Industry Comparison
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Current language: English (2023)
You are viewing information about the following Industries:
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Investment Banking & Brokerage
Investment Banking & Brokerage industry entities perform a wide range of functions in the capital markets, including raising and allocating capital and providing market-making and advisory services for corporations, financial institutions, governments and high net-worth individuals. Specific activities include financial advisory and securities underwriting services conducted on a fee basis; securities and commodities brokerage activities, which involve buying and selling securities or commodities contracts and options on a commission or fee basis; and trading and principal investment activities, which involve the buying and selling of equities, fixed income, currencies, commodities and other securities for client-driven and proprietary trading. Investment banks also originate and securitise loans for infrastructure and other projects. Entities in the industry generate revenues from global markets and, therefore, are exposed to various regulatory regimes. The industry continues to face regulatory pressure to reform and disclose aspects of operations that present systemic risks. Specifically, entities are facing new capital requirements, stress testing, limits on proprietary trading and increased scrutiny over compensation practices. -
Consumer Finance
The Consumer Finance industry provides loans to consumers. The largest segment of the industry is comprised of revolving credit loans through credit card products. Additional loan services include auto, micro lending, and student loans. Some entities in the industry also provide consumer-to-consumer money transfers, money orders, prepaid debit cards, and bill payment services. Industry performance is determined by consumer spending, rates of unemployment, per capita GDP, income, and population growth. Recent shifts toward consumer protection and transparency have aligned and will continue to align the interests of society with those of long-term investors. Entities that effectively manage their social capital will therefore be better positioned to maximise their financial capital.
Relevant Issues for both Industries (7 of 26)
Why are some issues greyed out?
The SASB Standards vary by industry based on the different sustainability-related risks and opportunities within an industry. The issues in grey were not identified during the standard-setting process as the most likely to be useful to investors, so they are not included in the Standard. Over time, as the ISSB continues to receive market feedback, some issues may be added or removed from the Standard. Each company determines which sustainability-related risks and opportunities are relevant to its business. The Standard is designed for the typical company in an industry, but individual companies may choose to report on different sustainability-related risks and opportunities based on their unique business model.-
Environment
- GHG Emissions
- Air Quality
- Energy Management
- Water & Wastewater Management
- Waste & Hazardous Materials Management
- Ecological Impacts
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Social Capital
- Human Rights & Community Relations
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Customer Privacy
The category addresses management of risks related to the use of personally identifiable information (PII) and other customer or user data for secondary purposes including but not limited to marketing through affiliates and non-affiliates. The scope of the category includes social issues that may arise from a company’s approach to collecting data, obtaining consent (e.g., opt-in policies), managing user and customer expectations regarding how their data is used, and managing evolving regulation. It excludes social issues arising from cybersecurity risks, which are covered in a separate category. -
Data Security
The category addresses management of risks related to collection, retention, and use of sensitive, confidential, and/or proprietary customer or user data. It includes social issues that may arise from incidents such as data breaches in which personally identifiable information (PII) and other user or customer data may be exposed. It addresses a company’s strategy, policies, and practices related to IT infrastructure, staff training, record keeping, cooperation with law enforcement, and other mechanisms used to ensure security of customer or user data. - Access & Affordability
- Product Quality & Safety
- Customer Welfare
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Selling Practices & Product Labeling
The category addresses social issues that may arise from a failure to manage the transparency, accuracy, and comprehensibility of marketing statements, advertising, and labeling of products and services. It includes, but is not limited to, advertising standards and regulations, ethical and responsible marketing practices, misleading or deceptive labeling, as well as discriminatory or predatory selling and lending practices. This may include deceptive or aggressive selling practices in which incentive structures for employees could encourage the sale of products or services that are not in the best interest of customers or clients.
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Human Capital
- Labour Practices
- Employee Health & Safety
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Employee Engagement, Diversity & Inclusion
The category addresses a company’s ability to ensure that its culture and hiring and promotion practices embrace the building of a diverse and inclusive workforce that reflects the makeup of local talent pools and its customer base. It addresses the issues of discriminatory practices on the bases of race, gender, ethnicity, religion, sexual orientation, and other factors.
