Market Intelligence is effective tool for Corporate Governance

Growing the business requires you to take the risk and leadership teams of the Non-Banking Finance companies pay a lot of time in managing the risk associated with the borrowers. Market Intelligence is a new tool for good corporate governance. It is the primary job of the leadership team or the board of directors to maintain a healthy balance between risk and growth.

A lot of information floats about every company in the marketplaces they operate. The creditors, customers, employees and the stakeholders dealing with these businesses have different sets of information.

What is Corporate Governance?

This information is essential for corporate governance. Corporate governance is the system of rules by which companies are directed and controlled. The Board of Directors are entrusted with this responsibility and as the company grows they need this information to effectively control the reputation of their business. Corporate Governance helps to protect shareholder interests. aspect as it affects the stock price, transparency and accountability.

Corporate governance ensures that businesses have appropriate decision-making processes and market intelligence might inform the leadership of the bank about the decisions that have gone wrong.

What is Market Intelligence?

Market intelligence is the gathering this informal and unstructured information, in addition to structured information. The board members should be provided with the dashboards of the high-risk entities in their portfolios. A single glance at the dashboard should effectively communicate all the risks sitting in the borrower portfolio with the bank.

The inputs can range from political affiliations to insider trading in capital market violating regulations. Getting the right information requires extracting the most useful information from an enormous amount of resources. Public Companies listed in the United States publish a good amount of information. However, the market intelligence teams pick the information related to conflicts of interest and may not want to know shareholder voting time.

A good market intelligence service provider would collate various data sources, use analytical tools & techniques to process the information and make sense of it for the benefit of the client. Market Intelligence connects the dots between the raw information available in the public domain. It provides the access to unstructured but actionable information, which can be adopted into the corporate governance framework.

Rumour is an inherent aspect of the money markets. Many constituents speculate the outcomes based on certain past or current events. A good market intelligence unit is able to cut this noise.

However, large and influential investors have their own network of sources,  who provide regular updates and insights into various companies and promoters they want to track. Insights could mean knowing the background or the intent or the behaviour of the promoters or key executives. Insights don’t necessarily mean price-sensitive inside information.

One would also be familiar with various “Heard on the Street” columns in various media publications. Institutional investors not only have regular interaction with the management of the companies they invest in, but also use a network of people in the “market” who provide nuggets of chatter, gossip, rumours etc about those companies.

Influencers. Insights. Actionable info.

In the last few decades, the parameters of the risk have changed. Large lenders, who take informed calls on the PEPs (Politically Exposed Person), consider the risks arising out of such relations as the cost of business.

However, when a bank lends money to a business, there are many non-bank companies, that follow these large banks. However, the cost of business is very high for these followers. But, PEP Risk is just a small fraction of the whole risk gamut. Banks and Non-bank finance companies have to deal with many other risks.

Even though there is no clear definition related to Indian PEP, strict global norms around PEPs provides banks with clear directions in onboarding and dealing with PEPs. To onboard and deal with PEP, managers would require the highest level of approval and adequate due diligence. This is the primary reason why many customers disguise their PEP status to avoid questions. Regulations require detailed scrutiny as compared to normal accounts during onboarding. These accounts go through perpetual monitoring as well.

So considering the PEP Risks, it’s always advisable to have a Board Policy in place in dealing with PEPs. And invariably necessary level approvals may be sought before entering into any transactions with them.

Learnings from Banks

The YH Malegam Committee report recommended that all the banks should have a dedicated market intelligence unit (MIU) within Bank.

Dedicated MIU will not only help banks in collecting and processing information but also in triggering early warning signals (EWS) in borrower accounts. It also helps in indicating possible fraud or credit risk at the time of the end-to-end life cycle of a loan account.

One of the key features of MIU is to develop technology-based and market-intelligence-based approaches for improving fraud prevention & credit monitoring function within banks.

As the compliance topic, this is the bank board’s quarterly agenda. However, the task forces share the data with the rest of the industry. The Non-Banking finance companies will have to grow to the level where they are no more just-the-recipients.