LO1.
Identify the scope, sectors and responsibilities of the industry
External forces impacting on the financial services industry are identified and
considered in carrying out activities
The main sectors of the financial services industry and the interrelationship between
sectors are identified and considered in carrying out activities
The roles and responsibilities of other participants in the financial services industry
are identified and considered in carrying out activities
LO2. Apply financial services industry guidelines, procedures and legislation
Information on relevant legislation, regulations and codes of practice is collected,
analyzed and effectively applied to the job role
Own work practice is clarified and regularly refined in light of relevant legislation,
regulations and codes of practice and organization policies, guidelines and procedures
Relevant codes of practice are used to guide an ethical approach to workplace
practice and decisions
LO3. Sustainability issues of the financial services industry
Information on sustainability policies, strategies and impacts on industry is
obtained from a range of sources and analyzed
Environmental sustainability is identified as an integral part of business planning
and promoted as a business opportunity
Work planning is made to incorporate and support triple bottom line principles
LO4. Manage information
Relevant documents and reports that could impact on work effectiveness and
compliance are read and understood, and any implications discussed with appropriate
persons
Documents, reports, data and numerical calculations are analyzed, checked,
evaluated and organized to meet customer and organization requirements
Information is presented in a format appropriate for the audience
LO5. Participate in and facilitate work team activities
Feedback is provided to team members to encourage, value and reward individual and team
efforts and contributions
Team members are actively encouraged to participate in and take responsibility for team
activities and communication processes
The team support is given to identify and resolve problems which impede its
performance
Ensure own contribution to work team serves as a role model for others and
enhances the organization’s image within the work group the organization and
with clients/customers
LO6. Plan work activities
Tasks to be done and relevant conditions are determined and work planned either
for working autonomously or with others in a team environment
Work is planned for a given period managing resources, time and priorities
Contributions are made to organization planning process as required to achieve
service improvement
Changes in technology and work organization are adapted to in a timely manner
LO7. Develop and Maintain personal competency
Professional development needs and goals are identified and reviewed on a
regular basis
Competency, authorization and licensing requirements are clarified and complied
with
Professional development opportunities that reflect needs and goals are sought
and completed in an agreed upon timeframe
External Factors of a Business
Lesson
Transcript
Author
Edith Forsyth View bio
Instructor
DOUGLAS HAWKS View bio
Explore the external factors of a business. Find what the external factors affecting business are
and understand their types. See various external factors examples. Updated: 05/14/2022
Table of Contents
What are External Factors in Business?
Types of External Factors of a Business
Other External Factors Affecting Business
External Factors Examples in Business
Lesson Summary
Frequently Asked Questions
What are examples of external influences?
External influences are the factors beyond a company's control that affect operations and success.
Examples include government regulations, economic recessions, population demographics, and
technology.
What are external factors that affect a business?
External factors that affect a business lie outside the company. These forces are beyond the firm's
control. They include climate change, legal policies, technology, and political systems.
What are External Factors in Business?
Businesses are affected by internal and external factors. While internal factors are within the
organization's control because they stem from within, external factors are not. What exactly are
external factors in business?
External factors are aspects outside the company that affect its operations, strategy, and success.
The dynamics within which businesses operate are constantly changing. This means that external
factors can positively or negatively affect the company. Notably, businesses cannot control these
external factors. However, their response to them affects business outcomes. Organizations must
make decisions that help them remain successful amid these outside forces.
Types of External Factors of a Business
The external forces of a business are captured by the acronym PEST. In full, the acronym is
P: Political
E: Economic
S: Social
T: Technological
How do these forces impact businesses? Generally, external forces influence the conditions
within which companies operate.
Political External Factors
Political external factors affect the political environment within which a business operates.
Local, national, and international laws, policies, and regulations are integral to business
operations and outcomes. Different countries have different rules and regulations applicable to
business. Some of these government regulations support industries, thus presenting an
opportunity to companies. For example, some countries impose tax exemptions on specific goods
or companies to encourage consumption or investment. Such laws reduce the costs involved in
conducting business, thus allowing companies to expand.
Alternatively, other government rules and regulations present a threat to business. For instance,
heavy taxation and restrictions on cigarette products means that a company like British American
Tobacco (BAT) cannot invest or expand in such markets. These laws limit the consumption of
tobacco products, which presents a threat to profitability.
