ethics in financial service industry

7/21/2019 Ethics in Financial Service Industry

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BUSINESS ETHICS ASSIGNMENT ON

ETHICAL PRACTICES OF FINANCIAL

SERVICES ORGANISATION


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GROUP MEMBERS


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Introduction:

Financial service providers assist people who are experiencing financialdifficulty. Financial service providers listen carefully to their clients particularstories and, using tools such as money plans and creditor lists, work with clientsto gain a clearer picture of their financial situation.

Financial service providers then provide their clients with a set of availableoptions, discussing the advantages and disadvantages of each, and clients usethis information to make their own choices about how to best resolve theirfinancial problems. Financial service providers support their clients throughoutthisProcess and will act as advocates for their clients when appropriate. Their workinvolves a skill set including counselling skills, advocacy, and technicalknowledge in the area of financial issues.


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Financial service providers are skilled at negotiating with creditors andagencies on behalf of their clients, and often refer to other agencies such ascommunity legal services, housing bodies and other services as required.Financial service providers can also be involved in group or class advocacy,ommunity development and education, social action and reform.

Financial service providers are not financial planners, financial advisers or legalpractitioners and are not general welfare assessment workers. !ost Financialservice providers work in community organisations, although some work ingovernment agencies and local government. "t is fundamental that financialcounselling services are offered free of charge, and are confidential, non#

$udgmental, and independent.

Financial services industry must keep to rules of law, industry standards and actethically. %ealt with is ethical. &aw and industry standards are straightforward

ethics an area for more interpretation.'hat is considered ethical in financial services(

There is an opinion that greed and unethical behaviour by market participants is

a culprit for financial crises and therefore it would be unwise to ignore the area

of ethics and the requirements ethics put on market participants. Financial

intermediaries must keep to rules of law, industry standards and act ethically.

%ealing with ethics is not a sideline of the financial service industry but should

be a part of its core. The question that arises is what is ethical and what is

unethical( )re there any minimum requirements( an certain intermediaries

take ethics to a higher level( &aw and industry standards are far from

straightforward* ethics is an area for more interpretation.

Business ethics in Finnci! Ser"ices

#$ Misre%resenttion nd Misconduct& Inde%endence nd O'(ecti"it)

) starting point is to examining the ethical aspects of the financial serviceindustry towards stakeholders, +ncovering standards of conduct in the

industry and explores stakeholders view on current ethical conduct as well

as trends. 'hat we have today and what is desired from stakeholders and

not met by todays standards as well as ideas for improvement. The

implications may lead to suggestions for the industry of how to deal with

issues of loyalty and importance of firewalls between departments as well

as a more elaborated code of conduct.


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Participants in financial services must be true professionals and as a minimum

requirement have knowledge about the law. The firms employing the

professionals are responsible for compliance with legal requirement and

industry specific regulations and best practices for the industry.

*$ Res%ectFinancial service providers respect the right of all those they come in

contact with professionally to have their own beliefs and opinions. They

ensure that their own belief systems, and the belief systems of their

employer, do not impose on others.+$ E,%o-er,ent

Financial service providers empower their clients to take control of their ownfinancial situation. They encourage clients to make informed choices and todetermine their own courses of action.

.$ Non/discri,intion

Financial service providers adhere to the principles of equality, fairness andconsistency.Financial service providers do not condone or engage in discrimination- basedon age, gender, race, culture, ethnicity, religion or spirituality, sexualorientation, language, health, social background, relational, physical, emotional,intellectual or educational ability, or socioeconomic status.

0$ BoundriesFinancial service providers maintain professional relationships with their clientsat all times. The responsibility to establish and maintain elective client#counsellor boundaries lies with the financial counsellor. Financial service

providers understand the extent of their role and do not go beyond their skillbase or competence.

1$ Con2identi!it)

Financial service providers value and respect client confidentiality at all times,but also abide by any legal limitations to confidentiality.

3$ Con2!icts o2 interest

Financial service providers act in the best interests of their client, and do not puttheir own interests or the interests of others e.g., creditors or employers/ aheadof the clients interests. Financial service providers will identify any con0icts ofinterest and seek to resolve them.

