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Why Compliance is so Important to the Investment Industry

Dassos Troullides
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If you are in the investment industry, compliance is undoubtedly one of your top priorities. After all, it is essential to protect both your customers and your business from any illegal activities. In 2021 alone, £63 million was lost to investment fraud scams in the UK, with over 5,039 individual reports being filed.

In this blog post, we will discuss the importance of compliance and why it is so vital to ensure high standards of protocol within the investment industry.

Compliance: An Overview

The main reason compliance is so important to the investment industry is due to the high amount of regulation that exists. For example, in order to protect consumers from being scammed, the Financial Conduct Authority (FCA) introduced a series of rules and regulations that businesses must adhere to.

These include the need for firms to have adequate systems and controls in place to mitigate the risk of financial crime, as well as ensuring that customers are provided with clear and concise information about the products and services they are being offered.

In addition, businesses must also have procedures in place to deal with any complaints received in a fair and timely manner.

One such way is to implement KYC (Know-Your-Customer) protocols that check and verify the identity of new customers. If you’re still wondering, ‘what is KYC verification?‘, click the link to find out further information.

Compliance and Customer Trust

Compliance is not only important from a legal standpoint, but it is also essential for building and maintaining customer trust.

Investors need to have confidence that their money is being managed in a safe and ethical manner, and that their best interests are always being taken into account.

If there were to be any lapses in compliance, this could damage the reputation of both the firm and the investment industry as a whole, which would likely lead to a loss of customer confidence and business.

Penalties and Fines

The importance of compliance within the investment industry cannot be understated. If businesses fail to comply with the rules and regulations set out by the FCA, they could face a number of penalties. These can range from being issued with a formal warning, to having their license revoked completely. In some cases, firms may also be fined or prosecuted. 

What Non-Compliance in the Investment Industry Can Cause

Some notable examples of non-compliance in the investment industry include Enron in 2001 which used fake holdings and illegal accounting practices to fool its investors. It’s estimated that Enron lost as much as $74 billion in investment funds before it filed for bankruptcy and some of its staff were prosecuted.

Lehman Brothers were also caught in 2008 using the ‘Repo 105’ clause to temporarily move their debt and make their balance sheets look healthier to potential investors. They shifted as much as $50 billion dollars of debt and a lot of experts attribute this act to the cause of the financial crash of 2008.

Compliance is an integral part of the investment industry as it allows companies to be monitored and prevented from bad practices when it comes to investing customers’ money. 

Without proper regulatory oversight and compliance procedures, this has massive financial repercussions on a global scale.

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Dassos Troullides

Dassos Troullides

Dassos Troullides is one of the editors for BuyShares.co.uk who specializes in CFD, stock, forex, and crypto trading. He uses his experience and time spent in the forex industry to simplify complex financial topics for easy, informative reading.