Distinct correlation between ethical behaviour standards and financial system stability
View(s):The past financial crises have also shown that there is a distinct correlation between the standard of ethical behaviour and the stability in a financial system, according to a capital market regulator.
Quoting Christine Lagarde, Managing Director of the IMF, Vajira Wijegunawardena, Director General Securities and Exchange Commission of Sri Lanka (SEC) at the Certificate and Diploma Awards Ceremony 2015 of SEC held recently said, “I realise that these are deeper questions than economists and policymakers are normally comfortable talking about. Yet, I also believe the link is clear – ethical behaviour is a major dimension of financial stability.”
In the same way, trust is an important component in the success of any industry, especially so in an industry that provides financial services, he said, adding that customers will only patronise financial institutions and market participants if they have confidence that they will be treated in a fair manner and their best interests are safeguarded at all times. In the financial service industry reputation also plays a very important role.
Market participants need to remember that consequences of reputation damage due to lack of professionalism driven by short term profit motives can be counterproductive in the long term, Mr. Wijegunawardena stressed.
“And from a regulatory perspective, professionalism and capital market integrity is fundamental to SEC’s overarching mandate. We have come to realise that no amount of regulation can substitute for high standards of industry wide ethics. Furthermore, it is only ethical practices and good business conduct that can promote a foundation of integrity and sustainability which allows capital markets to achieve efficient allocation of capital, greater wealth creation for investors and higher economic growth.”
He reiterated that ethics is about principles, values and beliefs and it goes beyond obeying laws, rules and regulations. “In my opinion our industry has further to go on its journey to drive up ethical standards and I hope our new entrants as well as the existing market participants will strive to uphold and sustain professional behaviour in order to maintain integrity in our market. Since that is the only way that we can become an important emerging market in the world.”