4$ Ad"occ)

Financial service providers may act as an advocate for their client, if this is whatthe client wishes. The nature of that advocacy will be determined by the client.

5$ Pro2ession!is,


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Financial service providers strive to work to the highest standard of practice.Financial 1ervice providers work within their professional competence, skills,training and experience and stay up to date with relevant professionaldevelopments. Financial service providers work with peers and allied

professions to share knowledge and resources, and demonstrate competence,honesty, reliability, authenticity and transparency in their professionalrelationships.

#6$Co,,unit) En77e,ent

Financial service providers engage with the broader community, and recognisethe wider social issues that impact on Financial %ifficulties and situations. Theyare sensitive to the family, cultural and social contexts of their communities.Financial service providers value working collaboratively with local communityservices to best support clients.

##$Soci! 8usticeFinancial service providers acknowledge that everyone has the right to accesssafe financial Products from ethical vendors, and to be treated fairly if they andthemselves in financial difficulty. Financial service providers thereforerecognise that they have a role to play in "dentifying unfair market practices andworking to prevent these problems in the future.


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The Code o2 Ethic! Prctice

2thical practice is described in six domains in relation to3

the self the Financial service Providers/

clients and their families

colleagues

The workplace

The profession, and

The wider community.

#$ Res%onsi'i!ities to Se!2

Financial 1ervice providers have a number of responsibilities toward

themselves. These !aximise the likelihood that the financial counsellor is ableto provide effective financial counselling to clients, and to ensure that their

physical, mental and emotional state does not impair their ability to providecompetent services.

#$#Se!2/cre

Financial 1ervice providers shall respect their own needs as an individual andavoid burnout by practising self care and a healthy life balance. This includesmaintaining a manageable workload and seeking assistance early when $ob

demands cause distress or anxiety.

#$* Re2!ecti"e %rctice

Financial 1ervice providers engage in respective practice and aim to identifyand acknowledge personal values and beliefs that may be imposed on clientsand that may hinder their capacity for good professional $udgement.onscientious reflection involves the financial counsellor in monitoring andreviewing their work and being vigilant for signs of counter transference, a

process by which the financial counsellors own issues and problems areunconsciously imposed on the client. Financial 1ervice providers shall discussany issues that may interfere with the client#counsellor relationship with theirclinical and4or technical casework/ supervisor.

#$*S9i!!s nd 9no-!ed7e$

#$+$# no-!ed7e

Financial 1ervice providers shall gain sufficient knowledge to practise as afinancial counsellor, and shall strive to continuously improve theirunderstanding of current knowledge and information relevant to the profession.


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#$+$* Continuin7 %ro2ession! de"e!o%,ent ;CP


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the client to provide informed consent to proceed with the financial counsellingprocess.

*$+$* C!ient>s ri7ht to deter,ine choices

Financial 1ervice providers work with the client to gather accurate and currentinformation on relevant aspects of the clients financial, social and legalsituation. This information is used to assist the client to make informeddecisions about their financial circumstances and options.

*$+$+ C!ient>s re%resentti"e

lients have the right to nominate someone they trust to make decisions on theirbehalf if the client anticipates they may be unable to make informed decisionsin the future


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Business Ethics in Vrious Finnci! Ser"ices Industr)

SBI ,9=9 crores in Treasury 5ills respectively for the financial year

-8-#>.

)s Primary %ealers, we trade in Fixed "ncome 1ecurities Treasury 5ills,

7overnment securities, 1tate %evelopment &oans, s 'e!ie2 s)ste,

This ode of onduct attempts to set forth the guiding principles on which theompany shall operate and conduct its daily business with its multitudinous


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stakeholders, government and regulatory agencies, media, and anyone else withwhom it is connected.

III$ Phi!oso%h) O2 The Code

The ode envisages and expects B

. adherence to the highest standards of honest and ethical conduct,including proper and ethical procedures in dealing with actual or apparentconflicts of interest between personal and professional relationships.

-. full, fair and accurate disclosures in the periodic reports required to befiled by the ompany with government and regulatory agencies.

>. compliance with applicable laws, rules and regulations.

9. to address misuse or misapplication of the ompanys assets andresources.

