What is Good Banking Practices? Definition of Good Banking Practices, Good Banking Practices Meaning and Concept

Definition of good banking practices encompass the set of actions by banks that help transparency in information towards their customers. As well as the incentive to improve their risk detection systems.

The purpose of good banking practice is to protect bank deposits. As well as the employment of the people who work in this sector, because in many countries they generate a large number of jobs.

In addition, these types of actions also include corporate social responsibility behaviors, social actions, donations to NGOs and participation in projects in less developed countries such as the creation of schools.

On the other hand, Banks invest in the development of technological applications in order to facilitate the work of their clients and seek the speed of the procedures they carry out. It is important that they be very accurate with the information in the statements of accounts and financial products that are provided to clients. This is also the case with the content of tax statements or tax information.

They must correctly report the fine print of the products they offer. For example, if a mortgage has a floor clause or not; when is the next revision of the Euribor interest rate going to be and how the mortgage payment installment is going to be adjusted; the interest paid on an account; as well as the difference between the APR and the nominal interest rate.

How are good banking practices measured?

There are incentives for the creation of their own rating and scoring models developed by the Bank. In order to improve the detection of risks in the case of non-compliance with the payments that they have to receive as a result of the granting of loans and credits.

This matter is the most difficult to carry out by Banks. A large part of its investments are focused on correcting these capital outflows since they can have a very negative effect on the development of its activity and the possibility of spreading (known as systemic risk ) to the rest of the productive sectors of an economy.

Regulation of MIFID

Financial entities must meet the objectives of Mifid. Well, it pursues the defense and protection of the investor, as well as transparency in information.

The different financial regulatory bodies are different in each country:

• In the US, the regulation on investor protection standards is collected through the FSOC (Financial Stability Supervision Council) and the SEC (Securities Commission).
• In the UK the regulatory body is the FPC (Financial Policy Committee), together with the FCA (Financial Conduct Authority).
• In some Latin American countries such as Colombia or Brazil, it is responsible for ensuring the proper functioning of financial markets. As well as, for investor protection, the Financial Superintendence of Colombia and the CVM (Securities Commission).
• In Japan the regulation of the financial market is carried out by the SESC.