Following on from last month’s piece about the changing face of financial compliance, many of you got in touch to find out exactly how this area of finance came about, and why it matters. A question like this was music to the ears of our financial expert Scott Tominaga, who is a compliance guru and someone who more than understands the importance of it. Scott has been helping us with this piece and to answer those questions which you have been firing our way. The pint of all of this is to say that finical compliance most certainly matters, and here is exactly why.
Protection of The Financial Organizations
The main reason for the weighty volume of compliance which banks and financial organizations have to deal with, is for their own protection. Without this layer of protection, these banks and financial organizations cannot absolutely guarantee that their staff or their partners are doing things above board and that could easily get them caught out. A perfect example of this would be the classic rogue trader Nick Leeson, who traded on the Nikkei for Bearings Bank, one of the world’s oldest. Lesson was allowed to trade for the bank and because much of what he did was unregulated, her was able to amass a debt sizable enough to bring the whole bank down when he lost. This is why compliance exists, to prevent these kind of things from happening.
Protecting the Customer
Banks are about far more than simply looking after your money or lending it out, they have more products on offer than most grocery stores! Owing to this it is absolutely critical that customers have faith in the bank, and in this regard the compliance is there to make sure that the customer is properly protected. For example had compliance been in place and followed with regards to the PPI that was given to customers automatically when they borrowed money, then the scandal would never have taken place and banks wouldn’t have had to fork out millions to repay customers.
Assurance of Fairness
And the most important point with regards to why this compliance exists and why it is important, is to protect the market on the whole and to ensure that there is fairness across financial markets and for companies which operate within it. Financial compliance is a leveler here between the very richest companies and the smallest companies and through compliance because it is the same set of rules no matter who you are or what you do.
Ultimately the reason why this matters is because it is in place to protect everyone involved with the financial markets. Compliance protects investors and their investments, it protects customers of financial services companies and on the whole it is there to protect the market from itself. The laws around compliance have been created following foul play, and it is in place to ensure that anything like that never happens again, this is why it matters.
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