Financial Service.
The financial sector is largely dependent on the consumer and customer service forms an integral part of it. Be it any financial organization, banks, stock broking companies, insurance providers or any investment firms, every transaction revolves around customers and their requirements.
The customer base may vary from individual to corporate however, the end result involves customer service. This is one of the reasons why most top banks have an extremely good customer services department to help in any enquiry and attend to a customer requirement.
However, customer services are not just restricted to handling out information and selling products. Customer service also involves safekeeping of funds and providing a safety net to them, in any situation. In order to provide this safe shield and ensure customer satisfaction, most financial institutions are today, bound by certain contract laws which clearly list out the responsibilities to be undertaken by them. These laws and understandings are essential for customers to invest and work in a safe environment with the security of the law.
The incorporation of these laws happened over a period of time and this changed the face of the financial sector. The details, developments, advantages and also its disadvantages is what we shall discuss in the given report.
Disputes in the Financial Sector
In any industry around the globe, problems are aplenty. There is no such industry or sector which is not plagued by problems. The financial sector being no different also has a number of issues and disputes.
These issues vary from one customer to another. The likely disputes in the financial sector are that of irregular interest rates, terms of investments, unprecedented stock price rise, unfulfilled returns promise and fund keeping. The issues of stocks failing without warning or funds being guzzled by the financial heads is a common tale. Just a couple of days back the VP Finance of a leading public listed company of the USA was arrested for frauds in the companys accounts.
The failure of huge industry houses such as Lehmann Brothers, Meryl Lynch came as a big shock to the entire world. This type of environment and risks associated with financial sectors make the customers vary of making any financial commitments. This is when the need to develop laws to safeguard the investor and his interest becomes relevant.
The need to protect every person involved in any transaction with any financial organization, be it banks or stock broking companies, is what was felt to be most essential so as to allow this industry to prosper. According to the International Monetary Fund, a resilient, well-regulated financial system is essential for macroeconomic and financial stability in a world of increased capital flows. In a world plagued with crises after crises, the stability and safeguarding of investors is of utmost importance so as to promote the finance sector and protect it from any potent dangers.
Laws for Financial Disputes
The legal infrastructure plays a pivotal role in the operation of financial markets, as well as in the efficient intermediation of capital flows and domestic savings. Banks and other financial institutions hold claims on borrowers, the value of which depends on the certainty of legal rights and the predictability and speed of their fair and impartial enforcement.
The legal framework that empowers and governs the regulator and the rules for
The regulation of the various markets forms the cornerstone of the orderly existence and development of the financial markets. In this respect, the key laws are (a) the law governing the formation and operation of the central bank and (b) the law regulating banking and financial institutions and markets.
These laws have played a very important role in safeguarding the interest of customers, whether individual or corporate, in delivering justice and providing a safe net to investors. The original laws which were formulated were based on contract laws. The basis of contract law is mutual trust and understanding. In contract law a mistake is an erroneous belief, at contracting, that certain facts are true. It may be used as grounds to invalidate the agreement. This is the foundation for the laws governing the financial sector, which is known as Finance Companies Act. The coverage of this law is very large and covers banks, insurance companies, stock broking firms and investment firms.
A lot of cases have been very historic under this act and led to landmark judgments. Some of these cases can be cited as
Roswell State Bank v. Lawrence Walker Cotton Co.
This case made a landmark judgment by declaring that a bank, title company, document processing firm, or the like is not liable for false information provided to it, any more than a bank was liable for false information from a trusted customer turned embezzler who drew an unauthorized cashiers check.
This judgment proved to be a vital decision in a number of cases to follow.
Union Bank Trust Co.v. Girard Trust Co.
As a judgment in this case, firm processing information in order to transfer title using information provided by customers lacked the intent to commit illegal or improper acts when the information furnished to it was wrong. It was not part of its job description to know better, and it did not know better, and charged only a nominal fee for the clerical work, clearly not including any investigation. Further, it could not be in a conspiracy with another party or several parties who knew the information was wrong but failed to inform the title firm. The title firm could not unknowingly become part of a conspiracy of which it was never informed, and from which it could derive no benefit. The attempt to enhance liability or shift blame by filtering data through an innocent party has been tried before, but where the conduit providing document preparation does not know more than its informants, and was not hired or paid to investigate, it is not liable in their place for using their bad facts without guilty knowledge. This came as a very important decision with respect to the banks knowledge about its customers and its related information.
These cases are just an example of the sort of security cover available in the framework of the law. The basic idea of these laws is to protect parties, the investor as well as the company from any mishaps and wrong doings.
As part of the new regulations a number of companies and institutions are now bound by these laws for their own as well as their customer protection.
Organizations adopting corporate laws
As a mark of quality control and assurance to its customers, a number of firms have very strong dispute resolution teams aimed at providing complete customer satisfaction and ensuring its own reputation. One such firm which is very much involved is one of the global leaders in financial auditing, Deloitte. The professional services firm has assembled a multi-national team with deep knowledge of the approaches that tax authorities in key jurisdictions are likely to take in the transfer pricing of financial services transactions.
Based on their experiences of the financial markets, one of its top executives commented that the financial service companies have struggled to develop transfer pricing policies that can be globally applied. The rules and guidance covering these sorts of transactions have not always been clear or consistent across countries. This is one of the major reasons for involving a dispute resolution team so as to be able to sort out localized as well as international affairs.
Transfer pricing is one of the most significant tax and FIN 48 compliance risks for multinational groups. Tax authorities around the world are investing heavily in developing new ways to challenge transfer pricing with more effective risk assessments, audits and litigation success. For multinationals, strong systems, up to date pricing models, access to experts and a global approach are at the heart of the best defenses in this environment. This thought process has led Delloite in appointing a large group of professionally qualified executives to resolve any issues related to financial transactions.
