The Ethical Considerations in the Financial Industry - Term Paper Example

Contemporary business issues Contemporary business issues Financial s must abide by the rule of law set in the industry by maintaining the standards of the industry (Dobos, Barry, & Pogge 2011). It is important for the financial service industry to ensure that it maintains their ethical standards to the employers, employee, customer, and the society. This paper seeks to cover the ethical considerations in the financial industry, explore how these practices came to be, and the recommendations of the financial institution. Ethical considerations towards stakeholders 1. Objectivity and independence In conducting the analysis and recommendations for an investment, it is important to consider the aspect of objectivity (Boatright 2010). The analyst should remain objective and not be on the side of the analyzed company. Moreover, it is even worse for customers to purchase a security that analysts are willing to get rid of. It is important for the analyst’s employer who does banking or offer advisory services to be declared. Moreover, there should be a great difference between investment and analysis banking decisions. Failure of adopting this separation would result into the risk of misrepresentation. The act of independence and objectivity is where an individual is not biased in terms of personal relationships, benefits or other compensations. It is also important for the conflicts of interest appearing in an analyst to be dealt with and disqualify them to reduce any doubts of objectivity. Misconduct, on the other hand, is attributed to fraud, dishonesty, and deceit in the financial business (Hoffman 2006). The individual who is having any form of misconduct may be attributed to greed, personal gain, or desperation to safeguard their employment opportunities. 2. Integrity of the participants of financial market Though there are varying rules between markets and jurisdictions, an insider in the financial market conducting trading with the institutions resources is prohibited (Ferrell, Fraedrich, & Ferrell 2010). An insider is any employee with access to confidential information of the financial institution. It is important that these professionals in the field of finance safeguard the code of conduct of the institution. 3. Duties to clients It is important for the financial institutions to ensure that they give their clients the first priority before their own interests. The client pays for the services rendered thus creating the need for the acts of loyalty on the part of the financial institutions (Chaudhry & Mullineux 2014). The financial institutions should safeguard the client’s money as if it was their own. However, people tend to be reckless with other people’s money. 4. Employees’ loyalty to employer and the clients Loyalty is a two-way affair. It is important for employees to be loyal to their employers to ensure that there is a good working relationship that emerges. The employer on their part must ensure that they treat their employees equitably to avoid the issue of divide in the institution. Investment made should be documented and all documents kept safely for the employer to make their own calculations and deductions (Schroeder & Tomain 2007). It is also important for the employees to ensure that they use a language that clients can easily understand to prevent them from making financial risks that they can regret in future. 5. Conflicts of interest The employees in the institution can have a conflict of interest in case they are seeking for their own benefits in the transactions they conduct. For instance, seeking for personal relationships, financial gains of favors from the clients in question. 6. Material confidential information Most financial institutions have confidential information that only their employees are required to know (Fernando 2009). Most of the confidential information contains strategies of ensuring that such institutions achieve their set goals and objectives. Such information could result into serious issues for the institution if it was to get into the hands of competitors. That is why it is important that the employees observe the code of conduct and avoid revealing confidential information about the operations of the organization to competitors or any other outsider. 7. Firewalls Ensure the separation of departments that holds confidential information of the organization. If such individuals in the various departments do not meet, then the problem of leakage of confidential information is minimized (Brooks & Dunn 2012). Communication involving such departments should be overseen and supervised to minimize the sharing of such confidential information. 8. Propriety trading It involves direct gain instead of commission dollars. The company decides to make profits rather than make commission form its trading (Duska 2007). It is important for financial institutions to cease trading for financial gains and embarks on achieving commission for its trade. If such an institution realizes that they are running to make profits rather than realize commission for trade, then they should be discontinued. However, this may negatively affect the business in the event that the business is serving the financial market or is conducting the propriety trading for good reasons including maintaining their liquidity. 9. Arbitrate trading The process of arbitrage trading should be avoided to prevent cases of illegal activities in the financial institutions. 