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Business Model and Innovation
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Product Design & Lifecycle Management
The category addresses incorporation of environmental, social, and governance (ESG) considerations in characteristics of products and services provided or sold by the company. It includes, but is not limited to, managing the lifecycle impacts of products and services, such as those related to packaging, distribution, use-phase resource intensity, and other environmental and social externalities that may occur during their use-phase or at the end of life. The category captures a company’s ability to address customer and societal demand for more sustainable products and services as well as to meet evolving environmental and social regulation. It does not address direct environmental or social impacts of the company’s operations nor does it address health and safety risks to consumers from product use, which are covered in other categories. - Business Model Resilience
- Supply Chain Management
- Materials Sourcing & Efficiency
- Physical Impacts of Climate Change
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Leadership and Governance
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Business Ethics
The category addresses the company’s approach to managing risks and opportunities surrounding ethical conduct of business, including fraud, corruption, bribery and facilitation payments, fiduciary responsibilities, and other behaviour that may have an ethical component. This includes sensitivity to business norms and standards as they shift over time, jurisdiction, and culture. It addresses the company’s ability to provide services that satisfy the highest professional and ethical standards of the industry, which means to avoid conflicts of interest, misrepresentation, bias, and negligence through training employees adequately and implementing policies and procedures to ensure employees provide services free from bias and error. - Competitive Behaviour
- Management of the Legal & Regulatory Environment
- Critical Incident Risk Management
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Systemic Risk Management
The category addresses the company’s contributions to or management of systemic risks resulting from large-scale weakening or collapse of systems upon which the economy and society depend. This includes financial systems, natural resource systems, and technological systems. It addresses the mechanisms a company has in place to reduce its contributions to systemic risks and to improve safeguards that may mitigate the impacts of systemic failure. For financial institutions, the category also captures the company’s ability to absorb shocks arising from financial and economic stress and meet stricter regulatory requirements related to the complexity and interconnectedness of companies in the industry.
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Disclosure Topics
What is the relationship between General Issue Category and Disclosure Topics?
The General Issue Category is an industry-agnostic version of the Disclosure Topics that appear in each SASB Standard. Disclosure topics represent the industry-specific impacts of General Issue Categories. The industry-specific Disclosure Topics ensure each SASB Standard is tailored to the industry, while the General Issue Categories enable comparability across industries. For example, Health & Nutrition is a disclosure topic in the Non-Alcoholic Beverages industry, representing an industry-specific measure of the general issue of Customer Welfare. The issue of Customer Welfare, however, manifests as the Counterfeit Drugs disclosure topic in the Biotechnology & Pharmaceuticals industry.-
Access Standard
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Customer Privacy
The category addresses management of risks related to the use of personally identifiable information (PII) and other customer or user data for secondary purposes including but not limited to marketing through affiliates and non-affiliates. The scope of the category includes social issues that may arise from a company’s approach to collecting data, obtaining consent (e.g., opt-in policies), managing user and customer expectations regarding how their data is used, and managing evolving regulation. It excludes social issues arising from cybersecurity risks, which are covered in a separate category.None -
Data Security
The category addresses management of risks related to collection, retention, and use of sensitive, confidential, and/or proprietary customer or user data. It includes social issues that may arise from incidents such as data breaches in which personally identifiable information (PII) and other user or customer data may be exposed. It addresses a company’s strategy, policies, and practices related to IT infrastructure, staff training, record keeping, cooperation with law enforcement, and other mechanisms used to ensure security of customer or user data.None -
Selling Practices & Product Labeling
The category addresses social issues that may arise from a failure to manage the transparency, accuracy, and comprehensibility of marketing statements, advertising, and labeling of products and services. It includes, but is not limited to, advertising standards and regulations, ethical and responsible marketing practices, misleading or deceptive labeling, as well as discriminatory or predatory selling and lending practices. This may include deceptive or aggressive selling practices in which incentive structures for employees could encourage the sale of products or services that are not in the best interest of customers or clients.None -
Employee Engagement, Diversity & Inclusion
The category addresses a company’s ability to ensure that its culture and hiring and promotion practices embrace the building of a diverse and inclusive workforce that reflects the makeup of local talent pools and its customer base. It addresses the issues of discriminatory practices on the bases of race, gender, ethnicity, religion, sexual orientation, and other factors.-
Employee Diversity & Inclusion
Entities in the Investment Banking & Brokerage industry face significant competition for skilled employees. As the industry continues to undergo rapid innovation through the introduction of more complex financial products and computerised algorithmic and high-frequency trading, material concerns such as profitability are more likely to determine the ability of entities to attract and retain skilled employees. By ensuring gender and racial diversity throughout the organisation, entities may expand their candidate pool, which may reduce hiring costs and improve operational efficiency. Evidence also suggests that entities with more diverse groups of employees may reduce risk-taking among employees involved in risk-prone trading activities (for example, trading), which may reduce the entity’s overall risk exposure. Entities with more diverse workforces may, therefore, be better able to attract skilled labour, adapt to advancements in technology and safeguard employee well-being.
