Governance, Risk & Compliance within UK financial sector (banking) - Essay Example

Governance, Risk & Compliance within UK Financial Sector Research Paper May 19, 2570 Words College Introduction Theidyllic system of banking is one that is both competitive and steady. If that is attained, economic and financial predicaments and crises are evaded, savers obtain suitable interest rates, and borrowers acquire the money they need on the conditions and terms they prefer1. A successful banking system entails an invariable compromise between borrowers and the opposing requirements of those individuals who save. Individuals who opt to save demand for banking and financial products that can be immediately transformed into cash but fetch high rates of return. On the other hand, borrowers demand banks to give them money for extended periods at low-interest rates and accept a high scale of risk that a client may refuse or may be unable to repay the loan. Therefore, equilibrium must at all times be struck between the two, and at the same time producing adequate income for banks to provide for the operating expenses, and make some profit out of the business. This ideology applies to all banks, always, in all states. These principles are applied varyingly and, therefore, produce different results. There is no country in the world that has achieved a perfect equilibrium2. There is no one time that a nation has ever achieved a perfect solution to the banking problem of creating a perfect equilibrium. Constant technological evolutions in the world have made it difficult for the sector to cope with fresh emergent demands that are made by the clients. The bigger involvedness of modern era puts bigger and bigger demands on the banking sector to offer payment platforms, savings and credit products. Integrated world economies monopolized by transnational corporations create very diverse needs for banks contrasted to a world in which trade and commerce were carried out by a huge number of privately owned businesses on a domestic basis. Banks have been extensively held responsible for being actively involved in the global financial crisis due to their irresponsible lending and financial modernism propagated by the culture of awarding bonuses to staff members, a practice that had prevailed at the time. As the core of that financial crisis was the United States, the occurrence and the aftermath there prompted global attention. Subsequent banking regulations and policies were amended to avert such kind of occurrence in the future. Different countries, among them the UK sought for stringent measures to protect the market, and more so the customers. A Brief History of the UK Banking The banking system in the UK principally developed with no active state interference. The Bank of England was instituted in 1694 privately. It was established a function for itself as a "lender of last resort" to the financial institutions and more so banks throughout the 19th century3. It offered monetary support for ailing banks only when they were believed to be enduring liquidity difficulties. Therefore, there was no common understanding that a bank would be salvaged, and some of them were permitted to fall following clients panic removal of their funds and they did result in some losses realized for many clients. For example, the Birkbeck Bank went down a few moments prior to the commencement of the First World War (WWI). By the late 19th century, the UK operated a central bank that was knowledgeable in offering support to ensure the continued steadiness of the banking system4. In 2007, the world was hit by another global slump of the properties market. Since then, the UK government resulted to revert to the old banking models that had served meticulously in the previous years. Presently, the Bank of England, now cognizant that steadiness cannot be taken lightly, executes the banks oversight mandate. Competition has forced all the demutualised building societies to close shop and seek alternative options. Since the economic hardship that was encountered in 2007-2008, each of the big banks within the UK has taken up a policy to meet the impediments and make use of the opportunities in a fast-changing global market. The UK Financial Regulatory Framework The UKs financial regulator mandate was bestowed on the Bank of England for the longest while. However, as of April 2013, the government introduced a new financial regulatory framework, spearheaded by two institutions: PRA (Prudential Regulatory Framework) and FCA (Financial Conduct Authority)5. The newly established format seeks to minimize gaps in supervisory information collecting and legal controls and raises prospects on the subject of its performance from governmental and administrative areas. The UK regulators aspire the country to remain progressively a centre of brilliance for the monetary services sector, therefore their attention to making certain that financial organizations provide more information, reports and controls, all to an increased occurrence and a higher level. Companies need a new method, which is more incorporated and all-inclusive and comprises both operative changes and new technology set-up. The PRA is accountable for the day-to-day management of financial organizations that handle noteworthy risks on their portfolio6. It adopts a more judgment-focused style to regulating the financial companies so that corporate models are tested, risks recognized, and action taken to reserve financial steadiness. As an autonomous comportment of the business regulator, the FCA takes a hard method in regulating how companies carry out their trade. The FCA has a strong responsibility for stimulating assurance and transparency in financial organizations in addition to offering enhanced protection to financial services clients. Additionally, the FCA has a strong function in encouraging competition. The formation of the two new-fangled supervisory bodies has been used as a chance to elucidate obligations for all parts of the governing procedure. Financial Conduct Authority FCA was instituted in April 2013 in the