Financial discipline is important for both financial firms and the financial system. The finance literature provides many examples of the importance of financial discipline, especially given the number of recent corporate failures worldwide. In this book, we argue that the concept of self discipline can improve the performance of financial firms through effective accounting and reporting, internal control, internal auditing, risk management and corporate governance. To emphasize the importance of risk management in this framework, it should be noted that both a firm and its stakeholders have an incentive to establish effective internal and industry-wide risk management standards. From the financial firms’ point of view, financial firms (like other firms) have incentives to manage firm level risks. The essential motive behind their self disciplinary incentives is clear: to make more money in a more secure environment. This firm level approach is directed at the firm’s internal needs only. Financial history reveals that firm level risks may have a destructive impact on the financial system as a whole. To prevent or to reduce the negative impact of firm level risks, regulators also need to improve disciplinary practices of financial firms by using their intervention tools. The rationale of government interventions arises from social benefits and responsibilities of regulators. For example, one of the key elements of the securities and insurance business is their intensive emphasis on maintaining investor protection and confidence. From the banking perspective, one of the most important rationales of government intervention is to protect the financial system from systemic problems. So, in order to protect investors and the financial system, regulators and supervisors set rules and regulations and intervene in the governance of financial intermediaries. Additionally, one of the most important tools of this intervention process is to direct the risk management practices of financial firms. Therefore, from the regulation and monitoring sides of the financial intermediaries, effective risk management and control systems assure the protection of investors and promote stability throughout the entire financial system. On the other hand, investors need a more secure financial system and they want to do business with a trustworthy service provider. Thus, because they seek out a secure institution to keep their funds, investors tend to view firm level effective risk management practices as a sign of confidence. As seen, expectations from risk management vary. The research question of this book is whether self discipline creates a safe financial environment for financial firms. In other words, whether financial firms, regulators/supervisors and investors would trust self discipline alone as a disciplinary tool. In this book, we examine the mechanisms, components and finally, the pros and cons of self discipline. In our conclusion, we define self discipline as one of the most powerful disciplinary tools available to financial firms. But we also ask whether its limitations, weaknesses, inefficiencies and ineffectiveness require complementary disciplinary tools to improve firm and industry level discipline and control. We are aware that we have raised questions about the effectiveness of current firm-wide risk management practices and, therefore, of the sufficiency of self discipline. As a result of the recent worldwide corporate scandals and failures, not only financial firms but also their stakeholders (particularly regulators/supervisors and investors) ask themselves whether self discipline is strong enough to promote stability both in the firm and also in the entire financial system. It is important to note that the finance world is still in the early stages of developing risk management and regulators (and investors) are looking for complementary ways to discipline risks. At this time, our approach provides a reasonable critique of self discipline with the goal of developing a better discipline and control environment for financial intermediaries.