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Product Design & Lifecycle Management
The category addresses incorporation of environmental, social, and governance (ESG) considerations in characteristics of products and services provided or sold by the company. It includes, but is not limited to, managing the lifecycle impacts of products and services, such as those related to packaging, distribution, use-phase resource intensity, and other environmental and social externalities that may occur during their use-phase or at the end of life. The category captures a company’s ability to address customer and societal demand for more sustainable products and services as well as to meet evolving environmental and social regulation. It does not address direct environmental or social impacts of the company’s operations nor does it address health and safety risks to consumers from product use, which are covered in other categories.-
Incorporation of Environmental, Social, and Governance Factors in Investment Banking & Brokerage Activities
Environmental, social and governance (ESG) factors may have material impacts on the entities assets and projects across a range of industries to which investment banks provide services or in which they invest. Therefore, by accounting for these factors in underwriting, advisory, investing and lending activities, investment banks may manage significant positive and negative environmental and social externalities effectively. The potential for both value creation and loss associated with ESG factors suggests that investment banking and brokerage entities have a responsibility to shareholders and clients to consider these factors when analysing and valuing core products, including sell-side research, advisory services, origination, underwriting and principal transactions. Investment banking and brokerage entities that fail to manage these risks and opportunities effectively may expose themselves to increased reputational and financial risks. Appropriately pricing ESG risks may reduce investment banks’ financial risk exposure, help generate additional revenue or open new market opportunities. To help investors better understand how entities in the industry manage these issues, investment banks should disclose how they incorporate ESG factors in their core products and services.
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Business Ethics
The category addresses the company’s approach to managing risks and opportunities surrounding ethical conduct of business, including fraud, corruption, bribery and facilitation payments, fiduciary responsibilities, and other behaviour that may have an ethical component. This includes sensitivity to business norms and standards as they shift over time, jurisdiction, and culture. It addresses the company’s ability to provide services that satisfy the highest professional and ethical standards of the industry, which means to avoid conflicts of interest, misrepresentation, bias, and negligence through training employees adequately and implementing policies and procedures to ensure employees provide services free from bias and error.-
Business Ethics
The regulatory environment surrounding the Investment Banking & Brokerage industry continues to evolve internationally. Entities must adhere to a complex and often inconsistent set of rules relating to performance and conduct, as well as provide disclosure on issues including insider trading, antitrust behaviour, price fixing and market manipulation. Entities are subject to strict legal requirements against tax evasion, fraud, money laundering and corrupt practices. In some jurisdictions, enhanced rewards for whistle-blowers may increase the number of complaints brought to regulators. Entities that ensure regulatory compliance through robust internal controls may build trust with clients, increase revenue and protect shareholder value by minimising losses incurred because of legal proceedings. -
Professional Integrity
The success of entities in the Investment Banking & Brokerage industry is dependent on cultivating client trust and loyalty. To ensure long-term, mutually beneficial relationships, entities must provide services that satisfy the highest professional standards, which means taking careful measures to avoid conflicts of interest, misrepresentation and negligence. Professional integrity also means following a code of ethics with respect to transparency and disclosure. These measures are important both for preserving an entity’s licence to operate, as well as for attracting and retaining clients. Failure to meet professional standards may lead to negative consequences such as legal penalties or reputational damage, harming the entity’s clients as well as its shareholders. To maintain professional integrity, entities must ensure employees are trained in, and committed to adhering to, applicable financial industry regulations. A description of management’s approach to assuring professional integrity may help investors understand risk exposure and processes in place to avoid misconduct. Disclosure of the entity’s amount of legal and regulatory fines and settlements may provide investors and stakeholders with more transparent information regarding which financial institutions are adhering to regulatory norms.
