Transparency in the financial services industry

Abstract

Transparency is a necessity which ensures that all participants in an economic activity, including shareholders and other stakeholders, are on the same level-playing field. It is a situation whereby one ensures that all participants understand the rules and regulations governing their respective areas of business and therefore confidence and trust will arise in the process. The aim of accomplishing transparency has become more challenging in recent years as banks' activities have become more complex and dynamic. The question is, are banks transparent at all times? Is it feasible to be transparent? How can bank transparency be measured? This dissertation will take an in-depth view as to why transparency is required for a market to be efficient, since it should be applied by all possible participants in a market. It will further examine any consequences arising out of the lack of transparency in this sector and how it impacts upon the industry at large. One should also remember however, that apart from transparency, one has to keep in mind that secrecy on the other hand is of the utmost importance to investors. The investors would also require transparency in the fashion with which trades are carried out. However this notwithstanding, too much transparency might actually alarm these investors. On the other hand, regulators require transparency to be a top priority; in so doing, confidence and trust can be enhanced between investors and regulators. This dissertation will review literature which agrees both in favour and against transparency. Moreover, I will also look at the relationship between transparency and secrecy, fairness, liquidity and market efficiency. The literature review will present efforts made to improve transparency, in view of the recent financial scandals, and the consequential effort of many counties to improve corporate governance by introducing tougher legislation and regulations. In addition this dissertation will take a look at examples of situations where an element of qualification needs to be applied to the concept of transparency. Finally, the dissertation will then take a closer look into various laws and regulations. I will be interviewing regulators and financial institutions and asking them their views on what is of greater importance and what are they likely to follow regarding transparency. Through a questionnaire, I will also seek to obtain the perception of the general public, query what it considers as significant and study related factors which could lead to distinct dissertation results.