Politics plays a major role in situations like environmental disasters. Companies linked to these
situations have no control over the consequences and must comply with existing rules and
regulations. For instance, following a dialogue between the President and Congress, the United
States enacted regulation changes, effectively holding oil companies responsible for oil spill
damages. In case of such a disaster, these companies are required by law to:
Compensate affected families.
Finance cleanup and recovery costs.
BP had to pay billions of dollars in damages and recovery efforts following the catastrophic Gulf
of Mexico oil spill. This disaster confirmed that companies have no control over the political
consequences of oil spills. Other political factors that affect business include:
Intellectual property laws that protect creative works.
Employment laws that govern employee rights and the relationship between workers and
employers.
Consumer laws that regulate the quality of goods and services.
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The main sectors of the financial services industry and the interrelationship between sectors
are identified and considered in carrying out activities
Financial services sectors
Accounting.
Business banking.
Funds and investments.
Insurance.
Investment banking.
Life assurance and pensions.
Regulated advice.
Retail banking.
LO2. Apply financial services industry guidelines, procedures and legislation
How Government Regulation Affects the Financial Services Sector?
Government regulation affects the financial services industry in many ways, but the specific
impact depends on the nature of the regulation. Increased regulation typically means a higher
workload for people in financial services, because it takes time and effort to adapt business
practices that follow the new regulations correctly.
While the increased time and workload resulting from government regulation can be detrimental
to individual financial or credit services companies in the short term, government regulations can
also benefit the financial services industry as a whole in the long term. The Sarbanes-Oxley Act
was passed by Congress in 2002 in response to multiple financial scandals involving large
conglomerates such as Enron and WorldCom.12
Key Takeaways
Government regulation can affect the financial industry in positive and negative ways.
The major downside is that it increases the workload for people in the industry who
ensure regulations are adhered to.
On the positive side, some regulations help hold companies accountable and increase
internal controls, such as the 2002 Sarbanes-Oxley Act.1
The SEC is the main regulatory body for the stock market, protecting investors from
mismanagement and fraud, which boosts investor confidence and investment.3
The act held senior management of companies accountable for the accuracy of their financial
statements, while also requiring that internal controls be established at these companies to
prevent future fraud and abuse. Implementing these regulations was expensive, but the act gave
more protection to people investing in financial services, which can increase investor confidence
and improve overall corporate investment.1
Regulations That Affect the Stock Market
The Securities and Exchange Commission (SEC) regulates the securities markets and is tasked
with protecting investors against mismanagement and fraud. Ideally, these types of regulations
also encourage more investment and help protect the stability of financial services companies.
This does not always work, as the financial crisis of 2007 demonstrated. The SEC had relaxed
the net capital requirement for major investment banks, allowing them to carry significantly
more debt than what they had in equity.4 When the housing bubble imploded, the excess debt
became toxic and banks started to fail.
There's a fine line between over and underregulation, where overregulation hampers innovation
and under regulation can lead to widespread mismanagement.
Regulations Affecting the Financial Industry
Other types of regulation do not benefit financial services or asset management at all but are
intended to protect other interests outside of the corporate world. Environmental regulations are a
common example of this. The Environmental Protection Agency (EPA) often requires a
company or industry to upgrade equipment and to use more expensive processes to reduce
environmental impact. These types of regulations often have a ripple effect, causing tumult in the
stock market and overall instability in the financial sector as the regulations take effect.5
Companies often try to shift their increased costs to their consumers or customers, which is
another reason why environmental regulations are often controversial.
Government regulation has also been used in the past to save businesses that would otherwise
not survive. The Troubled Asset Relief Program was run by the United States Treasury and gave
it the authority to inject billions of dollars into the U.S. financial system to stabilize it in the
wake of the 2007 and 2008 financial crisis.6 This type of government intervention is typically
frowned upon in the U.S., but the extreme nature of the crisis required quick and strong action to
prevent a complete financial collapse.
The Government and the Financial Industry
The government plays the role of moderator between brokerage firms and consumers. Too much
regulation can stifle innovation and drive up costs, while too little can lead to mismanagement,
corruption, and collapse. This makes it difficult to determine the exact impact government
regulation will have in the financial services sector, but that impact is typically far-reaching and
long-lasting.
THE main functions of the financial service industry
The financial sector covers many different types of transactions in such areas as real estate,
consumer finance, banking, and insurance. It also covers a broad spectrum of investment
funding, including securities