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Systemic Risk Management
The category addresses the company’s contributions to or management of systemic risks resulting from large-scale weakening or collapse of systems upon which the economy and society depend. This includes financial systems, natural resource systems, and technological systems. It addresses the mechanisms a company has in place to reduce its contributions to systemic risks and to improve safeguards that may mitigate the impacts of systemic failure. For financial institutions, the category also captures the company’s ability to absorb shocks arising from financial and economic stress and meet stricter regulatory requirements related to the complexity and interconnectedness of companies in the industry.-
Systemic Risk Management
Investment Banking & Brokerage entities that fail to manage risks to capital effectively may suffer significant value losses to their financial assets while increasing liabilities. Because of the interconnectedness of the global financial system, these failures can contribute to significant market disruption and financial crises. This systemic nature of risk has become a central concern for regulators. As a result, many jurisdictions require that banks undergo supervised stress tests to evaluate whether the entity has sufficient capital and liquidity to absorb losses, continue operations and meet obligations in adverse economic and financial conditions. Failure to meet regulatory requirements may lead to penalties and substantially increased future compliance costs. Investment banks should improve their disclosures by measuring how well they can absorb shocks arising from systemic stresses to demonstrate how risks associated with their size, complexity, interconnectedness, substitutability and cross-jurisdictional activity are being managed. Entities that commit to enhanced disclosures may experience improved investor and shareholder confidence, potentially leading to increased revenues. -
Employee Incentives & Risk-taking
Variations in employee compensation structures in the Investment Banking & Brokerage industry may incentivise employees to focus on short- or long-term entity performance. Structures that emphasise short-term performance may encourage excessive risk-taking, with adverse implications for long-term corporate value. Various financial crises in recent decades have increased regulatory and shareholder scrutiny towards excessive risk-taking behaviour. Enhanced disclosure of employee compensation, focusing on performance metrics and variable remuneration, policies regarding clawback provisions, supervision, control and validation of traders’ pricing of Level 3 assets may provide investors with a better understanding of how entities are preserving corporate value by prioritising long-term growth over short-term reward.
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Access Standard
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Customer Privacy
The category addresses management of risks related to the use of personally identifiable information (PII) and other customer or user data for secondary purposes including but not limited to marketing through affiliates and non-affiliates. The scope of the category includes social issues that may arise from a company’s approach to collecting data, obtaining consent (e.g., opt-in policies), managing user and customer expectations regarding how their data is used, and managing evolving regulation. It excludes social issues arising from cybersecurity risks, which are covered in a separate category.-
Customer Privacy
Entities in the Consumer Finance industry face risks and opportunities associated with using customer data for purposes other than those for which the data was originally collected (for example, targeted advertising or transfer to third parties). Ensuring the privacy of personal information and other account holders’ data is an essential responsibility of the Consumer Finance industry. To assess performance on this issue, investors may benefit from entities’ disclosure of the number of account holders whose information is used for secondary purposes, and their policies and procedures around using such information, including the nature of their opt-in policies. Investors may be encouraged and reassured by disclosures of information regarding an entity’s data usage, as well as applicable jurisdictional legal or regulatory actions related to customer protection and privacy. Entities in the Consumer Finance industry that fail to manage performance in this area may be susceptible to decreased revenues resulting from lost consumer confidence and high employee turnover, as well as financial consequences arising from increased legal risks.
