Handbook on Ethics in Finance (International Handbooks in Business Ethics)

This handbook examines ethics in finance responses to the main challenges in finance, accounting and organizations in the 21st century. It addresses a broad array of topics, including the ethics of risk management in financial markets, professionalism and codes, responsibility of financiers, trust and fidelity, microfinance, electronic trading, crisis, scandals, and sustainability. The financialization of the economy, technological payments and digitalization of banking, combined with the inclusion of non-traditional “financial” entities in the market, will radically change the financial ecosystem as we know it. The resulting new scenario is still diffuse, bound to encounter important problems, and will require ethical reflection. This book provides a compendium of works on ethics in finance, and serves as a reference to both researchers and practitioners in the field. It will help those who are already anticipating the ethical reflection about new scenarios in finance, advanced financial products, or emergent financial market situations. Preface Contents About the Series Editors About the Editors Contributors Part I: Ethics in Finance : From Risk to Responsibilities Financial Institutions and Codes of Ethics Introduction Corporate Codes of Ethics Introduction Code Content Communication Support Enforcement Review Assessment of Corporate Codes of Ethics Beyond Financial Institutions: Other Codes Conclusion References Ethics in Finance as the Result of a Strong Systemic Commitment Introduction Some Features of the Financial Markets That Make Them Unique How to Control Conduct in the Financial World? Is There Such a Thing as Ethics in Finance? The View of Financial Regulators, Supervisors, and Central Bankers Summary and Final Remarks References Ethical Orientation in Banks Introduction Ethics in Banking Stereotypes A Holistic View of Ethics in Banks Ethics and Cooperative Banks Ethics and Alternative Banks Critical Perspectives on the Role of Ethics in Banks Appendix References Ethics as a Solution to Fraud in Commercial Banks in Uganda Introduction The Evolution of Banking Sector in Uganda Regulation and the Banking System in Uganda Commercial Banking in Uganda ́s Economic Context Liquidity and Market Status of Commercial Banks in Uganda Fraud Faced by Commercial Banks in Uganda Fraud Causes of Bank Fraud Effects of Fraud on the Banking Sector Ethics and Fraud in Commercial Banks in Uganda Virtue Ethics as a Solution to Fraud in Commercial Banks Implementation of the Ethics Policy in Commercial Banks Virtue Ethics Role in Curbing Fraud in Commercial Banks Conclusion References A Virtue Ethics Approach in Finance Introduction Strengths and Limitations of the Institutional Perspective on Finance A Virtue Ethics Approach to Finance Good Finance Is Virtuous Finance: An Aristotelian Account The Purpose of Finance: A MacIntyrean Perspective Finance and Solidarity: Insights from Catholic Social Teaching Conclusions and Further Research References Regulation of Financial Conduct in Russia Introduction Evolution of Regulation: 1989-2020 FCSM in 1993-1999: FCSM and Harvard Consultants 2002-2004: FCSM and Kostikov Reforms 2004-2013: FSMS as Weak Regulator 2008-2013: Course to Integration Since 2013: CBR as Mega-Regulator Self-Regulation of Conduct in Different Markets Consumer Bank Loans Microfinance Debt Collection Conclusion Cross-References References Professional Ethics and the Financial ``Professions ́ ́ Introduction What Is a Profession? Descriptive Features Normative Features Criticisms of the Professions The Financial ``Professions ́ ́ Conclusions Cross-References References Digital Financial Inclusion of Women: An Ethical Appraisal Introduction The Digitization of Financial Services Hope That We Can Improve the Lives of Women The Right Path Unlocking Financial Inclusion for Women Other Factors That Contribute to the Financial Inclusion of Women Education and Workforce Participation The Legal and Regulatory Context Economic Development and Macroeconomic Growth Behavioral Factors Unpacking Digital Finance An Ethical Assessment of Digital Finance Is Digital Financial Inclusion a Good Thing? Lack of Knowledge and Understanding: Financial and Digital Literacy Information Asymmetry: How to Choose the Right Digital Platform? Confusing Needs and Wants: Impulse Buying and Other Behavioral Concerns Being Financially Responsible Privacy and (Un)wanted Insights Vulnerability to Fraud and Scams Neo-finance Regulation Does Financial Inclusion and Digital Finance Really Improve Equality and Reduce Inequity? The Importance of Saving Learning from Past Initiatives Designed to Accelerate Financial Inclusion The Limits of Digital Technologies What We Know from the Advance of Technology in Developed Economies Unintended Consequences of New Technologies Wealth Concentration and the Role of Philanthropy Conclusion References Part II: Ethics in Financial Products and Services Microfinance Services and Women ́s Empowerment Introduction From Microcredit to