Ideal supervisory structure and financial integration for investment banks

Investment banks are constantly looking for ways to generate better returns and for new revenue sources. They also earn by publishing quarterly or annual equity research reports that are accessed by individual investors and corporate entities around the world. They need to ensure such reports are updated and accurate, as an inaccurate research report would damage their reputation. They do this by deploying a supervisory structure and through financial integration.

Understanding the role of a supervisory analyst

Before understanding the ideal supervisory structure, we need to understand the role of a supervisory analyst. How do investment banks ensure all research reports are updated and accurate? An analyst can be onboarded to approve the reports before publication. Such individuals are highly qualified and understand research standards. Many countries conduct special exams for this purpose.

Supervisory structure of investment banks

Every investment bank has a supervisory structure for approving research reports and other policies, although the system may differ from one jurisdiction to another. Some banks distribute approval responsibilities equally to the different departments. The idea is to choose a structure that avoid conflicts of interest between employees, which could increase turnaround time for publishing a research report. Many countries/states have designated authorities to ensure a strong supervisory structure that would identify any mistakes made in research reports.

An investment bank would not want the authorities to find mistakes in their research reports. Therefore, they have supervisory structures to ensure they produce accurate and authentic information. The supervisory model may differ from one investment bank to another. Usually, it starts with individual researchers and data analysts who produce insightful information. The report is then passed to experienced bank professionals to review. Subsequently, a supervisory analyst approves it, following which the report is published for public consumption.

Ideal steps for supervision of research reports

  • The first step is to measure the accuracy of the data in a particular report. The data should be realistic and understandable. Recommendations, if any, should be backed by relevant data.
  • Once the content review is completed, a compliance review is conducted by matching the content against the investment bank’s internal restrictions. Supervisory analysts would also specify the additional disclosures that need to be made.
  • After the compliance review, the relevant disclosures are separated from the disclaimers, and the final report is published.

Financial integration for investment banks

Besides the supervisory structure, an investment bank must also consider financial integration, which occurs when domestic, international and regional markets are closely linked. With increasing financial integration, investment banks share more with each other; this data is used to compile effective research reports. Regulatory constraints are often a challenge to financial integration. Therefore, investment banks need to find ways to connect with other banks and share information so they can publish better research insights.

Instead of recruiting in-house analysts to approve reports, investment banks could outsource supervisory requirements to a reputed third party.

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