The Compliance Digest Newsletter | 28 June 2024

The Compliance Digest Newsletter | 28 June 2024

What’s the Difference Between Due Diligence and an Audit?

Due diligence and audit are both critical processes in the financial and business worlds, though they serve distinct purposes. Due diligence involves a comprehensive appraisal of a business or individual prior to signing a contract, or an investment decision, emphasising a thorough risk assessment. An audit, conversely, is a formal examination of an organisation’s or individual’s accounts or financial situation, typically conducted to verify accuracy and compliance with statutory requirements. Both terms have been in regular use since the early 20th century and are predominantly applied in financial transactions, mergers and acquisitions, and corporate governance.

Despite their seeming similarities, understanding the differences between the two is essential for business professionals, investors and stakeholders to ensure transparency and informed decision-making. In order to see these differences, it is useful to define the nature and application of both processes in a little more depth.

Full Article Available Here

Factoring Financing

Factoring is a financial transaction where a business sells its accounts receivable to a third party, known as a factor, at a discount. This practice provides immediate cash flow to companies, allowing them to meet their short-term financial needs without waiting for invoice payments. Historically, factoring has roots in ancient Mesopotamia and the Roman Empire, where merchants sold promissory notes at a discount. It evolved significantly during the medieval period, particularly in Europe, where it became a common method for financing trade. The practice continued to develop, becoming more structured and regulated, especially in the 20th century with the rise of modern financial markets. Today, factoring is a crucial financial tool for businesses of all sizes, offering an alternative to traditional bank loans.

Understanding Factoring

Factoring allows businesses to convert their accounts receivable into immediate cash, providing an efficient solution for managing cash flow. When a company sells its receivables to a factor, it receives a substantial portion of the invoice value upfront, often around 70-90%. The factor then collects the full payment from the company’s customer. Once the factor receives the payment, it remits the remaining balance to the company, minus a fee for the service. This process helps companies manage short-term financial needs without waiting for lengthy payment terms.

For example, consider a small manufacturing company that has issued an invoice of £10,000 with a 60-day payment term. To improve cash flow, the company sells the invoice to a factor for £9,000. The factor advances this amount to the company immediately. When the customer pays the full invoice amount to the factor at the end of 60 days, the factor deducts a fee, say £500, and remits the remaining £500 to the manufacturing company.

Full Article Available Here

FCA keeps trading apps under review over gaming concerns

In an online experiment with over 9,000 consumers, the FCA found that digital engagement practices (DEPs) used by trading apps, such as push notifications and prize draws, can increase trading frequency and risk taking.

In an FCA first, the regulator built an experimental trading app platform to test the effect of different DEPs on trading behaviour. It also found evidence that DEPs can have a larger impact on some subgroups, including those with low financial literacy, women and younger participants (18-34). 

Under the FCA’s Consumer Duty, trading apps must ensure services are designed and tested so they meet consumers’ needs and enable them to make effective, timely and properly informed investment decisions, including for those with characteristics of vulnerability.

This article was originally featured on Financial Conduct Authority and can be found here.

Upcoming

Events & Conferences


03 July 2024 | The Challenges & Benefits of Digital KYC

16-18 September 2024 | Announcing the GFMI 5th Edition of the Operational Resilience for Financial Institutions Conference

17-18 September 2024 | 2nd Annual Women in AML & Sanctions Forum

24-28 November 2024 | Ignite Innovation at Africa Fintech Forum 2024: Join Us in Nairobi for the Premier Finance & Technology Convergence!

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