Apart from companies, the major regulatory board is involved in the case of stock markets. Stock markets of today are highly regulated under various bodies for its smooth functioning and to allow everyone to carry out trading activities based on actual merits of any share and not on the monopoly of stock brokers. Regulatory bodies such as the US Securities and Exchange commission defines the regulations for carrying out business in the New York and NASDAQ stock exchanges have their own well defined regulations so as to protect companies and their investors from any frauds. These regulatory boards define every step involved in carrying out transactions and have well defined rules for them. Every company that wishes to carry out trading in the secondary market needs to comply with these regulations in order to function else, it would get black listed from the index.
The international monetary fund is another organization which looks into the regulations of funds transferred on a country level and ensures that the money reaches the correct target. The IMF makes certain rules for carrying out funds transfers and they must be complied with in order to carry out a transaction. The duty of the IMF is to act as an auditor to ensure that the funds which are sanctioned are not for any private profit but for the benefit of any country or institution. In times of extreme crisis and weak financial institutions, the IMF regulations are a framework within which all the money given to a country or company must be used. Any infringement of the regulations of the IMF can lead to serious consequences and punishment.
Advantages of Dispute Resolution
Now that we have seen the functioning of the financial sector, its associated disputes and also a detailed assessment of the contract laws involved, the issue in contention is that why do we need these contract laws Is there any use of having these laws and has there been any advantage of this The answer to this question is yes. The formulation and implementation of contract laws have seen a large number of benefits vetted out to both the investors as well as financial institutions. These laws have given a well defined framework for companies to work and implement its policies. The presence of these laws has not just made the customer more aware but has also given them a support to fall back on, in case of any fallout with their respective company.
A good example of the implementation of these laws was the conviction of the top management of the top power company Enron for embezzling huge funds from a public listed company. This conviction was only due to the existence of the company finance act which enable justice to be delivered to all those found guilty. This conviction wouldnt have been possible but for these laws which provided a security net for those investors who trusted the company.
This is one of the many cases where the corporate governance and laws played a pivotal role in delivering justice to the investors and customers of the company. The success of these cases instilled a sense of confidence in the investors and customers of financial organizations, thereby, increasing the demand for more such laws for mutual benefits.
Development of Financial Dispute Resolution Laws
With the financial markets struggling against the backdrop of huge crises and more and more globalized economy, the need for more regulations and detailed provisions of dispute resolution laws are required. This is the reason for the development of Dispute resolution laws in the UK, Japan, Singapore and other economies. With the increase in the number of financial institutions and investors and with globalization, the need for protective laws is much more. Right from contracts to trading to transfer of funds, every aspect of finance can get into severe complications. These can result from location issues, country regulations or taxation problems. In all cases there is immense need for better and stronger dispute resolution acts.
Even institutions such as IMF have come up with stringent regulations for money that is sent out to different countries for development purposes. The role of the IMF is very important because a sound financial system is therefore essential for supporting economic growth. Problems in financial systems can reduce the effectiveness of monetary policy, deepen or prolong economic downturns, and, in case of large scale problems, trigger capital flight or create large fiscal costs related to rescuing troubled financial institutions. Moreover, ample international financial and trade links imply that financial weaknesses in one country can rapidly spill over across national borders. Hence the soundness of a countrys financial system is important both for the domestic economy, as well as for its trading partners and countries with which it has financial linkages. This responsibility can only be carried out by an international regulatory committee.
Even the regulatory committees like the Securities and Exchange board, governing the NASDAQ regulations has been requested to provide more detailed laws for protection of investors.
Disadvantages of corporate laws
The corporate laws are like any other thing in this world, with both pros and cons. However much we would find it beneficial for both companies as well as investors, yet there are certain drawbacks of this.
One of the main issues is the inconsistent nature of dispute resolution laws. Every country has its own financial laws and their terms and conditions vary. This can be an arduous task for any committee which tries such a case in an international market. A law which governs financial transactions in USA may vary greatly with the laws of the UK. In such a case there is need for an attorney to understand both legalities and also understand which country to file the case so as to ensure justice is delivered to the complainant.
Also, in some cases the parties tend to take advantage of the loopholes in various contract laws, which can lead to injustice being done to either party. In order to prevent this it is important for the regulatory committee to maintain a strict vigilance and ensure justice is delivered.
There are no straight disadvantages of having corporate laws, but it is essential to be careful while accepting any such contract because sometimes things can be implied but not clearly mentioned which may lead to misunderstanding on both sides. This is one of the main errors which need to be avoided while getting into any contract law in financial transactions.
Personal Opinion
In accordance with the requirement of this report, I would like to include a point of view of my own on this issue of corporate laws in the financial sector.
As an individual investor I certainly feel very safe when I enter into any transaction which has a legal backing and also when I know that I can approach the justice system in case my trust is betrayed. There is no better security for me than a legal aid especially when money and financial matters are involved.
I feel it is one of the best things to happen to the financial world. Making a company commit to its promises legally ensures proper discharge of duties. This instills a sense of confidence and security in the investor and helps the industry to grow exponentially.
Even from the point of view of a financial institution, a legal contract ensures the customers and investors stick to their promises and this helps in developing a mutual relationship. This legal contract definitely ensures a smooth functioning of the financial sector and removes possibilities of any frauds.
However, there is a possibility of either the investor or the company taking advantage of these contracts by implying a number of conditions not explicitly explained. This is one case which one needs to be wary and decide accordingly. It is essential to be able to communicate well with the institution or investor before entering into any contract. Also, the other drawback is that companies can sometimes be falsely implicated by investors even though they are innocent. This is where the law and its implementers have to be very vigilant and judicious in their decision, to decide who is right and not.
Categories:
0 comments:
Post a Comment