To Restore Trust in Banks, Build Ethics into Business Decisions

By Buckley, Jeremiah; Sporkin, Thomas | American Banker, December 9, 2014 | Go to article overview

To Restore Trust in Banks, Build Ethics into Business Decisions


Buckley, Jeremiah, Sporkin, Thomas, American Banker


Byline: Jeremiah Buckley and Thomas Sporkin

Trust is the bedrock upon which the banking business is built. However, revelations of unethical conduct at some banks have put that trust at risk. Senior officers of the Federal Reserve and other financial regulators recently met with management at leading banks to emphasize the need for a stronger ethical culture in the wake of activities like Libor manipulation, front running in high-frequency trading and money laundering cover-ups. William Dudley, the president of the Federal Reserve Bank of New York, said in a recent speech that there should be a "consistent application of 'should we' versus 'could we' in business decisions." The Financial Conduct Authority in the United Kingdom has expressed similar concerns.

Bank leaders understand the importance of trust and the need to demonstrate their commitment to maintaining an ethical infrastructure at their institutions. In this regard, bankers can take personnel and policy initiatives to put ethics front-and-center and show they "get it."

One approach would be to explicitly place the responsibility for ethics compliance -- not just rule-checking compliance -- with one or more employees. Another is adopting guidelines requiring that major business initiatives include an ethics component in the decision process. We are not suggesting that any specific structure or personnel is right for all banks, and variation in approaches is appropriate. But in light of the unfolding revelations of ethical lapses, a clear signal that a bank has a focus on ethics will help to restore faith in the integrity of these institutions that form the fabric of our financial services sector.

In some banks, general counsels are considered de facto ethics officers (and sometimes even hold the title of chief ethics officer). In other banks, a chief ethics officer or similarly-titled individual is designated outside the legal department and is often paired with the chief compliance officer role, but the authority of such officers varies.

If a bank decides to have a formally designated individual with principal ethics responsibility, what steps should it consider to make the role effective? He or she should have tangible responsibilities and specific authority to sanction ethical lapses, the commitment of the board of directors, buy-in from the CEO and senior management, and adequate resources. Such an executive, working with a board committee, could update and promulgate the company's ethics policy and be responsible for training employees about their ethical responsibilities. He or she could help to illuminate decisions about what is "right or wrong," even where there may be a legal argument to justify an institution's proposed products, pricing or conduct. …

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