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Questions and Answers
What is a key aspect of a holistic risk management framework?
Why is effective oversight by the management body important?
What is a key objective of conduct of business rules?
What is the purpose of the three key steps in KYC?
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Why is automation increasingly used in KYC processes?
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What is a responsibility of a compliance officer?
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What is a key aspect of effective risk management?
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What is the role of competent authorities in relation to internal governance arrangements?
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What is a key objective of regulations on prudential requirements and conduct of business?
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What is the purpose of a holistic risk management framework?
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Study Notes
Unethical Behaviour in Trading
- Traders prioritized finding unsophisticated clients who wouldn't question costs
- A junior trader described a "muppet client" who paid an extra million dollars due to lack of price checks with other banks
- The managing director was present and nodded in approval, indicating a culture of unethical behaviour
Ethical Deficit in Banking
- The Netherlands introduced a Banker's Oath to restore confidence in the financial sector
- The oath emphasizes ethics, morality, and internal governance
- The oath is meant to guide bankers in making right decisions, but ethics and morality have limitations as a means of deterrence and control
Global Financial Crisis Reforms
- The UK established a Parliamentary Commission on Standards in Banking in 2012
- The commission aimed to make individual responsibility in banking a reality, especially at senior levels
- The UK introduced the Financial Conduct Authority in 2013 and the Senior Manager's Regime in 2016
- Australia, Hong Kong, and Singapore introduced similar senior manager accountability regimes
Mis-selling of Financial Services
- Banks widely sold payment protection insurance (PPI) along with loans in the UK
- The Financial Conduct Authority found widespread mis-selling of PPI between 1990 and 2010
- UK banks have paid over £38 billion in restitution to customers who complained about being mis-sold PPI
Internal Governance
- Effective internal governance arrangements are fundamental for institutions to operate well
- Weak internal governance practices were closely associated with the financial crisis
- Sound internal governance practices helped some institutions manage the crisis better than others
External Compliance
- Banks are regulated by central banks or related agencies and must comply with prudential requirements and conduct of business rules
- Conduct of business rules protect consumer rights and include codes of conduct on switching accounts and anti-competitive behaviour
- KYC (Know Your Customer) and AML (Anti-Money Laundering) & CFT (Combatting the Funding of Terrorism) regulations are key compliance requirements
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Description
Quiz about a trading desk experience where traders took advantage of unsophisticated clients, highlighting unethical business practices.