wake of the Global Financial Crisis. The main functions of FCA are to deliver client safety, strengthening the financial market integrity and developing competitive financial markets. The FCA varies in a couple of ways from the former regulatory body – FSA (Financial Services Authority)7. FCA has a much more engrossed role and purpose, which is supported by a more demanding method and firmer fines for nonconformity. The FCA established three main concerns for regulation; these comprised inherent elements that were thought to bring about bad choices and consequences in the financial market, behaviour and frameworks of banks and ecological matters as well as restraint and deteriorated economic outlook. The three have formed the mainstay of the FCAs method to oversight and regulation in the UK and, attached to the newly printed Risk Outlook 2013 /14, has strongly influenced the behaviour of financial organizations. The FCA implementation system has been built around market exploitation, business reporting and market observation, SAMLP (Systematic Anti-Money Laundering Programme), which additionally comprises anti-bribery and fraud, and reimbursement. Financial Institutions are required to adopt a much more all-inclusive and incorporated strategy to compliance to guarantee that they are consistent with FCA expectations. Recent Fines Imposed on Financial Institutions in UK In the recent past, the FCA has imposed hefty fines on some local and international financial institutions for flouting various clauses stipulated in the prudential guidelines. On 15th April 2015, the bank of New York Mellon in London as well as New York Mellon International was fined a total of £ 126 million for breaking rules stipulated in chapter ten and chapter six regarding sourcebooks for client’s assets. Deutsche Bank AG was fined a total of £226 million on the 23rd day of April 2015 for flouting rules contained in sections 11, 5 and 3 of the Authoritys Principles for Business Organizations. Most recently, Barclays Bank Plc. was heavily fined for contravening the third principle of the Authority’s Principles for Business Organizations. Barclays bank was fined a total of £ 284,432,000 on the 20th of May 2015. Prudential Regulatory Authority The PRA became in charge of supervisory undertakings on April 2013. The organization was instituted under the provisions of the Financial Services Act in the year 20128. PRA forms part of the Bank of England in conjunction with SRU (Special Resolutions Unit) and FPC (Financial Policy Committee.) The PRA is mandated with the constitutional function of promoting protection and security, which is well defined in terms of avoiding harm to the stability of the UK financial system. Stability is defined in terms of the continuance of serious monetary services. The FSA took part in an oversight waterfall between the years 2008 and 2012. PRA is expected to make amends for the damage done earlier. In as much as the PRAs function is comparatively constricted, it functions in an environment where it has to operate well with global supervisory bodies, both in instituting laws and as part of the administration of the Home monitoring structure. The organization has printed the FSR (Financial Stability Reports) that covers the Worldwide Financial Environment in addition to operational risks both mid-term and long-term financial risks. Benefits of Regulatory Compliance Regulatory and Prudential compliance comprises adherence with directions and control of the regulator. In the banking industry, compliance comprises the principles emanating from the Prudential Regulatory Authority under the Bank of England. These regulations maintain the uprightness of the financial system as well as preserving and upholding the reputation of the specific organizations and the investors confidence. Domestically and globally, banks are regulated to aid in moderating the risk of financial losses and institutional letdowns9. The regulatory overseers investigate criminal activity, for instance, money laundering and delinquency relating banks use. Procedures set necessities for capital and asset possessions by banks. Minimizing risk and managing lending activities are two key aims of bank regulations. Compliance is vital for the banking sector for of its deep participation in daily monetary roles, such as secured and unsecured loans, credit allowances, and stock capital financing. Additional features of compliance regulations guard privacy within the banking sector. As a system of safety, bank compliance aids in reducing the risk of interruption that would come because of financial changes and inconsistencies from the guiding principles for best practice. Compliance additionally decreases an organizations risk of paying hefty fines, lawsuits or a business shutdown. It is provided in law that all banking institutions should abide by the regulatory stipulations. These stipulations offer a level playing field for all competitors and customers alike, making certain that the financial markets are not monopolized by a selected few10. A main importance of integrating GRC (Governance, Risk and Compliance) functions within an organization is that it ensures the organization operates in a productive and well-organized environment in which all features operate uniformly towards a shared plan of stopping and identifying compliance failures. Assimilating GRC data permits the organization to effect decisions that are more intelligent more swiftly. GRC additionally ensures that non-value-added undertakings are removed, and value-added undertakings are restructured to moderate lag time and unwanted discrepancies. GRC also identifies the areas of redundancy and incompetence, allowing monetary and human resources to be distributed more efficiently. By managing all the risks involved, the companys reputation is preserved, therefore ensuring that the business continues to thrive. GRC also ensures that costs are kept to a bare minimum, therefore, contributing to the overall return on investments capital gains. Governance, Risk, and Compliance Governance, Risk and Compliance