Legal Data Isn’t Just for Law Firms: Why the Finance Industry Needs to Embrace Legal Data as a Service

The finance and legal industries usually don’t mix – that is, unless a company is embroiled in a lawsuit. However, legal data can completely change the way a finance company does business, from due diligence and underwriting to hiring decisions, big and small. Imagine a corporation is looking for a new CEO. The board of directors does its normal due diligence, and nothing shows up. They hire him, and he commits a financial crime. By utilizing legal data, the board would have seen the financial fraud case the CEO was involved with, but ultimately settled. If the company had employed legal data, it could have saved itself time, money, and a substantial employment headache.

Legal data isn’t just for law firms – it can help the finance industry save time, money, and resources on some of its most common actions.

The State of Finance

The finance industry reaches into all sectors of business. From real estate and restaurants to stocks and bonds, the finance world is everywhere. While finance has spread into the legal sphere, the industry has been reluctant to fully embrace everything the legal world has to offer, outside of courtroom politics.

The current utilization of legal data by the finance industry is minimal – more often than not, business-persons would rather ‘leave it to the lawyers’ without understanding how legal data can change their business, from macro-ideas to everyday operations.

The finance industry centers its use of legal data around two main components: Legal Entity Identifiers (LEIs) and privacy concerns. However, both of these are relegated to arms-length involvement. LEIs, similar to barcodes for companies, were globally adopted after the Lehman Brothers scandal, mainly to allow for quicker, easier risk management systems. LEIs are used almost exclusively on the regulatory side, mostly to ensure the financial industry runs relatively smoothly. Similarly, finance firms use data to manage privacy concerns surrounding sensitive financial data. However, any strictly legal data utilized is surface-level, meaning that the true power of legal data has yet to be fully harnessed in the industry.

Fortifying Finance Industry Foundations

Companies don’t become powerhouses without putting in the work. That means rote tasks like underwriting and due diligence are the building blocks that create the finance industry’s foundation. Underwriting, or a pledge to buy unsold shares of a company during a financing round or initial public offering, puts financial companies at profound risk. What happens if the underwritten company fails, or something comes out that makes investment extremely risky? The underwriting company loses money, and most likely influence. Similarly, the financial industry is rife with due diligence – it’s a regular, permanent part of the industry.  When a bank or company looks to acquire a company, due diligence is necessary. If due diligence fails, the acquirer loses out on opportunities, as well as large sums of money. If something isn’t caught during due diligence, the acquirer now owns a company with a potentially destructive secret. This is where legal data is important.

Legal data doesn’t just include the cases a company is currently embroiled in – it encompasses past lawsuits, prior settlement information, information on important executives and other employees, and the likelihood of future legal issues. What’s more, legal data can help underwriters better understand the risk of a company before the underwriting takes place. Legal data can also supply a company with documents and information that may not be found in due diligence, leading to better, smarter investments.

Due diligence and underwriting aren’t the only ways legal data can help the finance industry. On the legal side, legal data can inform the finance industry on settlement agreements and “worth it” lawsuits. Say a company is served with a lawsuit that it isn’t sure is worth the time and money. Legal data can help guide the company to the right decision by providing statistics on similar cases and their outcomes, as well as information on opposing counsel and the presiding judge, including outcomes with similar cases and the likelihood the judge will find for the company. A similar approach works in the opposite direction as well. Legal data can help finance companies decide whether settlements are worth the money: is it more advantageous to litigate because the data points to a guaranteed win? Is this an issue other companies always lose over? If so, it may be more financially prudent to settle.

Legal data also touches HR departments. Tasked with ensuring the most qualified candidates are hired, HR can use legal data to dig into a candidate’s background in ways that a simple background check cannot. Background checks typically do not list a variety of legal issues, including settled cases. Legal data, however, does not have that restriction. By utilizing legal data sources, HR departments can search for a candidate’s entire legal history, which is particularly important when a candidate is dealing with financial instruments. Would you want someone accused of embezzlement in your bank? Legal data cuts off poor employment fits before the damage is done.

The Restaurant Industry: A Case Study

Restaurants have been on the front lines of data mining for years. Restaurants have access to what you buy, when you buy, how much you buy, and the frequency in which you buy, in ways that other industries have yet to replicate. Thus, keeping up-to-date on the newest legal pitfalls and regulations is essential for the restaurant industry.

Even if it’s not common knowledge, most restaurants above one or two storefronts are franchises. Franchising requires a parent company to put its trust in individuals its owners may never meet in person. Legal data, therefore, is a boon to the franchising sub-industry. Similar to how HR departments can use legal data to inform hiring practices, the restaurant industry uses legal data to weed out its franchisees. Chick-Fil-A, for example, receives over 40,000 franchise applications a year, with an acceptance rate of under 1%. With so many potential franchisees, legal data helps weed through the “unsavory” applicants – perhaps those with food-related or financial arrests or lawsuits.

Legal data also assists the restaurant industry in deciding on banks and investors. Most, if not all, restaurants are investor-backed at some point in their lifecycle. After all, 60% of all restaurants fail within their first year, with 80% closing after five. However, not all banks and investors are made equal. Some are restaurant-friendly, with fewer lawsuits coming after failed-restaurant owners. Others are more litigation-friendly, filing documents within days of a restaurant closing. By using legal data, restaurateurs can view not only the lawsuits filed by an investor against restaurant groups, but also what type of restaurants an investor usually looks at (not to mention, if the investor has a history of winning or losing investments). Deciding on a bank or individual investor is a key part of opening a restaurant – legal data helps find the best one.

Implementing Legal Data with UniCourt’s APIs

Legal data, for many industries, is easy to implement into existing systems. Like the restaurant industry, the finance industry utilizes CRMs and other software solutions that are easy to integrate with new and existing APIs, including the APIs UniCourt leverages to disseminate normalized legal data to clients. The problem isn’t the technology; it’s the huge barrier to entry connected to the overwhelming cost, time, headcount, and effort required to aggregate, clean, and classify legal data from countless jurisdictions and courts across the country.

That’s where Legal Data as a Service (LDaaS) companies provide a solution. By collecting, structuring, and normalizing legal data from all around the United States, LDaaS companies like UniCourt give the financial industry an affordable, reliable way to incorporate legal data into their everyday decisions, creating a new, better way to do business. Instead of constructing their own data pipelines and in-house APIs, integrating them into existing applications, further purchasing hundreds of court data subscriptions, and running these operations at great expense, financial firms can simply download and integrate UniCourt’s legal data, and create real-time data feeds for important legal issues.

The finance industry is ready for its next steps with Legal Data as a Service, and UniCourt can help it get there.

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