Research On The Internal Control Of Investment Bank In China

In the face of the complex and volatile external environment, the increasingly fierce industry competition, sound and effective internal control ensure the enterprise development and achieve business objectives. In2013, Guangda Securities event, Nanjing Securities、Mingsheng Securitie、Pingan Securities、 Lianghe Securitieshave been punished for the sponsor business. Once again proving, perfecting internal control, strengthening the importance of risk management of investment bank is very important, once again proving, The impact on the market caused by the failure control of investment bank internal.From the end of the comprehensive management to the present, for the past6years, It is necessary to concern the the development of internal control in our country’s investment banking. At the same time, in2013, Committee of Sponsoring Organizations of the Treadway Commission (referred to as the COSO Commission) issued a new 《internal control integrated framework"(2013)》, the internal control theory and practice take the forward, Is the new development of internal control suitable for the investment bank of our country? What we can learn from? what a stage of is the internal control of investment banks in China?In the Guangda Securities event and other events, combining the development of internal control theory and practice at home and abroad, makes a summary on the progress of the internal control of China’s investment bank, as a sort of existing problems, and puts forward the corresponding solutions, and puts forward a new idea for the development of the next step is meaningful.On this train of thoughts, the first chapter introduces the research background、literature review.The second chapter briefly reviews on the development of internal control.analyzes several core concepts, such as the corporate governance, risk management, compliance management, supervision. On this basis, found that the scope of internal control in the expanding, content systematic, formed a close contact with the external environment, its development impetus come from the change of the social economic environment and business stakeholders demand. Note the different enterprises with different risk preferences, different internal and external environment, the difference can be reflected in its.The third chapter analyzes the development of China’s investment bank.found that because the defects of China’s investment banks early, defects of the system, system deficiencies, lack of supervision, resulting in the early failure of internal control of China’s investment bank, the risk of problems is existed. Therefore, from point of the industry competition, risk management, external supervision,put forward that it is necessary to our investment bank to take the internal control construction. In order to win in the competition, at the same time, take the investment bank as the financial institutions, their business is taking risk, managing risk, and profiting from it. So the internal control is the guarantee of achieving the business objectives, manage the risk, investment banks have inherent impulse to takd the high risk business, therefore, effective supervision and from the external drive the internal control is necessary. Then summarizes the before and after the comprehensive treatment, investment bank internal control evolution and characteristics. Combines with Guangda event, analyzes the investment bank of our country control problem of the present stage.By other’s faults, wise men correct their own. The fourth chapter internal control to USA independent investment banks were analyzed. Different from other literature, this chapter analyzes the characteristic of American independent investment banks, from the point of the change of development mode, external environment, On this basis, analyzes the characteristics of independent investment bank internal control. The formation of internal control of independent investment bank, the performance of internal control is caused by the defects and problems of the objective of internal control, internal control environment, control measures of the performance of internal control.Finally, thinking the enlightenment of the internal control experience of America independent investment bank. Thinking the construction of China’s investment bank internal control is to grasp the function of China’s investment bank.Designing rationally the principal-agent mechanism of investment banks, establish of internal governance structure to form the effective restriction mechanism, establish a rational incentive mechanism, internal control and organization system is corresponding rationally, pay attention to the implementation of internal control.The fifth chapter and the sixth chapter provide some suggestions to our investment bank on internal control construction. The fifth chapter firstly orientates our investment bank on internal control:the core of management for investment banking is the correspondence to risk and revenue. The premise of comprehensive risk management should be a good internal control effective operation. So the fifth chapter puts forward the overall internal control framework of China’s investment bank, providing detailed analysis and construction for each of the elements. The sixth chapter provides suggestion on the internal control mechanism and internal control system which can embody the characteristics of the internal control of investment banks in China.The creative points for this paper show below:1. It gives the definition of connotation on internal control and the development path to China’s investment bank at the present stage. The internal control theory and practice has experienced five stages.Internal control has developed to the stage of comprehensive risk management, but according to the current situation of the investment banks in China:the scale is generally small, and business is mainly on brokerage business, which is relatively simple and homogenization. After analysis and comparison of the Ministry of Finance and other five ministries in2008issued "basic norms of internal control", China Securities Regulatory Commission in2003revised "securities company internal control guidelines", the COSO Committee issued "internal control integrated framework"(Internal Control-Integrated Framework) report (COSO report)1994edition,2013edition,2004COSO Committee issued "enterprise risk management framework"(Enterprise Risk Management-Integrated Framework, referred to as ERM report), it deems that China’s investment bank internal control is still in the stage of internal control. And the definition of internal control in "securities company internal control guidelines" issued by China Securities Regulatory Commission (CSRC) still is applicable to the current China’s investment bank. The development path of the internal control of investment bank in China is to construct the internal control system, and then on this basis, play safe, improve our risk management level.2. The formed operating characteristics on the changing mode of development in American investment bank fully affect the internal control. This is the characteristics of the internal control in independent investment banks of USA, and this is also the cause of failure in the subprime mortgage crisis.The transformation of mode on America. investment banks reflects the separation of commercial banking, fusion, separation, and mixing. After Mixed operation, America set up nearly500financial holding companies. Many large commercial banks have changed into a financial holding company. In2008, before the financial crisis, Wall Street only left the five largest investment bank (Goldman, Morgan Stanley, Merrill Lynch, Lehman, Bell Sten) as the representative of the few independent investment banks. They compete as the representative of the financial holding company and the financial group.Competition has forced the independent investment banks from main "seller" to main "buyer", from the partnership system into a shareholding system,in order to solve the principal-agent problem, the equity incentive is introduced, which are caused by the pursuit of business characteristics of high income high risk, internal control is forgot, internal control is replaced by short term of company interests and the interests of the people. At the last, independent investment banks disappear.3. Internal control in China investment bank reflects the different development paths compared with USA independent investment bank. China’s investment banks, is weak in internal control. The internal control is more of an internal compliance management. So from the start, the internal controls are not perfect and not standard, but this defective and lack of standardization is more from internally generated.4. From the Sino-US investment bank experience, Conclusion can be got:(1) the internal control is the most important to the overall design, especially the rationality of organization structure. Whether it can form the effective restriction mechanism is the key to effective internal control.(2) the internal control should reflect the characteristics of the enterprise. Good internal control can be conducive to the formation of investment bank reputation.5. It is suggested that economic capital as the core of the performance appraisal system should be introduced to investment bank. The implementation of economic capital management and investment banking, according to economic value added (Economic Value Added, abbreviated as EVA) return on capital and risk adjusted (Risk Adjusted Return on Capital, abbreviated as RAROC) as the core indicators of performance evaluation and incentive, is helps to solve the contradiction between the pursuit of profit and risk control. It combines with risk and return together, and makes the performance evaluation to realize the transformation from quantity to quality. It is benefit to the establishment of a good incentive mechanism in the internal.