• Twinkle Joshi

Applying Ethics in Financial Sector

Whenever one wonders about the financial sector, it is obvious to imagine Leonardo DiCaprio counting millions of dollars in the movie The Wolf of Wall Street. With that image thousands of young minds enter the financial sector, hoping to reach the top of the pyramid. The focus is on learning how equity, debt, options work but the most important thing takes the backseat that is the ethics of the profession. The world of finance for so long has been portrayed with greed and selfishness. It is high time to realize the importance of ethics and its role in the bigger picture.



To start from the beginning, we will answer why do we need the financial sector to function. The world we live in has a limited amount of resources and money is no exception. The banks, the financial markets, insurance intermediaries to connect the people who have it in surplus and who have it in deficit. Imagine a company willing to raise money from the public and would have to reach the whole population individually to know if they are interested. That will create chaos and funds won’t reach its efficient allocation. Now, the main pillar supporting the whole system is trust in the institution by the public. Hence, the responsibility to uphold that trust fell on every stakeholder for the smooth functioning of the economy.


The malpractices in the finance sector are not unknown to anyone. The Harshad Mehta case from 1992 was the worst failure of ethics in the history of Indian Financial Markets. It created a panic in the whole country resulting in a loss of 100,000 crores in market capitalization. The problem of ethics is not only based in India but a feature of the financial sector worldwide. The Financial Crisis of 2008 was created when every person on every single step in the United States failed to uphold their morals to keep the system in check. Rest is history, every country had to face its repercussion and some of them still are.


The question arises why do individuals fail to do the right thing. The answer may seem pretty straight forward that is to make profits. Though, it would be naive to assume that everyone consciously makes the informed self-serving decision. Sometimes it arises due to the lack of knowledge, sometimes it is in a culture that makes it seem no big deal ( like would you consider yourself villain to the society, if you google during an online test ). Most of the time, it is because of the loopholes that exist. Due to the loopholes, people shag of their responsibilities. Therefore, we should work towards creating a generation who are aware of their choices, understand their role in the whole finance sector rather than just their company and finally contemplate that following law are just a part of the ethical behaviors, yet, ethics go beyond the rules. Let us discuss how to achieve them in detail.


The Chartered Financial Analyst Institute Code of Ethics and Standards of Professional Conduct details the most accurate methods to create “professionalism and integrity of capital markets, duties to clients and employers, investment analysis and recommendations, and conflicts of interest and responsibilities.” The institute took the initiative to educate the coming generation so that they are aware of the ethical behavior they should uphold. This helps the stakeholders in the first step that is being aware of their decisions.


The Code of Ethics also lays down the instruction on how the culture can be changed at micro-units. As we have already discussed, creating a positive environment where ethical behavior is rewarded, and unethical behavior is dismissed is the need of the hour. It is a four-step guideline that can be easily applied at business houses or the individual level.

  • Creating high ethical guidelines and document them to avoid confusion;

  • Holding substantial and continuous training programs on the ethical standards for your team and yourself

  • Assess the integrity of individuals and groups you encounter, and

  • Take action when breaches of integrity and ethical standards are observed.

In addition to that, it is important to analyze the relationship between law and ethical standards. They have an intertwined relationship. Each of them gives a way to the other. Publicly accepted ethical behavior is a base to create laws and the current laws make the standards of ethical behavior. Complying with laws is not enough to waive the banner of the right behavior. Finding loopholes to justify the wrongdoing can take the whole nation in a period of depression. Just because it is legal, it does not mean it is ethical. There is only one standard to weigh the decisions that is to always put the clients first. Many conflicts of interest arise be it employee/employer interest vs customers interest or employee vs employers interest. Yet, always remember the rule to put the client's interest first. The only exception to that rule if the client's interest comes in forward of the industry interest. For example, insider trading can help your client makes a profit but it compromise the confidence of the investors in the whole industry which will cripple down the economy.


The government regulations can only so go far. It is up to the people involved at every stage be it the investors, brokers, investment firms, rating agencies, insurance companies, and every stakeholder to fulfill their duty. When the investors have confidence in the finance industry, the economies boom, better resource allocations take place and a global market is created with mutual trust. All of this depends on every single individual to follow the ethics of the financial sector.

Now that you've reached the end of this article, if you want to read out my other articles, check them out Tamasha with Twinkle.


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