Microfinance and Microfinance Plus Why Focus on Women? Defining Women ́s Empowerment How Can Microfinance Affect Women ́s Empowerment: A Theoretical Framework Financial Services and Women ́s Empowerment Credit Savings Insurance and Transfers Nonfinancial Services and Women ́s Empowerment Business Training Social Training (Gender) Technical Training Impact of Services on Women ́s Empowerment and the Role of Husbands Ethical Criticism on Offering Microfinance Services Future Research Avenues Conclusions References Socially Responsible Investors Introduction Defining Socially Responsible Investment Investment Strategies Screening Engagement Community Investing Impact Investing The Business Case for SRI Trade-Off Between ``Ethics ́ ́ and ``Profit ́ ́ Motivations for Socially Responsible Investment Conclusions Cross-References References Ethics and Digital Innovation in Finance Introduction Big Data and Algorithm Ethics The Data From Data to Algorithm Ethics in Fintechs Payment Systems: Platforms, Digital Currencies, Blockchain Customer Relations: Mobile Banking, Electronic Trading Platforms, Robo-Advisors, Credit Scoring Other Products and Services Putting Ethics into Practice in Fintechs Conclusions References Ethics for Automated Financial Markets Introduction Effective Markets as the Goal Professional, Organizational, and Industry-Wide Ethics Professional Ethics Organizational Ethics Industry-Wide Ethics Innovation and Manipulation What Is a Prudent Automated Trading System? What Is an Ethical Automated Trading System? Quality Arbitrage The Future of Ethics in Automated Trading Artificial Intelligence Alternative Data Sources Example Scenario 1 Example Scenario 2 Possible Courses of Action Conclusion References Ethics in Education for Sustainable Finance Introduction Current Practices in Europe Approaches by the National Authorities Approaches by the Industry Current Practices in Japan Central Council for Financial Services Information Official Moral Education Challenges European Perspective Japanese Perspective Common Challenges Conclusion References Readiness to the FinTech Industry in Developing Countries Introduction Background and Literature on FinTech Definitions and Crucial Facts of the FinTech Industry Concept Definitions Outlooks and Facts on the FinTech Industry Potentials and Challenges of FinTech Adoption FinTech Adoption in Developing Countries: Readiness Indicators and Prospective Factors Experiences and Ascertainment from Selected Developing Countries FinTech Adoption in Latin America FinTech Adoption in Africa FinTech Adoption in Asia Conclusions/Summary References Ethics in Islamic Finance Introduction Religious and Ethical Principles Naissance and Evolution of IBs and IFIs IBs, IFIs, and Ethical Banking The Importance of Standardization Current Challenges: Corporate Social Responsibility (CSR) and Transparency IBs, IFIs, and Their Behaviour/Performance During Crises Conclusions References Investment Inspired by the Principles of Catholic Social Teaching (CST) as a Contribution to the Social Development Goals (SDG... Introduction Expectations, Risks, and Proposals Threats and Opportunities for Finance Genesis, Development and Fundamental Principles of Catholic Social Teaching Key Documents of Catholic Social Teaching Framework of Values, Principles, and Ethical Criteria of Catholic Social Teaching The Church ́s Position on Finance After the Great Recession of 2008 Towards Reforming the International Financial and Monetary Systems in the Context of a Global Public Authority Oeconomicae et pecuniariae quaestiones: Considerations for an Ethical Discernment Regarding Some Aspects of the Present Econom... A Case of Application: Altum Faithful Investing Altum Faithful Investing Conclusion References Ethics of FinTech and Trading Introduction Why Is Supply Chain Finance So Important? The Need for a Minimum Set of Ethical Standards for FinTech and Trading (SCF Context) President Obama ́s SupplierPay Pledge President Obama ́s SupplierPay Pledge (Circa 2015) (https://www.whitehouse.gov/copyright/) Voluntary Codes Do Not Work Obillex and the Ethical Digital Supply Chain Finance Product Suite The Importance of Defending Ecosystems Philosophy of Trading Issues to Consider Australian Small Business and Family Enterprise Ombudsman (ASBFEO): Supply Chain Finance Review, Final Report (https://www.asb... Concluding Remarks and Future Predictions Cross-References References Moral Education for Sustainable Financial Services Introduction Necessary Mindsets Long-Termism Altruism Moral Education in Japanese Schools Ethics Class as a Mandatory Subject Some Concerns Assessment Methodology Textbooks Authorized by MEXT Teaching Burden Linkage with ESG Moral Education in Japanese Financial Industry Conclusion Cross-References References Poverty Alleviation Through Financial Practices: The Importance of Microfinance Introduction Main Text Stakeholders of a Microfinance Program Status Quo of Microfinance Shortcomings and Inducing Factors Reconciling Sustainability and Social Responsibility Creating Efficient Business Models