management systems (GRC) are three pivotal elements that operate collectively in assuring that a business enterprise fulfils its purposes. Governance comprises the amalgamation of procedures established and implemented by the directors board that are mirrored in the companys configuration and how it is administrated and controlled towards attaining its objectives11. Risk management involves calculating and dealing with risks that could hamper the business operations to realize its goals. Compliance with the businesss guidelines and policies, rules and principles, solid and well-organized governance is regarded a vital component to a companys accomplishment. Governance, Risk, and Compliance is an area that intends to harmonize data and action across governance, risk and compliance with the aim of operating more proficiently, allowing effective data sharing and avoiding wasteful overlays. Even though construed differently in various establishments, Governance, Risk and Compliance characteristically comprises actions and programs such as corporate governance and corporate compliance with pertinent laws and guidelines. Business establishments grow to an extent where synchronized regulation over Governance, Risk, and Compliance activities is requisite to function efficiently. Extensive replication of responsibilities develops when Governance, Risk, and Compliance are managed separately from one another. Coinciding and replicated Governance, Risk and Compliance activities adversely affect the working costs and the Governance, Risk and Compliance metrics. For instance, each inner service might be inspected and evaluated by numerous groups on a yearly basis, developing huge costs and incoherent results. An incoherent Governance, Risk and Compliance methodology will similarly manifest as a failure for the company to offer instantaneous Governance, Risk and Compliance executive information12. If not incorporated, if undertaken in an out-dated silo tactic, most business establishments must bear uncontrollable numbers of Governance, Risk and Compliance related needs as a result of variations in skill and technology, swelling data storage costs, market adaptations and expansions and increased oversight. Importance of Governance, Risk, and Compliance Different British governments elected to office have had numerous effects on the financial laws that govern privately owned companies as well as organizations that provide public utilities. The first woman to be elected into the office of the prime minister in UK belonged to the Conservative Party. Margaret Thatcher’s party policy entailed the promotion of owning the British Local authority houses through schemes such as the “right to buy” policies. The government intended on de-nationalizing assets that were publicly owned to promote ownership through private means, and thereby open up access of financial services to all. This incentive later became known as deregulation. Subsequently, the financial markets expansion brought about many challenges involving financial scandals and many mismanagements of the financial industry. This led to increased calls from involved stakeholders for the formation of a regulatory body that would oversee operations in the financial markets. The lobbying paved way for a political change that saw Tony Blair and his Labour Party win the election in 199713, with promises to regulate the market being one of his major manifestos. FSA (Financial Services Authority) was created immediately after the 1997 general election. It became the statutory overseer and supervisor of the financial markets in UK. Its powers were increased to include the supervision and the regulation of insurance companies, banking and mortgage companies. The organization, however, came under sharp criticism for not doing enough to avert the minor recession that was experienced in the year 2007. FSA’s failure proved too much for the Labour Party as they lost in the general election that followed. Conservatives took over power once more with promises to review regulation once more. It took some time for FSA to be abolished, as David’s Cameron government started introducing tougher measures to regulate the market. FSA was later abolished and two bodies were instituted: FCA (Financial Conduct Authority) and PRA (Prudential Regulation Authority). The two bodies work hand in hand to oversee the financial market within UK. It is evident that regulation within UK is altered depending on political changes put in place. Responsibilities as Head of Governance, Risk, and Compliance Having been appointed as the Head of Compliance at International Organization, my responsibilities will encompass a wide range of roles within the Risk and Compliance Department. Part of my Job description includes understanding and assisting in attaining unit service aims and KPI (Key performance indicators); promoting and supporting a culture of compliance within International Organization, avoiding any form of risk at all times while promoting corporate responsibility within the organization. Others include identifying opportunities to facilitate development of Governance, Risk and Compliance programs into the everyday operations of the banking functions; providing assistance in the formation of tools, training programs and policies to offer support to the various banks programs and provision of analytical assistance to the directors concerning the Governance, Risk and Compliance metrics. It will also be my duty to work together with partners from the banking sector to make certain that policies and internal business controls are standardized. My department will additionally liaise with assessors and technical subject matter specialists to mollify in-house and external audit needs. I will also identify and put in place prospects for computerisation or productivities to develop audit controls within International Organization; analyse current controls to define which are out-dated as well as offering my expertise in formulating compliance and governance frameworks within IO. 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