Financial Services Regulation - Assignment Example

Running Header: Financial services Friendship and close relationship at work Author’s Name Instructor’s Name Course Number Date of Submission TASK 3 1. Disclosure of capacity criteria The industry regulations require the financial service provider to observe transparency, disclosure of capacity and conflict of interest management. In this regard, there is need for the provider to disclose their capacity to provide the services they have been contracted to provide. They are supposed to inform the customer on the capacity in which they are acting as well as the services they are providing. For instance, the capacity the provider is acting may include sourcing for suitable financial investment policies as well as choosing the product that best suits the customer. Contract law principles The financial service provider and the client are in a contractual relationship. Hence, there is need to establish a contract between them based on contractual principles. These will be an essential tool for business relationships given that it will guide the relationship between the two. This will act to provide clearly defined and agreed contracts to avoid the misunderstandings that may arise in the case of the client and the financial service provider’s expectations failing to match. Agreements based on the contractual principles act as a guide between the two parties and also act as a dispute resolution mechanism. Duty of care principles In service provision, the officer ought to observe duty of care principles. Thus, the contract between the client and the service provider ought to include an implied term that the provider will carry out his mandate and the tasks associated with it with reasonable skill, care and diligence. The provider must thus exercise that degree of skill care and diligence which would be exercised in the ordinary and proper course of a similar business and employ skill usually necessary in a similar business. Fiduciary duties The financial service provider acts for the customer in respect of the transaction he carries out on behalf of the customer/client. This means that the provider is the agent of the client who is the principal and hence there is an agency relationship. The kind of principal and agent relationship gives rise to a fiduciary relationship. One of the fiduciary duties in this case is that when the provider decides on a product to recommend to the client, the provider ought not to let this decision be influenced by any different rates of commission applicable to the competing products. The provider must also disclose any commission he may be paid by the product provider. General obligations of a financial services officer The general obligations of a financial services officer include selling of the financial services products to the clients. This involves going to the market and getting to know the kinds of products that are available and giving recommendations to the clients on which products they think that the client should buy. In addition, they are supposed to give financial products related advice to the clients and guide them to making good investment decisions so that they do not lose their money. Laws of principal and agents As stated above, the financial service provider acts as the agent of the client who is the principle by making financial transactions on their behalf. As such, the law requires that the agent or the financial services provider act in the principal’s or the client’s best interest. This means that in giving advice or making investment decisions, such decisions should always be guided by the client’s best interests. In return, the agents ought to be compensated by the principals through the payment of commissions. This is a fiduciary relationship and duty of care should be observed at all times. 2. Organization’s financial products and services There are many financial products and services provided by the financial service providers. Some are normal services like withdrawing money on the ATM or issuing a credit card while other are complicated such as making investment decisions. The services are listed below including; -All the services provided by the banks considered commercial banking services -Investment banking services/products for instance brokerage -Foreign exchange services -Investment services such as investment management, hedge fund management, custody services, -Insurance services -other financial services such as bank cards, private equity, venture capital and angel investment among others. Relevant agency agreements or broker authority Before the financial services provider can act for the client, there is need to establish an agency agreement or broker authority that will signify the principal (client) permission authorizing the agent (provider) to act on their behalf. The agency agreement is a legal contract which creates a fiduciary relationship between the financial service provider and the client whereby the client agrees that the actions of the provider binds him (the client) to later agreements that the provider (agent) may make as if the client had made them personally. Thus, the agreements authorize the financial service providers to act on behalf of their clients. Relevant industry codes of practice These are the standards that guide how the industry is to conduct itself when dealing with its customers. They are numerous depending on the industry in question and include the following among others; i) General insurance codes of practice ii) Code of banking practice iii) General insurance brokers code of practice iv) Investment brokers code of practice They play a major role in the industry’s regulatory framework for the financial services industry by establishing best practice standards for the industry. Relevant regulation pertaining the financial services industry There are various regulations that govern the financial services industry. These include the following among others; i) Treating customers fairly (TCF) – the regulation regulates market conduct and centers on embedding fairness in all aspects of customers experience with the providers. ii) The protection of personal information act aims at ensuring that the information the providers secure is secured and hence complies with the provisions related to special personal information, children information, account numbers, direct marketing and Trans border flow of information is secure (Chambersandpartners.com, 2017). iii) Solvency assessment and management regulations iv) The financial advisory and intermediary (FAIS) act protects consumers who use financial services and products and ensures this is done in a competent and open manner while monitoring that the provision of such services and products is properly regulated and to regulate the selling and advice giving activities of the providers. 3. Identify and categorize the statutory records a financial services organization needs to maintain There are many records that the financial services providers keep pertaining to the list of clients they have and the type of investments they make. They also keep various financial records pertaining to their expenses, their commissions, their balance sheet and their profit and loss accounts. 4. The internal monitoring and audit program process The process starts with continuous monitoring to ensure that the company and regulatory policies, procedures and business processes are effectively operating by the management. This involves testing of all transactions and system activities against control rules. The process also involves continuous audit that tests the adequacy of the monitoring process while identifying and assessing risk areas. The process also involves Meta controls which monitors particular items thus providing an additional level of control. For instance for banks, the bank can raise alarm under pre-specified circumstances to the bank manager whenever loans exceed the authorized levels. This creates a level of control that can be configured. The audit control and monitoring process is supposed to ensure that laws, standards, procedures and regulations are being adhered to ensure that client’s funds are safeguarded. 5. It is important to maintain the relevant licenses in accordance with organizational, legal and regulatory requirements for various reasons. First, we need to operate a legal business. The licenses are legal requirements and hence this should be adhered to. Without following the legislative requirements, the business is likely to face serious penalties. Having and maintaining the licenses is also important as it gives the provider the permission to operate and gives them the scope of the products they can offer. With this authority, it gives the customers or clients the confidence to deal with you since they know that your business is legal and that you are not out to swindle their money. This means that you also subject yourself to regulation by various regulators and hence your business is professionally run. This will give the clients additional confidence to trust you and hence appoint you as their agent. References: Chambersandpartners.com, 2017, Financial services regulation, Retrieved on 18th April 2017, from; http://www.chambersandpartners.com/12788/1134/editorial/5/1 Read More