Prepaer Report on Multinational Financial Institution (Sovereign Bank) (Coursework Sample)

Case: Multinational financial institution (sovereign Bank)
Name:
Institutional affiliation
A REPORT ON A MULTINATIONAL FINANCIAL INSTITUTION
Areas of risk identified
Sovereign bank has identified several risk areas that pose a threat to its day to day running of business operations as well as other multinational financial institution. One of the risks identified is the bank funding, collateral management and liquidity. The big issue here arises in that, how will the financial institution be funded when there is shortage of capital or when new capital is required. When a multinational financial institution cannot fund its self then this becomes a risk factor as it poses the threat of being closed down due to capital insufficiency.
Regulatory changes around the world are another area of risk that faces the multinational financial institution. Regulatory changes bring about operational, strategic as well as systematic risks. For example if the country in which the multinational financial institution is operating requires that foreign institutions be taxed highly than the domestic institutions this will be a hindrance in the business operations as profits will be reduced. Some regulatory policies may also limit the amount of capital that a foreign financial institution should invest in so as to protect the domestic markets.
Cyber security is another risk factor that is encountered by sovereign bank as well as other financial institutions operating globally. Banks manage huge amounts of data which makes it necessary for the banks to have complex technology which makes them a target for fraud as well as cyber attacks. These attacks have a very negative impact as they have sometimes led to hacking of ATM machines and hence leading to huge losses of client’s money. Some cyber attacks lead to loss of institutions data CITATION Jef08 \l 1033 (Madura, 2008).
General economic and market conditions are also identified as a potential threat to multinational financial institutions. Prolonged low growth and low rate economic environment is widely affecting the operations of multinational financial institutions. This is brought about by the central bank as it tries to monetary policies as this policy may not be in favor of financial institutions.
Risk management measures
Following the above risks that have been identified Sovereign bank has put several measures in place so as to handle these risks. One of the measures that have been put in place is increasing a reliable source of capital by issuing ordinary shares. This will ensure that the bank is able to get the capital that it requires without encountering a lot of challenges.
To handle the risk of regulations the financial institutions has the financial institutions has resolve to only carry out operations in countries and areas that have favorable regulations for example those that do not make the survival of an international institution hard by raising taxes on it and limiting their scope of operations.
In handling cyber security attacks the institution has ensured that all its computer data is updated severally as well as other computer systems check to ensure they are free from risks and also to ensure that they are in the correct form. Regular checking of the data will ensure any strange occurrence is detected and fixed appropriately.
Risks that may be encountered while operating in UAE and how to manage them
If sovereign bank limited wants to relocate UAE it will have to cope with some risk factors. Some of them are discussed below. UAE has a very competitive banking sector especially o the retail side. This has seen many of foreign banks pull out of UAE. For example the Royal Bank of Scotland. The reason behind the UAE local banks becoming competitive is their liquidity together with their balance sheet potential. That is they have more economic potential while operating in their home country as opposed to new foreign financial institutions. To handle this stiff competition Sovereign bank will have to put several strategic measures. For example having a reliable source of capital and offering services that are friendly to customers such as suitable loan packages.
Thriving in UAE will be a bit difficult as it is an Islamic based country, where Islamic banking is strongly establishes. Sovereign bank being a conventional bank will have to up its game so as to be able to offer more attractive services which are offered by the Islamic banks which rely more on sharing risk between the bank and the investor and not the investor alone bearing the risk. For example by use of the Islamic banking modes such as Mudarabah, Ijara and Istina. To tackle this risk Sovereign bank will have to implements some practices used in Islamic banking for example sharing of risk and charging favorable rates of interest.
The financial sector in UAE is being faced with the threat of cyber attacks at a growing rate. This attacks to lead a financial loss of about US$28 on average for every victim who suffers. These attacks have lost the confidence of customers in the financial institutions. Unfortunately, banks that are affected by cyber attacks fear to declare intervention by the police as they are afraid of losing customers CITATION Cha08 \l 1033 (Hauss, 2008). To handle this risk Sovereign bank will have to put in place computer systems that are not prone to attacks or hacking so as to prevent loses that occur due to cyber attacks.
Laws UAE that sovereign bank will comply with
Federal Law No. 9 of 2012 has the following provisions relating to financial institution. It provides that the central Bank of UAE shall carry out supervision of all financial institutions in relation to their compliance with the new law and any other laws that may be issued concerning the same. This law gives UAE central Bank the authority to delegate some specified regulatory powers as per the laws under Securities and commodities authority (SCA) CITATION Jon15 \l 1033 (Ercanbrack, 2015).
Federal Law No. 4 of 2004 state...