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Data Security
The category addresses management of risks related to collection, retention, and use of sensitive, confidential, and/or proprietary customer or user data. It includes social issues that may arise from incidents such as data breaches in which personally identifiable information (PII) and other user or customer data may be exposed. It addresses a company’s strategy, policies, and practices related to IT infrastructure, staff training, record keeping, cooperation with law enforcement, and other mechanisms used to ensure security of customer or user data.-
Data Security
Entities in the Consumer Finance industry face risks and opportunities associated with customer data security management, in the context of external threats. Ensuring the security of customers’ personal information is an essential responsibility of the Consumer Finance industry. To assess performance on this issue, analysts may benefit from disclosure regarding safeguarding customer data against emerging and continuously evolving cybersecurity threats and technologies, security breaches compromising customers’ personal information, and credit and debit card fraud. Entities that fail to manage these threats effectively may be susceptible to reduced revenues resulting from decreased consumer confidence and high employee turnover. Furthermore, data breaches may expose entities to lengthy, costly litigation and potential monetary losses.
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Selling Practices & Product Labeling
The category addresses social issues that may arise from a failure to manage the transparency, accuracy, and comprehensibility of marketing statements, advertising, and labeling of products and services. It includes, but is not limited to, advertising standards and regulations, ethical and responsible marketing practices, misleading or deceptive labeling, as well as discriminatory or predatory selling and lending practices. This may include deceptive or aggressive selling practices in which incentive structures for employees could encourage the sale of products or services that are not in the best interest of customers or clients.-
Selling Practices
Selling practices encompasses performance in three important areas that can affect an entity’s operations and financial condition. First, entity compensation and incentive policies may unintentionally encourage the selling of products and services that are not in the clients’ best interest. Secondly, an entity may be perceived as using deceptive practices from a failure to provide transparent information to customers about primary and add-on products. And finally, depending on the characteristics of products offered, poor performance on the first two elements could result in customers holding portfolios containing high concentrations of risk. Entities in the Consumer Finance industry may face increased scrutiny as regulators encourage improved transparency and enhanced disclosure. The disclosure of important lending portfolio characteristics—including average fees from add-on products, average age of credit products, average annual percentage rate (APR) of credit products, average number of credit accounts and average annual fees for pre-paid transaction products—may permit shareholders to determine which entities can best protect long-term value, rather than relying on short-term revenue generation practices. Providing consumer finance products focused on the customers’ best interest may build trust with new and existing customers, expand market share, and ensure sustainable revenue growth.
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Employee Engagement, Diversity & Inclusion
The category addresses a company’s ability to ensure that its culture and hiring and promotion practices embrace the building of a diverse and inclusive workforce that reflects the makeup of local talent pools and its customer base. It addresses the issues of discriminatory practices on the bases of race, gender, ethnicity, religion, sexual orientation, and other factors.None -
Product Design & Lifecycle Management
The category addresses incorporation of environmental, social, and governance (ESG) considerations in characteristics of products and services provided or sold by the company. It includes, but is not limited to, managing the lifecycle impacts of products and services, such as those related to packaging, distribution, use-phase resource intensity, and other environmental and social externalities that may occur during their use-phase or at the end of life. The category captures a company’s ability to address customer and societal demand for more sustainable products and services as well as to meet evolving environmental and social regulation. It does not address direct environmental or social impacts of the company’s operations nor does it address health and safety risks to consumers from product use, which are covered in other categories.None -
Business Ethics
The category addresses the company’s approach to managing risks and opportunities surrounding ethical conduct of business, including fraud, corruption, bribery and facilitation payments, fiduciary responsibilities, and other behaviour that may have an ethical component. This includes sensitivity to business norms and standards as they shift over time, jurisdiction, and culture. It addresses the company’s ability to provide services that satisfy the highest professional and ethical standards of the industry, which means to avoid conflicts of interest, misrepresentation, bias, and negligence through training employees adequately and implementing policies and procedures to ensure employees provide services free from bias and error.None -
