Essays on Ethical Issues Facing Organizations in the Financial Sector in the UK Case Study

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The paper 'Ethical Issues Facing Organizations in the Financial Sector in the UK" is a good example of an accounting and finance case study.   Ethics can be defined as the moral principles and rules that govern a person’ s or group’ s life. Business ethics is the application of a moral code of conduct to the strategic and operational management of a business (Applied Corporate Governance, 2014). The banking sector has more than any other industry come under close public scrutiny due to what many consider unethical conduct. Banks, private equity firms, insurance companies and other organizations in the financial sector are generally regarded as profit-oriented entities with no regard to the social and environmental impact of their activities. In the UK, Ethical Consumer, a not-for-profit magazine lists Coventry, Cumberland and Leeds as the top ethical banks.

According to the magazine, the three banks scored 13.5 out of 20 mostly because they do not get involved in controversies such as food speculation, funding arctic oil exploration, and complex but exploitive financial structures. The Co-operative Bank in the UK is ranked as one of the many unethical mainstream banks in the country (Murray, 2013).

To the consumers and society at large, ethical priorities and areas of concern in the financial and banking sector including but not limited to; speculative banking, exploitative products and financing of controversial projects. In this paper, issues in the mentioned areas of ethical concern will be discussed exhaustively. Speculative banking As banks compete to meet profit targets set by the executives and satisfy the shareholders, they engage in very risky investment deals that more often than not lead to huge losses to the shareholders.

Engaging in excessively speculative investments and irresponsible credit lending practices is morally unacceptable as it results in loss of money and disruption of economic growth just like it was the case with the financial crisis in 2008. Banks have a responsibility to do background analysis on the risk level of an opportunity before committing customer’ s money into a short-term scheme. In most of the short-term dealings, it is the banking executives who make the most profits and not the customer. The 2008 financial crisis exposed the irresponsible speculative banking in sub-prime mortgages, adjustable-rate-mortgages and other high-risk projects that do not go through the due process of analysis (BBC, 2013).

The banks worsen the situation by providing scanty details on how a client’ s money is being invested in different sectors. Some banks provide investment information to their clients in a rather complex manner to a layman with a view of hiding the negative results from irresponsible investment decisions. After the 2008 crisis, the banking and finance sectors are under close scrutiny by regulatory authorities mainly in Europe and North-America this is meant to ensure that banks are more responsible in handling clients’ wealth to avoid losses to the latter (BBC, 2013).

In addition, irresponsible investing practices have proved to have a destructive implication on the economy considering the effects of the 2008 financial crisis. The government in the UK set up an independent commission to regulate investment activities in the banking sector. Banks are also required to separate their retail and investment arms completely to avoid customer losses. Banks are also required to maintain a sufficient capital buffer to absorb losses in case of poor investments (BBC, 2013).

These regulations will, therefore, go a long way in protecting the economy from artificially created shocks.

References

BBC (2013 February 4) Banking reform: What has changed since the crisis? BBC News [Online] Available from: http://www.bbc.com/news/business-20811289 [Accessed 2014 November 25]

EIRIS. (2014). Ethical banking – a big opportunity for Britain’s retail banks, EIRIS survey reveals | EIRIS. Retrieved November 25, 2014, from EIRIS: http://www.eiris.org/media/press-release/ethical-banking-big-opportunity-britains-retail-banks-eiris-survey-reveals/

Fidelis International Instoitute. (2010). Ethical Issues Facing the Banking Industry. Retrieved November 25, 2014, from http://www.fidelisinstitute.org/article.php?se=13&ca=22

Jones, R (2013 October 23) Ethical alternatives to the Co-operative Bank. The Guradian [Online] Available from: http://www.theguardian.com/money/2013/oct/23/ethical-alternatives-co-operative-bank [Accessed 2014 November 25]

Kollewe, (2010 May 14) Competition Commission confirms ban on point-of-sale PPI. The Guardian [Online] Available from: http://www.theguardian.com/money/2010/may/14/competition-commission-ppi-sale-ban [Accessed 2014 November 25]

Murray,R. (2013 June 23) Co-op Bank is losing its ethical edge. The Telegraph [Online] Avalibale from : http://www.telegraph.co.uk/finance/personalfinance/bank-accounts/10135338/Co-op-Bank-is-losing-its-ethical-edge.html [Accessed 2014 November 25]

Reuters (2014 November 25) UK regulator to study credit card market. Reuters News [Online] Avalable from: http://www.reuters.com/article/2014/11/25/britain-regulator-creditcards-idUSL6N0TF0JQ20141125 [Accessed 2014 November 25]

Zeuschner, R. 2001. Classical Ethics: East and West. New York : McGraw-Hill Education.

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