Ethical & Unethical issues in disciplines of Finance

Business Ethics In Finance

Ethics in general is concerned with human behavior that is acceptable or "right" and that is not acceptable or "wrong" based on conventional morality. General ethical norms encompass truthfulness, honesty, integrity, respect for others, fairness, and justice. They relate to all aspects of life, including business and finance. Financial ethics is, therefore, a subset of general ethics. "Finance has always been the life - blood of business, no business can survive without finance.But there are evidences available to believe that at times business managers opt for unethical practices to run business to serve their vested interest and in turn cause harm to their stakeholder.

• It is to be considered important as without financial component no business can run for a long time.
• Ethics in finance may vary from industry to industry but everyone is liable to do their work at utmost good faith 

Why  is it important to worry about ethics in finance?

• When you think about it you realize that you put your hard-earned savings in the care of financial firms assets manager ,banks,insurance,and all kinds of funds and your trust them to look after the money.
• you want the best result but there is a balance between risk and rewards ,
• you need to feel confident that you can trust the finance professionals to act with integrity in your interest.

Examples of unethical temptation:-

• Make exaggerated claims to counter exaggerated claims of competitor. 
• offer a customer a unauthorized "gift" in return for their business.
• conceal information from a customer in order to get their business and to meet your sales goals.
• Put non business related expenses on your expense account.
•  Divulging confidential information about one customer to another in order to facilitates a sale.

Why are ethics important in the finance industry?

The stock market scam of 1992 is considered one of the worst violations of ethics in the Indian financial industry. Retail investors lost money after the market was manipulated, and it subsequently lost 72 percent of its value. Despite serious consequences and convictions, a similar fraud in which bank and promoter funds were used to manipulate stock prices took place within a decade. At a global level, the financial crisis of 2008 pushed the boundaries of unethical practices with housing loans given to subprime investors. Its effects continue to be felt across the world even after a decade. Economic activity has not yet returned to trend in most countries and public debt in advanced economies has risen by more than 30 percentage points of GDP. Still, accounting frauds and market manipulations,schemes, insider-trading, and other misdeeds continue to shatter investor confidence.

      There are many reasons why ethical violations occur. Sometimes they become the norm because“everyone is doing it.” Others happen when individuals take advantage of loopholes in the system. Ultimately violations are driven by the potential personal gain of the investment professional.Investors intrinsically trust financial institutions with their money and expect them to invest it with integrity. All market risks considered, investors expect the highest return and put their faith in the hands of professionals. Upholding investor confidence is vital to the success of the investment industry. High ethical standards are critical to maintaining the public’s trust in financial markets and in the investment profession.

2019 RBI caught financial unethical fraud in banks:-

 Indian banking system detected Rs 71,500 crore   worth of frauds in financial year 2018-19 which to   put in scale is slightly more than the Rs 71,000   crore recapitalization package planned by the   government to revive the health of its public-         sector banks.

Interestingly, over 90 percent of these losses were to the government owned banks while the      share of incidents that emanated from these lenders was at 55.4 percent.Overall, 3,766 incidents of frauds were detected in FY19, a 15 p ..percent spike from a year ago, while the losses incurred saw an 80 percent rise from the last year, even as FY18 saw the most infamous banking fraud in India’s history where Nirav Modi siphoned off nearly Rs 13,000 crores from Punjab National Bank in February 2018.

                     “In terms of area of operations, frauds related to advances constituted the preponderant share of the total amount involved in frauds in 2018-19, while the share of frauds in off-balance sheet items declined from a year ago,” 

According to RBI’s annual report released on Thursday. “Frauds relating to card/internet and deposits constituted only 0.3 per cent of the total value of frauds in 2018-19.”Most of these frauds were because cheating and forgery, followed by misappropriation & criminal breach of trust, RBI said. Small frauds less than Rs.1 lakh were just 0.1 percent of the amounts involved.
"To curb this menace," the central bank said that it is in talks with various agencies including the Ministry of Corporate Affairs to create an interlinked database for fraud monitoring. In furtherance, the regulators said that analytic engines of banks and user interface of fraud registry would be improved to create a more robust monitoring system.

The RBI, in the report, said that they also subjected 57 banks through IT examination to check their cyber security preparedness and compliances. 

According to me , after analyzing above cases ethical guidelines should be followed by everyone , to maintain our business goodwill as well as a social responsibilities. If we will be the culprits ,by knowing what is right or wrong, then some how our society will be affected which is a great concern to be looked after ,then!!

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