Understand the use of financial information systems
Financial information systems are used in a variety of ways.
The financial information system is a well-planned strategy for interpreting and collecting data on financial transactions. Managers and executives require timely and accurate financial information in order to make business decisions about the company's operations and strategies, which necessitates the use of a financial information system. Financial data is primarily used to determine and analyse business activities and economic business positions, as well as to help formulate and implement business decisions and investments. Financial data aids senior management in the administration and control of the company. A strong financial statement is required for a business to be successful. The use of financial productivity software such as spreadsheets, graphics, and word processing programmes is used to control and plan business activities. Software and hardware are used by managing directors to assist them in making business decisions. Information systems are primarily used to store important company data that can be easily accessed by managers for the purposes of controlling, analysing, and making business decisions (Sledgianowski, Gomaa and Tan, 2017, p.87).
Electronic information systems are used by factory managers to automate production processes and keep track of inventory levels in their facilities. In the factory, information systems are used to process customer orders, bill payments, and vendor payments. Banks also use information systems to process commercial money transfers like deposits, loan payments, and ATM card withdrawals. Managers typically use systems to keep track of business records, transmit information to the appropriate people, and track money issued or received. When processing business transactions, many organisations use various information systems. Directors assist senior managers in forecasting, modelling business strategies, and identifying business trends from analysed data by supporting information systems. The office automation systems in the entire organisation greatly improve the flow of communication between workers. Each system caters to a different level of decision-making: tactical, strategic, and operational. The following are examples of how managers and businesses use information support systems to control and plan business operations.
Systems for processing transactions
The transaction processing system serves as the foundation for the company's information system integration. Raw data is ingested into transaction processing systems from a variety of external and internal sources. Databases, which are similar to microcomputers but much larger in size, are used to prepare and store data. In reality, a company's critical data is primarily stored in a large database that serves as the company's central information resource. Senior executives benefit from database management systems because they help them keep track of company information and make it readily available when a situation arises. There are two methods for updating the database: batch processing and online updating. The process of processing data in batches over time as new data becomes available is known as batch processing. It takes advantage of computer resources' efficiency and the best applications, such as payroll processing, that do not require continuous data processing. Data processing online keeps the company's information up to date. When a person makes an airline reservation, as soon as the person receives confirmation, the information about the reservation is entered into the airline's information system. Businesses should weigh the benefits of batch processing against the disadvantages of online processing because batch processing is less expensive (Richards et al., 2019, p.192).
As management support systems, decisions are made.
Transaction processing systems (TPS) automate routines such as order processing, final reporting, and accounting, easing the burden of back-office tasks. They make it easier to process data quickly. Management support systems use an internal master database to perform analysis that aids senior managers in making better decisions. Information technologies such as data warehousing are more advanced management support systems. Many of the company's databases are combined by a data warehouse into a single central database that aids decision-making management. Senior managers benefit from data warehouses because they can share and easily access data from across the company and get a broad overview. The data warehouse is responsible for providing data to senior managers and other users, as well as warehouse data maintenance and software that extracts data from operational databases. They are faster at analysing data than transaction-processing systems. A data mart is a section of a data warehouse that deals with a specific type of data. Data warehouses are used by senior managers to secure, gather, and analyse data.
Discussing the Regulation Issues Relevant to Business Finance
Regulations that apply to business finance
Many regulatory bodies around the world monitor and regulate financial institutions, publicly traded companies, investment fund management, and stock market trading, all of which have an impact on investment business funds. The Financial Times Stock Exchange regulates listed companies in London, United Kingdom (FTSE). Financial institutions in the United Kingdom are regulated by the Bank of England, the Financial Conduct Authority, and the Regulation Authority. All of these regulatory bodies must be followed by companies in the United Kingdom. The Better Relationships between Shareholders, Stakeholders, and Companies are more important in the United Kingdom Corporate Governance Code. Stakeholders in many large corporations do not have access to the decisions made by the board of directors. Because large companies benefit from public-interest responsibility, the Corporate Government Code applies greater scrutiny when enforcing regulations. Regulatory compliance is required of all financial institutions, regardless of size. Businesses must be aware of the financial sector's regulatory challenges.
The scope of the regulation
Companies should be aware of the sheer volume and breadth of regulation that exists. There are over 750 regulatory bodies in the world, which means financial institutions are constantly scrutinised. Each regulation contains a number of clauses.
