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Corporate Compliance

Don’t be complacent with your corporate compliance

As a normal citizen, we deal with compliance every day whether or not we are aware of it. Every time we obey traffic lights and stop our car when the light turns red, we are being compliant with local traffic laws. When we stand clear of the train doors after a train announcement, we are compliant with safety regulations.

Compliance is everywhere around us and the workplace is no different. But how does this everyday action translate to the business world? What does compliance mean for a company and how can businesses ensure they are maintaining their compliance?

What is the purpose of corporate compliance?

The purpose of corporate compliance goes beyond following the letter of the law. A recent study cited that almost two-thirds of organisations believe that their compliance efforts helped reduce the legal cost and resolution time of regulatory issues and fines.

Corporate compliance is about prevention as much as it is about obeying the law. The right compliance strategy can keep your company out of hot water, protect your employee data, and keep your company out of hot water.

To better understand where corporate compliance comes into play, we have outlined a common example of corporate compliance failure.

Does that sound like something straight out of a Mission Impossible film? It’s not; It’s actually happening to Goldman Sachs. The company is accused of promoting a company culture that enabled two of their bankers to steal billions from the Malaysian government. The Goldman Sachs x 1MDB scandal is just the latest example of a financial compliance failure.

Corporate compliance is about control and consideration. Is corporate compliance the most interesting part of your business model? Of course not; but it is a vital component to the health of your business. Before you decide to innovate to try and get ahead, make sure you are staying compliant in the process.

For all your business and corporate needs give us a call on 0870 228 1999

or send us an email info@stanleycarter.co.uk or check our website for further details www.stanleycarter.co.uk

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The new Accounting rules and the Banks

When launching or running a business, one of the most important responsibilities is to keep your finances in order.

Whether it’s hiring an accountant, opening a business account or registering with HMRC for corporation tax or VAT, there are a number of tasks to be done when you set up, and a bewildering array of banks, software companies and accountancy firms on hand to help.

UK Bank, UK economy
Bank in the UK economy

On 1 January 2018, a new accounting standard for how banks report on financial instruments, IFRS9, comes into force.

Financial reporting standards rarely sound exciting to non-accountants, but this one will have a real effect on banks and the economy. Impairment losses are the largest factor affecting bank profits, so changing how they are calculated will have a real effect.

Financial policy is currently going through a period of change, since fixing one problem can often prompt another. In this case, changes to a little-known accounting rule could well make lending to the real economy look very different.

Banks will now be required to estimate future losses on their lending. Come the New Year, they will be looking with great interest in ways to introducing new models to calculate “expected loss”. They will then have to hold larger credit provisions against this – in other words, even more rainy day money.

However, IFRS9 is no solution for all problems. In fact it may lead to volatility, inconsistency, lack of comparability, and the exacerbation of financial instability.

An estimate of future losses is just that; an estimate, and a highly subjective one at that. If a recession is predicted, these expected losses will accelerate, even if the current economic situation is gracious.

The requirement to hold more capital amplifies this, hence the increase in volatility.

But banks don’t like volatility, and their shareholders like it even less. This is therefore likely to mean banks change who they lend to and how they treat the customers they do lend to.

Any unsecured lending, for example, is likely to come under intense scrutiny. Banks won’t want to show erratic performance, so may reduce this type of business. There may also be particular sectors that show wide variations in loan losses. Banks will treat these industries less favourably too.

Comparisons between banks will be difficult, since their views of the future could be radically different.

The practicalities of considering several possible scenarios, calculating the probability of each occurring, and modelling the impact will be extremely challenging.

This may mean that banks intervene a lot sooner than businesses have been used to in the past. Businesses with some performance issues may find the bank manager knocking on the door sooner rather than later, perhaps to look at the prices of the loans.

In this way the standard could exacerbate financial instability, rather than countering it.

No accounting rule is perfect. But there is a misconception that IFRS9 will fix more than it can, and its shortcomings may become evident very soon.

Rather than creating technical issues over which accountants and analysts scratch their heads, this has the potential to influence how banks are perceived, with real knock-on effects to the economy and access to finance.

The more people understand some of the challenges in the new rules, the less likely we are to see businesses affected. This is why it is so important to increase understanding of what this change to the rules will mean.

If you think this will affect your business and require further information or help please send us an email info@stanleycarter.co.uk or check our website for further information www.stanleycarter.co.uk 

 

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SME Bank accounts

Banks are looking for new revenue streams. Providing excellent service to SME customers is an opportunity often overlooked by banks. There are an estimated 4.7 million SMEs in the UK – accounting for 99.9% of private sector business. Can you afford to ignore this market?

Business customers don’t have time to fill out a time-consuming and complicated application and then wait days — or even weeks — to open a new bank account, or to repeatedly enter the same information into separate applications to obtain multiple products. If the process isn’t quick and easy from any device, customers simply decide to take their business to a bank that offers a more convenient and customer-friendly experience.

To date, banks have been unwilling to tailor their services to meet the specific needs of SMEs. By failing small business owners, banks are ignoring the opportunities of the lucrative business banking market. Large banks likely have upside available today for existing SME customers, adding a cross sell capability — to apply for additional credit, for example — would bring banks a significant upside.

The good news is anyone can adopt the best practices , proven by the success of top banks, to create a customer-focused acquisition and onboarding experience.

If you need help to open a business bank account email us your details to info@stanleycarter.co.uk or check our website for further details on www.stanleycarter.co.uk

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Poor financial reporting

Poor financial reporting by banks and other financial institutions can be seen as a core contributor to the financial crisis and the lack of trust in the financial sector that ensued. Despite the lessons of a decade ago, we are still hearing of accounting scandals today – Tesco, BT, Carillion to name but a few.

Financial reporting is critical to trust in business. Misleading accounts will undermine the confidence of investors and other stakeholders to the point where financial support can dry up and the franchise is lost.

Most accounting involves judgment and all judgment contains an ethical dimension.  Fund managers should always remember that International Financial Reporting Standards (IFRS) are principles-based; therefore, financial statements which are prepared in accordance with IFRS reflect judgments and assumptions made by boards.

Bearing in mind that shareholders are the primary users of financial statements, they should provide feedback – both positive and critical – to boards of investee companies about the quality of their financial reporting, especially their consistency and comprehensibility.  Indeed, those who are signatories to the UK Stewardship Code have a responsibility to consider the quality of a company’s reporting and they should not shirk from fulfilling this.  Their views should be seen as invaluable and should be listened to and evaluated carefully by independent non-executive directors.