What is professional ethics in finance? How do financial market participants solve ethical problems?
Why do we need ethics in the financial sector?
But! They are also designed to resolve controversial (financial market-specific) relationship issues and help financial industry participants find a way out of conflicting situations that arise as a result. For example, a conflict of interest (seller and buyer of a financial service) puts financial professionals in the position of a delinquent.
Such situations are not always directly subject to regulations, which means that the employer can only impose sanctions against unscrupulous market participants (withdrawal of a bonus or bonus) or the professional community (in the form, for example, of a temporary or permanent withdrawal of membership).
Most professional communities in the field of finance have their codes of ethical conduct:
- Bankers (for example, the principle of honor of Russian banks, adopted at the congress in 1992)
- Appraisers
- Insurers
- Financial analysts
- Traders
- Brokers, etc.
Most banks also have corporate codes of ethics and even publish them on the Internet, which declare the voluntary obligations of the bank to customers, employees, and the staff’s duties to the bank and its customers.
Ethics – archaism?
The problem of ethics is present not only in the Russian financial market. But the difference between the ethical problems of developed countries is the excessive corruption of financial tycoons by the endless growth of world sites over the past few years (bull market) against the backdrop of cheap money. As a result, financial products, often complex and opaque, multiply exponentially. The growth in turnover and prices attracts more and more new market participants, which does not encourage traders, salespeople, and analysts to be disciplined.
In developed Western, at least the associations that certify professional markets analysts and investors seriously care about ethical principles since their goal is to limit the access of amateurs to the profession and increase the prestige of a career in the industry. For example, the prestigious international association of certified financial analysts CFA assigns ethical issues one of the critical roles in the certification program of specialists and their subsequent professional development. The Code and Standards of the CFA Institute is a model for investment professionals around the world.
Who are treasurers?
In Russia, the term “ethics “for most market participants sounds like archaism. It’s no secret that a Russian citizen is not very sophisticated in financial products and services. He also rarely thinks about long-term financial relationships with any partner, whether a bank or an investment company. The repeated “ruin” of the Russian population against domestic and global economic crises has done its job – trust in financial institutions has been lost. Therefore, the determining factor in choosing a financial partner for a Russian client is mainly not the quality of his service but the “issue price” because most Russian clients are interested in short-term earnings, not long-term investments.
The low level of financial literacy of the population also does not contribute to a critical analysis of investment recommendations: low-skilled (with certificates from unknown educational centers) “financial advisers” and “gurus” of trading and investment are multiplying, who advise everyone and everyone on “easy” earnings on the stock exchange, cryptocurrency, binary options, etc. Such “financial advisers” do not know or do not want to know about the ethical principles that oblige them to make sure that their listeners adequately assess all the risks associated with this kind of financial transaction or investment (i.e., really understand the essence of this or that other financial instrument).
The dishonest attitude of professional financial market participants is observed not only in interaction with private clients. Law firms often work with banks in an economic “supermarket” model, where they are provided with a full range of services for managing their assets: administration and settlement and deposit operations to lending, analytics, and financial transactions. However, maintaining all these areas at a high level of service against a crisis and ever-decreasing costs (especially for staff) is rarely possible. As a result, for example, some of them are outsourced (for example, analytics) without proper control over the outcome.
What drives ethical compliance?
There are such professionals in the financial world, whose work, it would seem, is designed to control the honesty and integrity of financiers: these are auditors and rating agencies. But both those and others, as a rule, refer to the fact that their responsibility is limited only to checking the information they receive for study from their clients in terms of its correctness. In their opinion, the ethical aspects of the relationship between the “object” of the research and counterparties are not within their competence. At the same time, these same auditors and rating agency analysts are again “afraid” to undermine the reputation of their big clients. The latter, like everyone else, often sin with fraudulent reporting.
Of course, the regulator’s attention to this problem is not meaningless. But only if, along with implementing the code of ethics, a policy of transparent and maximally public investigation of violations of ethical principles about clients is pursued can the perception of ethics as an integral part of financial relationships spread throughout the country.
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.
