IFRS Foundation

Investment Banking & Brokerage

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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.

Relevant Issues (4 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.

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.
General Issue Category
(Industry agnostic)

Disclosure Topics (Industry specific) for: Investment Banking & Brokerage

Employee Engagement, Diversity & Inclusion
  • Employee Diversity & Inclusion

    Investment banking and brokerage entities face a high degree of competition for skilled employees. At the same time, the industry has a low level of diversity, especially among senior roles. In recent years, considerable media attention has been focused on cases of gender discrimination involving publicly listed entities in the industry. As the industry continues to undergo rapid innovation through the introduction of more complex financial products and computerised algorithmic and high-frequency trading, the ability of entities to attract and retain skilled employees will likely become increasingly material. By ensuring gender and racial diversity throughout the organisation, entities are likely to expand their candidate pool, which could lower hiring cost and improve operational efficiency. Further, evidence suggests that diverse groups of employees at investment banking and brokerage entities may reduce risk taking for employees involved in risk-prone trading activities (e.g., trading), which could lower risk exposure of the firm as a whole. Enhanced disclosure regarding employee gender and racial/ethnic diversity, especially when provided by employee category, will allow shareholders to assess how entities in this industry are managing these risks and opportunities.
Product Design & Lifecycle Management
  • 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
  • Business Ethics

    The regulatory environment surrounding investment banking and brokerage entities continues to evolve both nationally and internationally. Entities are required to 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, anti-trust, price fixing, and market manipulation. In addition, investment banking and brokerage entities are subject to rules against tax evasion, fraud, money laundering, and corrupt practices. Finally, in some jurisdictions, enhanced rewards for whistleblowers may lead to an increase in the number of complaints brought to regulators. Firms that are able to ensure regulatory compliance through robust internal controls will be better positioned to build trust with clients, leading to increased revenue, and to protect shareholder value by minimising losses incurred as a result of legal proceedings.
  • Professional Integrity

    The business model of investment banking and brokerage entities is dependent on the development of client trust and loyalty. To ensure long-term, mutually beneficial relationships, entities need to provide services that satisfy the highest professional standards of the industry, which means taking measures to avoid conflicts of interest, misrepresentation, and negligence. Professional integrity also pertains to following a code of ethics with respect to transparency and disclosure. These measures are important both for strengthening an entity’s license to operate as well as for attracting and retaining clients. Failure to comply with professional standards can harm not only the clients who rely on the advice, data, and key services these entities provide, but it may also negatively affect shareholders. Investment banking and brokerage entities could not only face legal penalties related to such actions, but also incur significant negative impacts on revenue from reputational damage. To maintain professional integrity, investment banking and brokerage entities need to ensure that employees have adequate training as well as know and adhere to applicable financial industry regulations. To comply with industry laws and regulations, employers need to ensure that they are aware of any past record of violation of employees who are involved in communications and providing advice to clients. Therefore, a description of management’s approach to assuring professional integrity can help investors understand risk exposure as well as any processes in place to avoid misconduct. Additionally, disclosure of the entity’s amount of legal and regulatory fines and settlements can provide a clearer picture of the extent to which financial institutions are adhering to regulatory norms.
Systemic Risk Management
  • Systemic Risk Management

    The 2008 financial crisis demonstrated the importance of managing risks to capital in the Investment Banking & Brokerage industry. Specifically, firms that failed to manage these risks suffered significant losses to the value of their financial assets while increasing the amount of liabilities held on the books, which, due to the interconnectedness of the financial system, contributed to a significant market disruption. The systemic nature of risk resulting from the interconnectedness of financial institutions has become a central concern of federal and international regulators. As a result, many banks are required to undergo supervisory stress tests to evaluate whether the entity has the capital and liquidity to absorb losses, continue operations, and meet obligations in the event of adverse economic and financial conditions. Their failure to meet regulatory requirements could substantially raise future compliance cost as well as lead to monetary penalties. In an effort to demonstrate how these risks associated with banks’ size, complexity, interconnectedness, substitutability, and cross-jurisdictional activity are being managed, investment banks should enhance disclosure on quantitative and qualitative metrics measuring how well they are positioned to absorb shocks arising from systemic financial and economic stress and meet stricter regulatory requirements.
  • Employee Incentives & Risk Taking

    Employee compensation structures in the Investment Banking & Brokerage industry can incentivize employees to focus on short-term or long-term entity performance. Structures that have excessive focus on the short-term performance are likely to encourage excessive risk-taking and present adverse implications for long-term corporate value. Concern over this issue has led to increased regulatory and shareholder scrutiny since the 2008 financial crisis. Improved disclosure of employee compensation, focusing on the use of performance metrics and variable remuneration, policies around clawback provisions, supervision, control, and validation of traders' pricing of Level 3 assets will provide investors with a clear understanding of how investment banking entities are protecting corporate value.

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