Systemic Risk Management
The category addresses the company’s contributions to or management of systemic risks resulting from large-scale weakening or collapse of systems upon which the economy and society depend. This includes financial systems, natural resource systems, and technological systems. It addresses the mechanisms a company has in place to reduce its contributions to systemic risks and to improve safeguards that may mitigate the impacts of systemic failure. For financial institutions, the category also captures the company’s ability to absorb shocks arising from financial and economic stress and meet stricter regulatory requirements related to the complexity and interconnectedness of companies in the industry.None
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General Issue Category
Remove
Investment Banking & Brokerage
Access Standard
Remove
Consumer Finance
Access Standard
Customer Privacy
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Customer Privacy
Entities in the Consumer Finance industry face risks and opportunities associated with using customer data for purposes other than those for which the data was originally collected (for example, targeted advertising or transfer to third parties). Ensuring the privacy of personal information and other account holders’ data is an essential responsibility of the Consumer Finance industry. To assess performance on this issue, investors may benefit from entities’ disclosure of the number of account holders whose information is used for secondary purposes, and their policies and procedures around using such information, including the nature of their opt-in policies. Investors may be encouraged and reassured by disclosures of information regarding an entity’s data usage, as well as applicable jurisdictional legal or regulatory actions related to customer protection and privacy. Entities in the Consumer Finance industry that fail to manage performance in this area may be susceptible to decreased revenues resulting from lost consumer confidence and high employee turnover, as well as financial consequences arising from increased legal risks.
Data Security
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Data Security
Entities in the Consumer Finance industry face risks and opportunities associated with customer data security management, in the context of external threats. Ensuring the security of customers’ personal information is an essential responsibility of the Consumer Finance industry. To assess performance on this issue, analysts may benefit from disclosure regarding safeguarding customer data against emerging and continuously evolving cybersecurity threats and technologies, security breaches compromising customers’ personal information, and credit and debit card fraud. Entities that fail to manage these threats effectively may be susceptible to reduced revenues resulting from decreased consumer confidence and high employee turnover. Furthermore, data breaches may expose entities to lengthy, costly litigation and potential monetary losses.
Selling Practices & Product Labeling
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Selling Practices
Selling practices encompasses performance in three important areas that can affect an entity’s operations and financial condition. First, entity compensation and incentive policies may unintentionally encourage the selling of products and services that are not in the clients’ best interest. Secondly, an entity may be perceived as using deceptive practices from a failure to provide transparent information to customers about primary and add-on products. And finally, depending on the characteristics of products offered, poor performance on the first two elements could result in customers holding portfolios containing high concentrations of risk. Entities in the Consumer Finance industry may face increased scrutiny as regulators encourage improved transparency and enhanced disclosure. The disclosure of important lending portfolio characteristics—including average fees from add-on products, average age of credit products, average annual percentage rate (APR) of credit products, average number of credit accounts and average annual fees for pre-paid transaction products—may permit shareholders to determine which entities can best protect long-term value, rather than relying on short-term revenue generation practices. Providing consumer finance products focused on the customers’ best interest may build trust with new and existing customers, expand market share, and ensure sustainable revenue growth.
Employee Engagement, Diversity & Inclusion
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Employee Diversity & Inclusion
Entities in the Investment Banking & Brokerage industry face significant competition for skilled employees. As the industry continues to undergo rapid innovation through the introduction of more complex financial products and computerised algorithmic and high-frequency trading, material concerns such as profitability are more likely to determine the ability of entities to attract and retain skilled employees. By ensuring gender and racial diversity throughout the organisation, entities may expand their candidate pool, which may reduce hiring costs and improve operational efficiency. Evidence also suggests that entities with more diverse groups of employees may reduce risk-taking among employees involved in risk-prone trading activities (for example, trading), which may reduce the entity’s overall risk exposure. Entities with more diverse workforces may, therefore, be better able to attract skilled labour, adapt to advancements in technology and safeguard employee well-being.
