adminNEW YORK. — The International Monetary Fund (IMF) has stressed the need for appropriate governance framework to be put in place to support ethics in financial institutions globally. The fund, however, noted that without individual integrity, even the best regulatory and governance structures in financial institutions may not stand. While calling for swifter action by global financial institutions to restore trust in the financial sector, the IMF opined that members of the public need reassurance that misconduct issues that caused the failures in institutions and markets in the past few years had been dealt with.
Managing Director, IMF, Christine Lagarde, stated this in a speech titled: “The Role of Personal Accountability in Reforming Culture and Behaviour in the Financial Services Industry,” delivered in New York recently.
Lagarde pointed out that the goal of the financial sector should not only be to maximise the wealth of its shareholders, but to enrich society by supporting economic activity and creating value and jobs — to ultimately improve the well-being of people.
“Yet, what we saw during the crisis and its aftermath was quite different. Reckless behaviour was followed by episodes of misconduct that persisted well after the onset of the crisis — from rigging of interest rates and exchange rates to malfeasance and governance failures such as the London Whale. These actions tear at the very fabric of the financial industry.
In the process, the financial industry’s most valuable asset — trust — became its biggest casualty. Public opinion of the integrity of the financial system is still the lowest in a very long time,” she added.
She cited a 2014 Harris poll, which showed that up to 45 percent of the people rated the overall reputation of the industry as negative.
Therefore, she stressed the need for improved regulation and a robust governance structure, noting that if the regulatory and governance framework provides incentives for inappropriate behaviours, even the best meaning individual would find it difficult to promote an ethical culture.
“However, regulation and governance are only two pillars of a framework that can instil ethical behaviour in finance. The individual is the third pillar without which there can be no equilibrium. “So if the financial industry is to put people before profits, and society before shareholders, we need to see a change in the values and behaviour of individuals themselves.
“We need a culture that holds individuals accountable for the consequences of their behaviour — good and bad. And that change in culture must come from within. It must be determined, sustained, and encouraged throughout the organisation, from top to bottom.”
Giving more insight, the IMF boss revealed that it “is only recently that regulators have begun to take further steps to actually hold individuals accountable for their actions. This is the case in Iceland for example, where top executives guilty of misconduct have been prosecuted; or here in New York, where parties found guilty in the courts of law could additionally face professional disbarment
“Financial institutions, national authorities, and the international community have begun to respond to the issue of ethics in finance. “Still, swifter action is needed to restore trust in the financial sector. The public needs reassurance that misconduct issues that caused the failures in institutions and markets in the past few years have been dealt with.”— Agencies.
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