C. the highest level of confidentiality and fair dealing within and outside theompany.

Gener! Stndrds o2 o'(ect:The %irectors and members of the ore !anagement while discharging dutiesof their office must act honestly and with due diligence. They are expected toact with that amount of utmost care and prudence, which an ordinary person is

expected to take in his4her own business.

Con2!ict o2 Interest:

2very member of the 5oard of %irectors and ore !anagement is expected toperform his4her duties in a way that they do not conflict with the ompanysinterest in regard to B

E,%!o),entB The member of the ore !anagement are expected to

devote his4her total attention to the business interests of the ompany andprohibited from engaging in any activity that interferes with theirperformance or responsibilities.

Business InterestsB 2very member of the 5oard of %irectors and ore

!anagement shall disclose to the ompany any interest that they havewhich may conflict with the business of the ompany.

Re!ted PrtiesB The %irectors and members of the ore !anagement

shall avoid conducting ompanys business with a relative or any other

person or any firm, ompany, )ssociation in which the relative or other


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person is associated in any significant role. "f such a related partytransaction is unavoidable, they must fully disclose the nature of therelated party transaction to the appropriate authority. )ny dealings with arelated party must be conducted in such a way that no preferentialtreatment is given to that party.

A%%!ic'!e L-s:The ompany requires that every %irector and member of ore !anagementshould be fully compliant with laws, statutes, rules and regulations that have theob$ective of preventing unlawful gains of any nature whatsoever.The %irectors of the ompany and ore !anagement shall comply withapplicable laws, regulations, rules and regulatory orders and shall report anyinadvertent non#compliance, if detected subsequently, to the concernedauthorities.

s Assets nd Resources:

2ach member of the 5oard of %irectors and the ore !anagement has a duty toadvance the legitimate interests of the ompany while dealing with theompanys assets and resources.

Con2identi!it) nd Fir


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2nsure confidentiality of the ompanyDs agenda papers, notes and

!inutes.


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H


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The 5oard members 4 Afficials shall avoid conflict of interest and disclose tothe 5oard any material transaction or relationship that reasonably could beexpected to give rise to such a conflict.

Con2identi!it) o2 In2or,tion

The 5oard members 4 Afficials shall ensure and take all reasonable measuresto protect the confidentiality of non#public information about the 5ank, its

business, customers and other materially significant information obtained orcreated in connection with any activities with the 5ank and to prevent theunauthorised disclosure of such information unless required by applicablelaws or regulations or legal or regulatory process.


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MERRILL LNCH INVESTEMNT MANAGERS

Section #Bc97round

This ode of 2thics is adopted under :ule G$# under the "nvestment

ompany )ct of =98 H=98 )ctI/ and :ule -89#-a/ under the "nvestment

)dvisers )ct of =98 and has been approved by the 5oards of %irectors of eachof the !&"! funds. 2xcept where noted, the ode applies to all !&"!employees.

1ection G$/ under the "nvestment ompany )ct of =98 makes itunlawful for persons affiliated with investment companies, their principalunderwriters or their investment advisers to engage in fraudulent personalsecurities transactions. :ule G$# requires each Fund, investment adviser and

principal underwriter to adopt a ode of 2thics that contains provisions

reasonably necessary to prevent an employee from engaging in conductprohibited by the principles of the :ule. The :ule also requires that reasonablediligence be used and procedures be instituted which are reasonably necessaryto prevent violations of the ode of 2thics.

An )ugust ->, ===, the 12 adopted amendments to :ule G$# whichrequire greater board oversight of personal trading practices, more completereporting of employee securities trading and preclearance of employee

purchases of initial public offerings and private placements. The amendments

require, among other things, that !&"! provide its fund boards annually awritten report that i/ describes issues that arose during the previous year underthe ode, including information about material code violations and sanctionsimposed and ii/ certifies to the board that !&"! has adopted proceduresreasonably necessary to prevent access persons from violating the ode.Section *Stte,ent o2 Gener! Fiducir) Princi%!es