Product Design & Lifecycle Management
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Incorporation of Environmental, Social, and Governance Factors in Investment Banking & Brokerage Activities
Environmental, social and governance (ESG) factors may have material impacts on the entities assets and projects across a range of industries to which investment banks provide services or in which they invest. Therefore, by accounting for these factors in underwriting, advisory, investing and lending activities, investment banks may manage significant positive and negative environmental and social externalities effectively. The potential for both value creation and loss associated with ESG factors suggests that investment banking and brokerage entities have a responsibility to shareholders and clients to consider these factors when analysing and valuing core products, including sell-side research, advisory services, origination, underwriting and principal transactions. Investment banking and brokerage entities that fail to manage these risks and opportunities effectively may expose themselves to increased reputational and financial risks. Appropriately pricing ESG risks may reduce investment banks’ financial risk exposure, help generate additional revenue or open new market opportunities. To help investors better understand how entities in the industry manage these issues, investment banks should disclose how they incorporate ESG factors in their core products and services.
Business Ethics
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Business Ethics
The regulatory environment surrounding the Investment Banking & Brokerage industry continues to evolve internationally. Entities must adhere to a complex and often inconsistent set of rules relating to performance and conduct, as well as provide disclosure on issues including insider trading, antitrust behaviour, price fixing and market manipulation. Entities are subject to strict legal requirements against tax evasion, fraud, money laundering and corrupt practices. In some jurisdictions, enhanced rewards for whistle-blowers may increase the number of complaints brought to regulators. Entities that ensure regulatory compliance through robust internal controls may build trust with clients, increase revenue and protect shareholder value by minimising losses incurred because of legal proceedings. -
Professional Integrity
The success of entities in the Investment Banking & Brokerage industry is dependent on cultivating client trust and loyalty. To ensure long-term, mutually beneficial relationships, entities must provide services that satisfy the highest professional standards, which means taking careful measures to avoid conflicts of interest, misrepresentation and negligence. Professional integrity also means following a code of ethics with respect to transparency and disclosure. These measures are important both for preserving an entity’s licence to operate, as well as for attracting and retaining clients. Failure to meet professional standards may lead to negative consequences such as legal penalties or reputational damage, harming the entity’s clients as well as its shareholders. To maintain professional integrity, entities must ensure employees are trained in, and committed to adhering to, applicable financial industry regulations. A description of management’s approach to assuring professional integrity may help investors understand risk exposure and processes in place to avoid misconduct. Disclosure of the entity’s amount of legal and regulatory fines and settlements may provide investors and stakeholders with more transparent information regarding which financial institutions are adhering to regulatory norms.
Systemic Risk Management
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Systemic Risk Management
Investment Banking & Brokerage entities that fail to manage risks to capital effectively may suffer significant value losses to their financial assets while increasing liabilities. Because of the interconnectedness of the global financial system, these failures can contribute to significant market disruption and financial crises. This systemic nature of risk has become a central concern for regulators. As a result, many jurisdictions require that banks undergo supervised stress tests to evaluate whether the entity has sufficient capital and liquidity to absorb losses, continue operations and meet obligations in adverse economic and financial conditions. Failure to meet regulatory requirements may lead to penalties and substantially increased future compliance costs. Investment banks should improve their disclosures by measuring how well they can absorb shocks arising from systemic stresses to demonstrate how risks associated with their size, complexity, interconnectedness, substitutability and cross-jurisdictional activity are being managed. Entities that commit to enhanced disclosures may experience improved investor and shareholder confidence, potentially leading to increased revenues. -
Employee Incentives & Risk-taking
Variations in employee compensation structures in the Investment Banking & Brokerage industry may incentivise employees to focus on short- or long-term entity performance. Structures that emphasise short-term performance may encourage excessive risk-taking, with adverse implications for long-term corporate value. Various financial crises in recent decades have increased regulatory and shareholder scrutiny towards excessive risk-taking behaviour. Enhanced disclosure of employee compensation, focusing on performance metrics and variable remuneration, policies regarding clawback provisions, supervision, control and validation of traders’ pricing of Level 3 assets may provide investors with a better understanding of how entities are preserving corporate value by prioritising long-term growth over short-term reward.