10. Market manipulation This is an illegal activity aimed at misguiding the market participants. The activities in the market often distort prices or trading volumes form the clients. It involves buying and selling the same security for increasing the traded volume (O. C. Ferrell 2014). It may also involve spreading misleading information that would result into other traders involving themselves with transactions that they would have not otherwise undertaken. Reasons for the emerging ethical issues in financial institutions There are various reasons for the ethical issues in financial institutions. One of them is greed. When individuals working in the financial institutions are faced with greed, they are ready to do anything to satisfy their greed including selling out confidential information to competitors for personal gains. Greed can also result into market manipulation where an investor may misguide the clients. It also involves the investors selling out the same securities for the sake of increasing the traded volumes. Greed may also result into increased fraud cases in the institution. Ethical practices may also be caused by lack of experience or inadequate level of education. For instance, some new employees may think that accepting gifts or favors from clients. They may not understand that it causes the conflict of interest, which might be harmful for the working relations between the employee and the clients. Lack of sufficient time is also a causative factor. Some of the employees in a financial institution lack enough time to attend to customers. As a result, they end up giving fewer details or advise to customers on the risk analysis of a situation. By so doing, clients lack the required satisfaction required in the services provided. Breakdown of the required level of control in these financial institutions and poor structure of the organization into lack of fostering of the required values of an organization. It may also refrain the organization from developing an ethical culture since such actions should commence from the top. Moreover, it could result into employees failing to observe the required level of standards that are available in finance. Lack of high level of integrity in an organization is capable of ensuring that the organization does not promote gender equality at work or even the possibility of participating in the social work of an organization. It also leads to the financial institutions failing to observe the required level of employees’ equity thus leading to lack of job motivation among the employees. Recommendations Duties to clients It is important for the employees in the financial institution to always safeguard the well-being of the employees. When any transaction is carried out, it is important for the clients’ interest to always be the first priority over other issues. Thus, it is important that employees in the financial institution carry out any form of transaction in the best way possible considering the current knowledge they posses, market situation of the area and other available circumstances. It is also important that the employees follow the limits and guidelines set by clients. Safeguarding the financial information of the clients is important since it prevents the cases of theft that a client can go through. It is also important for a fair treatment of all clients despite the financial situation, age, sex, race, or ethnicity of the clients. In most instances, a well-endowed and rich client is treated well than other clients. The financial institution should put a system in place to enable fair treatment of all employees. Moreover, a system where employees can air their grievances to the institution should be made available and easy to use by all clients. Precautions The financial institution should minimize the number of employees who have the knowledge of the confidential information of the organization. This is in addition to employees with knowledge of the analysis of public results before they are made public. The financial institution should also limit the period between the periods of making decisions to the time they make an important investment recommendation. Maintaining the institution’s confidentiality is important since it ensures that clients have the full trust in the institution. Unless the court requires the information of the clients for legal reasons, it is important for the institutions to ensure that they do not disclose any information about the clients to anyone without the authorization of the clients. Obligations towards the employer It is important to acknowledge that loyalty is a two way process. However, sometimes employees overstep their boundaries by breaking the rules given to them by employers. It is important for the employees to be loyal to the employers by obeying the given rules and regulations and maximize on their skills and capabilities for the benefit of the institution. The employee should safeguard the safety of any confidential information to ensure that the safety of the employer is safeguarded. It is also important that the employee does not discuss the issue of changing their job position to a competitor with their customers. Compliance The employees should ensure that they use a simple language of expressing themselves to the clients. The employer should also ensure that they have people in place who uncover individuals failing to observe the code of conduct of the organization. It is also important for the employees to ensure that they disclose their code of conduct to the clients to ensure that they create awareness on the high level of ethical standards they posses. Conflict of interest The employees should also ensure that they avoid any form of conflict of interest. They should avoid asking for or receiving favors from the clients without the knowledge of their employer. Investment analysis The analysis should be different from corporate finance. It should be in a position to write recommendation about a company without favor, which could lead to regrets or loss of business. Bibliography Boatright, J. R, 2010. Finance ethics. Hoboken, N.J: Wiley. Brooks, L. J., & Dunn, P. 2012. Business & professional ethics for directors, executives, & accountants. Mason, OH: South Western Cengage Leaning. Chaudhry, S. M., & Mullineux, A. W. 2014. Taxing banks fairly. Cheltenham: Edward Elgar Publishing. Dobos, N., Barry, C., & Pogge, T. 2011. Global Financial Crisis. Basingstoke: Palgrave Macmillan. Duska, R. F. 2007. Contemporary reflections on business ethics. Dordrecht: Springer. Fernando, A. C. 2009. Business ethics. Chennai: Pearson Education. Ferrell, O. C., Fraedrich, J., & Ferrell, L. 2010. Business ethics. Mason, OH: South Western Cengage learning. Hoffman, W. M. 2006. The ethics of accounting and finance . West , Conn: Quorom books. O. C. Ferrell, J. F. 2014. Business Ethics: Ethical Decision Making & Cases. New York: Cengage Learning. Schroeder, G. J., & Tomain, J. J. 2007. Loan loss coverage under financial institution bonds. Chicago: American Bar association. Read More