It is critical to keep track of information in order to ensure regulatory compliance. Nonetheless, rely on the business location or country for an appropriate method of recording information. Banks invest a lot of time and double their work to ensure that they meet all of the requirements and guidelines. When multiple reporting standards emerge, financial institutions streamline each method to consolidate data (Cumming, Hou, and Lee, 2016, p.610)
Management of data
The most difficult aspects of regulatory compliance are the legal implications of data storage. Certain circumstances may cause a company to keep client information for several years, causing issues for employees who need data from regulators. Data management that is poor or non-existent can have a significant impact on businesses. Companies with poor data management must quickly improve their document processing capabilities. When financial sectors are regulated, both small and large businesses face difficulties. Compliance understands the key regulatory issues that financial institutions face and ensures that operations are streamlined and processes are improved (Hornuf, and Schwienbacher, 2017, p.387)
Understanding the client
The financial sector is expected to respond to increased acts of terrorist financing and money laundering. Despite the fact that banks give money without knowing how it will be used, they still face regulatory consequences. As a result, banks should be very familiar with their customers' processes and maintain appropriate background checks for all customers (Liu, and Lu, 2017, p.45) However, this places a strain on the bank or financial institution's staff who must manually process the data. As a result, teams are given tools to accurately record each client's information. For all types of financial institutions, regulatory compliance is now a top priority. Meeting these requirements is a huge undertaking, but failing to do so would have far-reaching consequences. No business wants to be singled out for criticism, whether it comes in the form of hefty fines or public humiliation. As a result, businesses must identify and address the financial sector's most pressing regulatory challenges.
The extent to which the government regulates
To begin, businesses must comprehend the current regulatory landscape's vast scope and depth. There are currently over 750 global regulatory bodies and organisations that oversee businesses, implying that financial institutions are constantly scrutinised. Every rule contains numerous clauses. The Dodd-Frank Act, which was passed in response to the financial crisis, contains 2,300 pages of regulations that financial institutions must follow. Businesses are suffering financially and operationally as a result of the numerous rules and regulations that must be followed, and compliance costs will only continue to rise.
Taking Charge of the Risk
When it comes to determining how firms should allocate their resources, complex risk calculations are just as important as the size of regulatory requirements. Risk management is likely to be a major challenge for many businesses as a result of the need to comply with regulations such as Basel III. Extensive hand calculations have traditionally been required for thorough risk analysis. As a result, no infrastructure exists to deal with new risk management requirements. Companies are only now beginning to realise the importance of some level of automation in order to avoid falling behind. Companies are also constructing the three-line defence, with monitoring and controls procedures becoming an integral part of the legal compliance procedure. Companies should look for ways to track, timestamp, and easily recall specific data points as part of these procedures, especially in light of regulators' and industry's growing expectations for transparency.
Identifying the customer
The financial services industry must step up its game in light of growing concerns about money laundering. Even if a bank unintentionally launders money, it will face stiff penalties from both the federal and state governments. As a result, the industry has placed a premium on processes like "know your customer," which requires businesses to conduct background checks on all of their clients. On the other hand, this puts a lot of pressure on the people who are responsible for manually processing the data. Mistakes can happen if employees aren't given the proper training and support, and data can be mismanaged. As a result, it's critical that employees have access to the tools they need to collect accurate client information.
Keeping records is required to comply with regulations. The required method of recording, on the other hand, varies by country of operations. For international banks, this means using different recording standards in different countries, ranging from the US Generally Accepted Accounting Principles to the International Financial Reporting Standards. Because of the various standards, many banks must double their efforts and devote a significant amount of time to meet these requirements. Financial institutions dealing with multiple reporting standards must streamline each method to consolidate all data.
Organizing and making use of data
When it comes to regulatory compliance, the legal implications of data storage are frequently overlooked. Companies may be required to keep client information for several years in some cases, putting a burden on employees who must provide it to regulators if they are asked. Firms with poor data management practises have been forced to quickly improve their document processing capacity or face legal repercussions. A company's data management can have a significant impact. For both large and small businesses, financial services regulation will continue to be a challenge. Complying does not just imply recognising the key regulatory pressures facing financial institutions; it also entails actively ensuring that the company's processes are improved and its operations are streamlined as a whole. As the pressure to comply grows, companies will need to find new methods and solutions.