Last week, MphasiS announced the launch of its next generation Governance, Risk and Compliance (GRS) service, in partnership with legal process outsourcing (LPO) provider Mindcrest, to its North American BFSI client base.

Services within the scope of the offering include:

• Contract remediation
• Document review
• Consent order fulfillment
• Corporate compliance research.

MphasiS will be bringing the technology and process elements to the table, while Mindcrest will be providing the legal expertise.

This comes in an environment of increasing regulatory pressures for the BFSI sector, with organizations needing to implement and maintain stringent processes to reduce the level of risk, especially that of non-compliance.  For example, in the insurance sector, it was confirmed last month that Solvency II (the harmonization of EU insurance regulation) is now set to come into effect on January 1, 2016 – after the date has been pushed back on several occasions. In the last few years insurance companies have had to re-evaluate their regulatory framework under the three pillars of Solvency II:

• Their quantitative requirements for capital held
• Governance & risk management of insurers
• Transparency.

The risk management processes they need to implement and maintain include some activities that are provided by LPO players, paving the way for relationships between pure play LPOs and BPO provider who have an industry-specific focus in BFSI sectors. The need for compliance is related to regulatory changes, and LPOs are able to provide their clients with clarity over these constraints and ensure they operate within them.

LPO has been growing at exceptional rates since its breakthrough as a BPO offering in the late noughties - with more set to come as it is increasingly accepted within the legal industry. Within the LPO market, the ‘Legal Risk Management’ segment, driven by the demand for compliance and due diligence services, in one form or another, is growing at a rate  of over 20% CAAGR through 2018, making it the fastest growing segment, ahead of ‘Legal Cost Reduction’ and ‘Contract Centralization and Standardization’ (see NelsonHall LPO Market Analysis – to be published next week).

So, how are LPOs rising to the challenge?

By increasing client’s visibility into their contractual environment through use of obligations and opportunities tracking, contract remediation, regulatory mapping via legal research services and design of compliance programmes, to name a few.

A recent example of this is the contract win awarded at the start of the month to QuisLex by a manufacturing conglomerate to implement an anti-corruption and compliance program. QuisLex will be providing third-party due diligence to address ongoing FCPA obligations. It will do this by reviewing existing documents related to ~15k third parties.

Until now, LPOs have largely partnered with law firms, but this is likely to expand further and we can expect to see more partnerships between LPOs and other types of organization, like MphasiS; the partnership with Mindcrest is proof that MphasiS has followed through with its strategy to acquire or partner to increase the provision of niche services and capabilities.  MphasiS is not the only vendor with this on its agenda.. ! This example comes a year after the partnership announcement between Wipro and e-discovery provider DTI, for legal and compliance support services.

If we assume that the Mindcrest/MphasiS engagement is suitably representative (and we do), then Life Sciences will be the next sector to be heavily targeted, after Financial Services – which is currently the main focus of this offering. NelsonHall predicts that Oil & Gas and Energy & Natural Resources will be the next sectors to follow suit – in the LPO world, these industries are already the next big thing on the agenda with the likes of Clutch Group developing an Energy & Natural Resources-specific practice. The focus will then spread beyond highly regulated industries and move into areas such as manufacturing and technology.

To that end, it is safe to say that the provision of compliance services will soon no longer be considered a competitive advantage, but a critical success factor for survival.