Ethics in Finance Flashcards
Important characteristics of a system of ethical reasoning
Completeness
Coherence
Connection to a theory of ethics or beliefs
Practicability
Theories of ethical reasoning
Utilitarianism
Deontology
Kantian ethics
Virtue ethics
Utilitarianism
An action is morally ‘right’ if it maximises the total utility of the group affectedby the action; Focus is on consequences of actions (outcomes) and does not question the actions themselves
Deontology
Actions themselves are either morally right/wrong based on a set of principles
Conflicts with utilitarianism in that it does not consider outcomes
Kantian ethics
A form of deontology, therefore focusses on the morality of actions, not their consequences
Universality principle: only act on rules that you would be willing for everyone to follow
Virtue ethics
One should cultivate desirable personality traits and then with these traits he/she will make ethical decisions
Does not provide directives for specific actions, but rather considers a good action to be one that a person of good character would make
Kohlberg’s six stages of moral development
- Obedience and punishment orientation
- Self-interest orientation
- Good interpersonal relations
- Authority and social-order maintaining orientation
- Social contract and individual rights orientation
- Universal ethical principles
The CFA Standards of Practice
I. PROFESSIONALISM
A. Knowledge of and compliance with the law
B. Independence and objectivity
C. Honesty in both representation and conduct
II. INTEGRITY OF FINANCIAL MARKETS
A. Insider trading
B. Market manipulation
III. DUTIES
A. Loyalty, prudence (caution) and care to clients/employer
B. Disclosure of conflicts of interest to clients/employer
C. Fair and objective dealings with clients
D. Accurate and complete performance presentation
E. Preservation of client confidentiality