The ode of 2thics is based on the fundamental principle that !&"! and

its employees must put client interests first. )s an investment adviser, !&"!has fiduciary responsibilities to its clients, including the registered investmentcompanies the HFundsI/ for which it serves as investment adviser. )mong!&"!s fiduciary responsibilities is the responsibility to ensure that itsemployees conduct their personal securities transactions in a manner which doesnot interfere or appear to interfere with any Fund transactions or otherwise takeunfair advantage of their relationship to the Funds. )ll !&"! employees mustadhere to this fundamental principle as well as comply with the specific

provisions set forth herein. "t bears emphasis that technical compliance withthese provisions will not insulate from scrutiny transactions which show a

pattern of compromise or abuse of an employees fiduciary responsibilities to


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the Funds. )ccordingly, all !&"! employees must seek to avoid any actual orpotential conflicts between their personal interest and the interest of the Funds."n sum, all !&"! employees shall place the interest of the Funds before

personal interests.Section +Insider Trdin7 Po!ic)

)ll !&"! employees are sub$ect to !&"!s "nsider Trading Policy, which

is considered an integral part of this ode of 2thics. !&"!s "nsider TradingPolicy, which is set forth in the !&"! ode of onduct, prohibits !&"!employees from buying or selling any security while in the possession ofmaterial nonpublic information about the issuer of the security. The policy also

prohibits !&"! employees from communicating to third parties any materialnonpublic information about any security or issuer of securities. )dditionally,no !&"! employee may use inside information about !&"! activities or the

activities of any !errill &ynch ; o., "nc. entity to benefit the Funds or to gainpersonal benefit. )ny violation of !&"!s "nsider Trading Policy may result insanctions, which could include termination of employment with !&"!. 1ee1ection 8J1anctions/.

)s applicable herein, !&"! includes all )!7 investment advisory affiliatesand the affiliated principal underwriter of investment companies registeredunder the =98 )ct.

Section .Restrictions Re!tin7 to Securities TrnsctionsA$ General Trading Restrictions for all Employees

The following restrictions apply to all !&"! employees3

#$ Accounts$


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financial interest or over which the employee has investment discretion otherthan !&"!#managed Funds/.

+$ Prec!ernce$ )ll employees must obtain approval from theompliance %irector or preclearance delegatee prior to entering any securitiestransaction with the exception of exempted securities as listed in 1ection C/ inall accounts. )pproval of a transaction, once given, is effective only for the

business day on which approval was requested or until the employee discoversthat the information provided at the time the transaction was approved is nolonger accurate. "f an employee decides not to execute the transaction on theday preclearance approval is given, or the entire trade is not executed, theemployee must request preclearance again at such time as the employee decidesto execute the trade.

2mployees may preclear trades only in cases where they have a present

intention to transact in the security for which preclearance is sought. "t is!&"!s view that it is not appropriate for an employee to obtain a general oropen#ended preclearance to cover the eventuality that he or she may buy or sella security at some point on a particular day depending upon marketdevelopments. This requirement would not prohibit a price limit order, providedthat the employee shall have a present intention to effect a transaction at such

price. onsistent with the foregoing, an employee may not simultaneouslyrequest preclearance to buy and sell the same security.

.. Restrictions on Purchses$


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that issuer for purposes of this policy. "n sum, the related security would betreated as if it were the underlying security for the purpose of the pre#clearance

procedures described herein.

3$ Pri"te P!ce,ents$ 2mployee purchases and sales of HprivateplacementI securities including all private equity partnerships, hedge funds,limited partnership or venture capital funds/ must be precleared directly withthe ompliance %irector or designee.


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*$ B!c9out Periods$ )n investment person may not buy or sell asecurity within 3 c!endr d)s either before or after a purchase or sale of thesame or related security by a Fund or portfolio management group for which theinvestment person has investment authority. For example, if a Fund trades asecurity on day 8, day @ is the first day the manager, analyst or portfoliomanagement group member of that Fund may trade the security for his or herown account. )n investment persons personal trade, however, shall have noaffect on the Funds ability to trade. For example, if within the seven#day periodfollowing his or her personal trade, an investment person believes that it is inthe best interests of the Fund for which he or she has investment authority to

purchase or sell the same security on behalf of the Fund, the trade should bedone for the Fund, and an explanation of the circumstances must be provided tothe ompliance %epartment.

