Culture vs regulation: what is needed to improve ethics in finance?

This paper examines the respective roles of the regulator and of culture in increasing ethical behaviour in finance, and the need to address dysfunctional finance market and behaviour since the financial crisis.


The paper summarises discussions that took place at an ACCA roundtable in London in October 2014, which brought together regulators, economists, academics and representatives from think tanks, banks and accountancy firms. 

Participants noted that the issue of ethics in finance has become more dominant within both banks and large firms but they supported the need for all businesses to embed ethics in their decision making as every business operates within an ‘ecosystem’. Several participants noted that ethical situations need to be tested out, placing people in scenarios so that they truly consider the opportunity cost of acting unethically, noting that embedding ethics cannot be achieved merely by passing a test but must involve understanding what it means to act and behave ethically. 

There was an understanding that in a post-crash world, the financial sector  regulators should have a greater duty to the consumer because of the lack of understanding and the mistrust that has created apathy, but should also recognise that, by working together with the financial services sector, regulators can help foster innovation. The banks must sit alongside the regulator and change their culture from within, both encouraging and rewarding ethical behaviour. The rise of technology and alternative finance will create new challenges but also has the potential to bring positive results.