Ethics & Integrity in Financial Services

Question 1

What can ethics in practice be rephrased as?

Answer 1

‘Doing the right thing’

Question 2

What is the question with four key principles embedded within it?

Answer 2

Is what I am about to do or the actions I am about to take, honest, open, transparent and fair?

Question 3

What does Dr Mark Carney, the Governor of the Bank of England (2013-20) say about trust?

Answer 3

“Trust arrives on foot, but leaves in a ferrari”

Trust is much easier to lose than it is to restore

Question 4

What is an example of a scandal where the integrity of people and practices in financial services were undermined?

Answer 4

The rigging of the LIBOR (London Interbank Offered Rate) interest rate setting mechanism.

Question 5

Explain the LIBOR interest rate setting mechanism scandal.

Answer 5

1. Banks were supposed to submit the actual interest rates they were paying so a benchmark interest rate can be set
2. This is necessary as it serves as a benchmark for setting the price of government & corporate bonds, mortgages, student loans, credit cards and other financial products.
3. However, some traders working at banks, such as Barclays, UBS, HSBC (& more), had been falsely inflating or deflating interest rates in order to profit from trades, or to seem more creditworthy.
4. Though inflating the rate may have benefitted banks and individual traders, the benchmark interest rates are used to calcuate financial products for people trying to obtain a mortgage or take out a student loan.
5. This had significant negative effects on consumers and financial markets around the world. This resulted in billions of dollars of fines for the banks involved as well as jail sentences .

Question 6

What did people do wrong in the LIBOR scandal?

Answer 6

The interests of the customer became secondary to the interest of the banks and individual traders.

Question 7

What will an ethical salesperson do?

Answer 7

• Take you through the structure of the product for understanding
• Explain the risk factors that determine the rate of return
• How much they are being paid if you buy the product
• An actual rate or antcipated rate which is dependent on certain things out of the product originators control

Question 8

CISI (C)

Answer 8

Clear & Honest

Question 9

CISI ( I) - 1

Answer 9

Impartial & Open

Question 10

CISI (S)

Answer 10

Straightforward & Transparent

Question 11

CISI (I) - 2

Answer 11

Informed & Fair

Question 13

What does ESG stand for?

Answer 13

Environmental, Social and Governance

Question 14

What are the environmental criteria?

Answer 14

• How much energy the company uses and how responsible it is in conserving energy
• Whether the company minimises waste and pollution
• The conservation efforts of the company and the impact it has on the natural world.

Question 15

What are the social criteria?

Answer 15

• The extent to which the company supports its local community
• Charitable contributions made by the company
• Whether the health and safety of the workforce is held in high regard
• The values encouraged and required of the company’s suppliers, such as their working conditions and the way their employees are treated.

Question 16

What are the Governance criteria?

Answer 16

• The diversity of the company’s management and board of directors, in terms of age, experience, ethnicity and gender
• The balance between executive directors (making day-to-day decisions) and non-executive directors (acting in a more consultative capacity).
• The values and ethical expectations placed on the staff, particularly the senior management.

Question 17

What is responsible investment?

Answer 17

An investment approach that incorporates environmental, social, and governance (ESG) factors into the decision-making process, in addition to seeking financial returns.

Question 18

Why might responsible investment be helpful in generating better returns?

Answer 18

As doing the morally and ethically right thing becomes more important, those companies that do so become more successful and valuable.

Question 19

Whats an example of Responsible Investment?

Answer 19

• Avoiding companies they feel is inappropiate because of the environmental and social harm it might cause. For example, companies involved in tobacco, gambing weapon etc.
• Confing investments to companies that make a positive impact, such as those creating clean energy or organic produce. For example using a gender lens.

Question 20

What is impact investing?

Answer 20

Investing money that, in addition to generating a financial return, is also targeted at having a positive impact on society or the environment.

Investors can invest with the knowledge that the investment will make a favourable difference.

Question 21

What is Gender lens investing?

Answer 21

Focusing on investments that will promote gender equality, providing opportunities to women. For example, providing capital to enable women to launch or expand their businesses.

This can aso be applied by investors pushing for an appropiate balance of male and female membership of the board of directors and the broader workforce.

Question 22

What is Microfinance?

Answer 22

Making an impact on low income or unemployed individuals, who would not normally have access to conventional financial services. This may target underdeveloped or developing countries. This typically takes the form of microloans combined with some financial or business education. It can also remove the need for the impoverished to use unprincipled and expensive moneylenders.