+$ Est'!ishin7 Positions Counter to Fund Positions$ / the Fund has sold suchsecurity short, other than Hagainst#the#box.I


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1. Prohi'ition on Short/Ter, Pro2its$ "nvestment personnel areprohibited from profiting on any sale and subsequent purchase, or any purchaseand subsequent sale of the same or equivalent/ securities occurring within ?8calendar days Hshort#term profitI/. This holding period also applies to all

permitted options transactions* therefore, for example, an investment personmay not purchase or write an option if the option will expire in less than ?8 daysunless such a person is buying or writing an option on a security that he or shehas held more than ?8 days/. "n determining short#term profits, all transactionswithin a ?8#day period in all accounts related to the investment person will betaken into consideration in determining short#term profits, regardless of his orher intentions to do otherwise e.g., tax or other trading strategies/. 1hould aninvestment person fail to preclear a trade that results in a short#term profit, thetrade would be sub$ect to reversal with all costs and expenses related to thetrade borne by the investment person, and he or she would be required todisgorge the profit. Transactions not required to be precleared under 1ection C

will not be sub$ect to this prohibition.C$ Trdin7 Restrictions 2or


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including preclearance, prohibition on short#term profits and blackout periods/shall not apply.

). Purchases or sales in an account over which the employee has no director indirect influence or control e.g., an account managed on a fullydiscretionary basis by an investment adviser or trustee/.

5. Purchases or sales of direct obligations of the +.1. 7overnment.

. Purchases or sales of open#end investment companies includingmoney market funds/, variable annuities and unit investment trusts. 6owever,unit investment trusts traded on a stock exchange e.g., !"T1, %")!A


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. The receipt of a bona fide gift of securities. %onations of securities,

however, require preclearance./

2xempted transactions4securities may notbe executed4held in brokerageaccounts maintained outside of !errill &ynch.

The re%ortin7 reuire,ents !isted in Section 1 o2 this Code& ho-e"er&

sh!! %%!) to the securities nd trnsction t)%es set 2orth in %r7r%hs

F/8 o2 this section$

Section 1Re%ortin7 ') E,%!o)ees

The requirements of this 1ection ? apply to all !&"! employees. The

requirements will also apply to all transactions in the accounts of spouses,

dependent relatives and members of the same household, trustee and custodialaccounts or any other account in which the employee has a financial interest orover which the employee has investment discretion. The requirements do notapply to securities acquired for accounts over which the employee has no director indirect control or influence. )ll employees whose accounts are maintained at!errill &ynch or 5


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nonetheless initially report those exempt securities defined in 1ection C.F.#.This reporting requirement does not apply to holdings that are the result oftransactions in exempt securities as defined in 1ection C.).#2./ "nitial holdingsreports must identify the title, number of shares, and principal amount withrespect to each security holding. 'ithin 8 days of commencement ofemployment, each employee shall file an )cknowledgement stating that he orshe has read and understands the provisions of the ode.

B$ Records o2 Securities Trnsctions$ )ll employees must precleareach securities transaction with the exception of exempt transactions in 1ectionC/ with the ompliance %epartment or preclearance designee. )t the time of

preclearance, the employee must provide a complete description of the securityand the nature of the transaction. )s indicated above, employees whoseaccounts are maintained at !errill &ynch or 58 days before thereport is submitted. )s indicated above, employees whose accounts aremaintained at !errill &ynch or 5


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) disinterested director of a Fund need only report a transaction in a

security if the director, at the time of that transaction, knew or, in the ordinarycourse of fulfilling the official duties of a director of such Fund, should haveknown that, during the C#day period immediately preceding the date of thetransaction by the director, the security was purchased or sold by any Fund orwas being considered for purchase or sale by any Fund for which he or she is adirector. "n reporting such transactions, disinterested directors must provide3 thedate of the transaction, a complete description of the security, number of shares,

principal amount, nature of the transaction, price, commission, and name ofbroker4dealer through which the transaction was effected. )s indicated in 1ection ?.%. for !&"! employees, disinterested directorsare similarly required to certify annually to the ompliance %epartment that /they have read and understand and agree to abide by this ode of 2thics* -/they have complied with all requirements of the ode of 2thics, except as

otherwise reported to the ompliance %epartment that they have not compliedwith certain of such requirements* and >/ they have reported all transactionsrequired to be reported under the ode of 2thics.Section 4A%%ro"! nd Re"ie- ') Bords o2


