Why must banks ensure their internal controls are effective?

Ensuring that internal controls are effective is crucial for banks primarily to protect against fraud and maintain legal compliance. Internal controls are the policies and procedures put in place to safeguard the assets of the bank, ensure accurate financial reporting, and promote compliance with laws and regulations. Effective controls help identify, prevent, and detect any fraudulent activities, which is essential in safeguarding both the bank's and its customers' assets.

Moreover, banking institutions operate in a heavily regulated industry. Compliance with legal standards is not just a matter of policy; it prevents significant financial penalties and damage to the institution's reputation. Proper internal controls also ensure adherence to anti-money laundering laws, consumer protection regulations, and other industry standards, which are critical for maintaining trust and safeguarding the financial system.

The other options focus on aspects such as customer engagement, competitive pricing, and marketing strategies, which, while important, do not directly relate to the primary functions and responsibilities of internal controls within a banking institution. The essence of robust internal controls lies in risk management and compliance, making them fundamental to a bank's operational integrity.