bankruptcy cases, regulatory filings, and other legal proceedings. These events, coupled with severe cost pressures, have fueled demand for legal services and are one of the key drivers for LPO in the industry.

Scalability: LPO is a great tool that has helped law firms and corporate legal departments shift costs from non-value added functions to more strategic objectives. It provides firms with increased capacity without the need for additional headcounts. Thus, firms can do more with fewer resources.

Flexibility: LPO firms can be utilized on a need basis.

Efficiency and Technology: LPO providers are equipped with the latest technologies that can help their clients enhance their operations and business processes. Financial firms in turn can expand their offerings by delivering end-to-end solutions to their clients.

Legal Services Outsourced

Some of the services typically outsourced by financial firms include marketing material review, compliance and transaction support for trading desks, drafting agreements, SEC and other regulatory filings, litigation support, legal research, due diligence, contract review, and M&A.

Reforms in regulations such as Dodd-Frank, GIPS and Basel III have increased compliance and reporting pressures of financial firms, making it challenging for firms to operate independently. Hence, consolidation via mergers and acquisitions is rising especially among small banks, thrifts, and broker-dealers firms, intensifying the demand for legal support and expertise. Many industry players are thus looking for service providers that can offer complete solutions to meet many of their legal and compliance needs.

The LPO model, which uses both legal and non-legal staff, can provide hugely efficient and flexible legal solutions for financial firms by leveraging offshore captives where appropriate and leveraging innovative technologies. Moreover, operating within an environment characterized by cost-pressures and stringent regulations, it makes sense for firms to outsource non-value adding legal work to service providers so that in-house staff can focus on strategic business objectives.