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LIC Housin7 Finnce Ltd

&" 6ousing Finance &td. is one of the largest 6ousing Finance company in"ndia. "ncorporated on =th une, =@= under the ompanies )ct, =C?, theompany was promoted by &" of "ndia and went public in the year ==9. The

ompany launched its maiden 7%: issue in -889. The )uthoriLed apital ofthe ompany is :s.C88 !illion :s.C8 rores/ and its paid up apital is:s.88=.= !illion :s.88.== rores/. The ompany is registered with


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onflicts can arise in many situations. "t is not possible to cover everypossible conflict situation and at times, it will not be easy to distinguishbetween proper and improper activity. 1et forth, are some of the commoncircumstances that may lead to a conflict of interest, actual or potential #

a. %irectors should not engage in any activity4employment that

interferes with the performance or responsibility to the company oris otherwise in conflict with or pre$udicial to the company.

b. %irectors and their immediate families should not invest in acompany, customer, supplier, developer or competitor andgenerally refrain from investments that compromise theirresponsibility to the company.

c. %irectors should avoid conducting company business with a

relative or with a firm 4 company in which a relative 4 related partyis associated in any significant role.

"f such related party transaction is unavoidable, it must be fullydisclosed to the board or to the FA of the company.

Ro!e


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vi. %irectors shall not assign ones office as %irector and anyassignments so made shall be void.


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"n addition to the above requirements, the 5oard of %irectors also expect%irectors to perform the following functions3

vii. %irectors should constructively challenge and help developproposals on strategy for growth of the ompany.

viii. %irectors should evaluate the performance of management inmeeting agreed goals and ob$ectives.

ix. %irectors should satisfy yourself on the integrity of financialinformation and that financial controls and systems or riskmanagement are effective and defensible.

x. %irectors shall take responsibility for the processes for accuratelyreporting on performance and financial position of the ompany.

xi. %irectors should keep governance and compliance with theapplicable legislation and regulations under review and theconformity of ompanys practices to accepted norms.

*

+ Co,%!ince :

%irectors are required to comply with all applicable laws, rules and

regulations, both in letter and in spirit. "n order to assist the company inpromoting lawful and ethical behaviour, directors must report anypossible violation of law, rules, regulation or the code of conduct to thecompany secretary.

. Other


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any information either formally or informally, to the press or any otherpublicity media, unless specially authoriLed


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1 Insider Trdin7 :

)ny director of the A!P)


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CONCLUSION:

2merging from the global financial crisis, the financial services industryrecognises the importance of creating a universal, resilient and pervasive culture

based on integrity and mutual understanding. )t an industry level, there is little

doubt that sincere attempts are being made at change. "ndustry bodies areteaching non#banking staff about financial products and client needs, and

bankers about ethics. )nd many big banks have launched large#scale exercisesto identify and mend their culture and practices to avoid the scandals that havecontinued to erupt since the crisis.

There is a widespread belief in the importance of ethics among financialservices employees, with both anecdotal and quantitative evidence of steps

being taken to improve adherence to ethical standards. 2xecutives also report a

basic level of understanding of the industry among employees at all levels. Theyfeel prepared for their current role, and see learning about issues that arerelevant to their everyday $ob as a priority to improve performance. Finally, theyrecognise how a stronger adherence to ethical standards and greater knowledgecan be beneficial to their firms ability to withstand risk.

) number of deep#rooted tensions, however, will make creating a strong culturea big challenge for the industry over the coming years. 'hile executiveschampion ethical conduct, they struggle to see the benefits of greater adherence

to ethical standards, reporting that, in reality, it can hamper career progression inthe industry as well as the firms competitiveness. )lso, few see knowledge ofother departments and functions as crucial to improving their everyday

performance, even though a lack of communication and understanding betweenfunctions is often quoted as a factor of the financial crisis.

The pressures firms faced before the global financial crisis such as quarterlyreporting requirements and pleasing short term investors will not go awayanytime soon. 5ut it is clear that the financial services industry is trying tomend its ways. The key will be to overcome the basic tensions that continue to

riddle the industry, and over time see whether the top echelons are doing enoughto foster a strong, risk#proof and client#serving culture at their firms.

ethics in financial service industry

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