Ethics Vs Regulations

Question 1

Briefly define ethics

Answer 1

Ethics is viewed as a set of basic principles that ensures people behave for the benefit of all

Question 2

What are some widely acknowledged fundamental ethical principles?

Answer 2

1. Honesty.
2. Fairness
3. Diligence.
4. Care and respect for others.

Question 3

What are some examples of unethical behaviour in financial institutions?

Answer 3

1. Ponzi Scheme: financial fraud where returns to earlier investors are paid using money from new investors instead of real profits. The scheme collapses when new investments stop.
2. Insider trading: someone uses non-public, material information (i.e., important information not available to the public) to buy or sell securities for personal gain — or to help someone else gain — before the information is made public.
3. Mis-selling financial products.

Question 4

What are the four reasons that highlight the importance of ethical behaviour?

Answer 4

1. Building public trust in financial markets
   When people see fair and honest behavior, they feel safe putting their money in the market.
   More people are likely to invest — which keeps markets healthy and growing.
2. Promoting trust in investment professionals
   If investment advisors and managers act ethically, clients feel confident relying on them.
   This means more people will use professional help to make smart financial decisions.
   Leads to better client relationships and a stronger reputation for the whole industry.
3. Instilling trust in other stakeholders (like shareholders or lenders)
   Companies and professionals need money from others (like shareholders, banks, or investors).
   If those people trust that business is being done honestly, they’re more willing to provide funding.
4. Earning trust of regulators
   If an industry behaves well on its own, regulators may give it more freedom to operate.
   This means less strict rules and more ability to self-regulate.