Over the last 2 decades the theme of compliance in finance has become more important than ever before. This has always existed to some degree but there is no doubt that there is more processes which financial services have to go through now, in the name of ensuring that they have solid levels of compliance. We caught up with financial expert Scott Tominaga to find out exactly why this is so important in the world of finance and what exactly compliance is all about. For those of you who are curious, this is why compliance is so important.
Reigning in Operations
One of the most important reasons why compliance exists is that it ensures that all banks, traders and financial services have a strict process to follow which keeps them in check. In the case of trading for example, too much time went by without them needing to really follow compliance that would restrict their actions. The result of this over time was a number of trading branches of companies having free reign over how much they traded and what on. The tighter compliance now ensures that there are better rules which protect everyone.
The financial crisis which happened in 2008 occurred for a number of reasons. Primarily however it was the repackaging and the resale of poor quality mortgages that eventually caused the collapse of the world economy. This of course could never be allowed to happen again and that is exactly why we have seen such an increase in the level of compliance. Banks and financial institutions now have tighter rules to follow in order to make sure that nothing like this ever takes place again.
Protecting the Customer
In the main compliance is about making sure that the customer is always protected. No matter what the product is that is being sold, there are high levels of compliance which must be adhered to. Looking at situations like PPI is perfect in helping us understand why customers need protection. For many years customers were sol payment protection without knowing about it, and this forced many lenders to give money back to their customers. The compliance which we have in place now helps those customers to stay protected and avoid anything like that from happening.
Protecting the Financial Company
As painful as some of the compliance can be, it is important to remember that a lot of it is in place to actually offer protection to banks and to financial services companies. Compliance is what will ensure that they have maximum protection should any lawsuits come their way from clients or businesses. As much as compliance is there to protect customers and the wider world, it is also a very good tool to ensure that all banks and financial institutions are fully protected.
Compliance will continue to change as the world does, and it is quite clear that this is thanks to the many benefits which this aspect of finance has.