The importance of ethics
Amid current market turbulence, it is easy to understand why questions are
being asked about the role that ethics play in the investment industry. CFA
UK has asked senior industry fi gures to examine the issue
What do ethics actually mean in the
best interests in mind and investment markets; the loss of faith in leaders of
context of the fi nancial industry?
professionals benefi t from the and accounting by banks and fi rms
‘reputational capital’ such integrity has amplifi ed the credit crisis. As an
TOMLINSON – Ethics means the same in generates. Ethical practices instil a investment professional, your
the context of fi nancial services as in any public trust in the fairness of markets, commitment to maintaining high
other walk of life. All of us have some allowing them to function effi ciently. In ethical standards will provide
kind of ‘moral compass’ which guides us short, good ethics is a fundamental investors, employers, and regulators
in our decision making. Th e requirement of the investment with reassurance that they can expect
overwhelming majority of people want profession. you to continue putting the clients’
to do ‘the right thing’. All too often, the interests fi rst.
public view is that the fi nancial services PARKER – Th e success of the fi nancial
industry has failed to do the right thing. industry is based on a number of factors, PARKER – Th e last two years have seen
Th e challenge is to translate the aims but one key factor is strong ethical poor risk management, particularly in
and objectives of millions of individual behaviour on the part of all participants credit and mortgage markets, a lack of
participants in the industry to deliver an in the industry. Th is behaviour requires transparency in a range of fi nancial
end result with which all concerned – transparency in all fi nancial products, a products, most notably in collateralised
participants, customers, governments, clear understanding that stakeholders in debt obligations, and poor
etc. – are satisfi ed. transactions should not be disadvantaged communication to investors and clients
to the unfair benefi t of others, and a concerning potential market risks. A
DIERMEIER – In the fi nancial industry, strong risk management culture. number of investment products have
behaving ethically means that become unduly complicated with
professionals and their fi rms put the clients having diffi culty in
interests of clients fi rst, work for Why are ethics important, understanding the performance and
transparency and fair dealing, avoid or particularly now? risks of these products. In addition,
fully disclose confl icts of interest, and structured and other products have
protect the integrity of the capital DIERMEIER – Ethics provide the become illiquid and diffi cult to price.
markets. Ethical practices by investment foundation for all market participant Th erefore, investors’ ability to sell or
professionals benefi t all market behaviour – not regulation, not exit market positions has been severely
participants and stakeholders and lead enforcement – so we must be able to constrained. Trust and confi dence in
to increased investor confi dence in rely on the ethical behaviour of the fi nancial industry is largely based
global capital markets. Clients are individuals. As we’ve been painfully on the performance of transactions
reassured that the investment reminded, investor confi dence is no carried out with clients, and when
professionals they hire have the clients’ small factor in the stability of the performance fails there is a concomitant
decline in confi dence.
“All too often, the public view is that the fi nancial
TOMLINSON – Every industry needs a
services industry has failed to do the right thing”
metaphorical ‘public licence to operate’,
without which it cannot legitimately
Lindsay Tomlinson, OBE, FSIP, Barclays Global Investors exist. Th e ethical stance of the industry
8
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