Ethical and Compliance Driven Behaviour Flashcards

(11 cards)

1
Q

Need for Ethics

A
  1. Public Trust - for participation in financial markets and use of investment professionals
  2. Trust of Capital Providers
  3. Trust of Regulators - allows less restrictive regulation
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2
Q

Corporate or Personal unethical behaviour

A
  1. Environment
  2. Personality

Most evidence suggest environment, therefore corporate ethics and example of senior employees have big effect

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3
Q

Motivations for unethical behaviour

A
  1. Incentives to perform - can increase risk taking
  2. Ability to blame others - acting as a team member
  3. Conflicts of Interest
  4. Lack of rigour - due to laziness
  5. Disregard for clients - often distance from them
  6. Failure to act
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4
Q

Cultural issues of Ethics

A

Interpretation varies between countries (e.g. present or a bribe)

There is a relationship between perception of fairness/trust and willingness of public to participate in that countries stock market

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5
Q

CFA Code of Ethics - Firm’s Fiduciary Duty to Clients

A

Act in client best interest, taking reasonable care and judgement and acting fairly

Keep confidentially or client (unless illegal activities)

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6
Q

CFA Code of Ethics - Employee Duty to Employer and Co-Workers

A

Act for benefit of employer (use full skills and not disclose confidential information)

Not accept gifts or compensation to cause CoI

Co-workers - Promote ethical behaviour to colleagues, especially in supervisory role

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7
Q

Ethics vs Compliance

A

Ethics - doing whats right regardless of regulation

Compliance - complying with regulations

Can be compliant without being ethical (e.g. selling PPI)

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8
Q

Outcomes of Firms behaving unethically on Industry

A

Industry becomes vulnerable to gov intervention

  • higher taxes
  • increased regulation
  • greater disclosure etc

This creates loss of trust in capital markets and investment and reduced participation in industry

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9
Q

Outcomes of Firm’s behaving unethically for the Firm itself

A
  1. Prosecution - fines, loss of licence

2. Reputational - negative publicity, difficulty attracting new clients

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10
Q

Causes of unethical behaviour between Investment Advisers and Clients (breaking fiduciary duty)

A

Have a fiduciary duty to benefit clients. This can be affected by:

  1. Too much risk / inappropriate investments
  2. Lack of diversification
  3. Trading for transaction costs (excessively)
  4. Trading for fees (products based on fees, not performance)
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11
Q

Vulnerable and Insistent Clients

A

Vulnerable - less able to represent own interests and more likely to suffer harm. Advisers must determine before giving advice if client is vulnerable

Insistent - do not want to follow adviser’s recommendation. Adviser should follow FCA guidance

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