Measuring Performance The Model Results Defining the Relevant Stakeholders The MFIs Goals and Possibilities for Action The Client ́s Goals and Possibilities for Action Donors ́ and Creditors ́ Goals and Possibilities for Action The Government and Regulatory Entity Framework for a Successful Microfinance Program Conclusion References Part III: The Crisis in the Governance of Financial Institutions Corporate Government as a Structure for Control and Promotion of Ethics in Banks Introduction The Role of Values in Governance-Level Decision-Making Processes The Role of Values as a Decision Filter How the Values Filter Is Activated? Conditions of a Real Consideration of the System of Values The Role of Governance in Strengthening Strategic Decisions Ensuring that Boards Are Able to Make a Real Impact in Terms of Referencing Values Conclusion Cross-References References Ethics of Bankruptcy Creditor Introduction Main Text The Problem of Corporate Insolvency The Problem of the Efficiency in Insolvency Resolution Methods The Debtor ́s Delay in Facing the Solution to Their Problem Insolvencies That Do Not Go to the Judicial Process Financial Position of Companies That File for Bankruptcy Spanish Debtor Companies Use the Legal Mechanisms Late Losses Caused by This Circumstance Proposals from a Business Ethics Perspective Conclusions References Social Banks Introduction Ethical Foundations in Banking Unethical Behavior and Its Possible Causes The Concept of Social Banking Characteristics of Social Banks Social Banks and Ethical Behavior Conclusions and Recommendations for Further Research References Applying Ethics Introduction New Developments in Management Control A MoralScan as Instrument in Applying Ethics Theory Justice Nature and Environment Participant Engagement Legitimacy Innovation and Sustainability Objective and Methodology Basic Aspects of the Construction of Survey Questions Example Accounting Company X: The Results Employees Perspective Justice Nature and Environment Participant Engagement Legitimacy Innovation and Sustainability The Perspective of Management Recommendations for Company X Discussion Theoretical Issues On Measuring Morality On the Construction of Survey Questions Discussion on Practical Issues Summary and Conclusions Conclusions Appendix 1: Survey with Average Results Per Question Likert Scale: (1) Disagree Strongly, (2) Disagree, (3) Neutral, (4) Agree, (5) Strongly Agree Appendix 2 Results Test Questionnaires: Length of Scale, and Positive/Negative Formulation of Questions in 2018/2019 Appendix 3: Example Introduction Cases Explanations scores References Ethical Responsibility of Financiers Introduction Strategic Planning in the Establishment of Projects Elements that Integrate the Strategic Planning Elements Oriented to the Reason for Being Governance and Compliance-Oriented Elements Result-Oriented Elements Working Method-Oriented Elements The State and Its Roles in Project Design Evaluation of Public Projects A Vectorial Hierarchy Model for the Evaluation of Social Projects with a Sustainable Approach Mathematical Model Conception The Role of Auditing in Projects Project Management Challenges in Multinational Environments Adoption of the Standard for Project Management The Standard of Project Management Competences Required of a Certified Project Manager Ethics in Project Management Social Responsibility Considerations A Strategy Model for the Encouragement of Ethical Commitment in Project Management Within the Governmental Context Shaping Construction of the Interaction Scheme Convergence of Interests Defining Model Elements Knowledge Parties Fundamentals Challenges Implementation of the Strategy for the Encouragement of Ethical Commitment in Project Management Description of the Model Scope of Application Suggested Sources of Consultation Implementation Path of Model Strategy for the Encouragement of Ethical Commitment in Project Management Validation by Stakeholders: Practitioners Implementation Conclusions References Part IV: The Influence of (Social and Ethical) Accounting in Ethics in Finance The Many Merits and Some Limits of Social Accounting Introduction Social Accounting and Its Promise A Short Story of Social Accounting Disclosure on Social and Environmental Information Regulation of Social Reporting Social Accounting Inside of the Company From Social Accounting to Financial Results (or the Other Way Round?) The Promise of Social Accounting to Achieve Organizational Change Conclusion - Social Accounting and Ethics in Finance References Ethics in the Independent Audits of Financial Statements Introduction Ethics Issues for Auditors Self-Interest Audit Firm Culture Self Review Advocacy Threats Familiarity Threats Intimidation Threats Research into Ethical Threats Auditor Tenure Nonaudit Services Client Importance Fee Pressure Auditor-Client Affiliations Addressing Threats to Auditor Independence Government Regulatory Responses Nonaudit Services Auditor Tenure (Rotation) International Standard Setters ́ Responses APES 110 PART 4A - Independence for Audit and Review Engagements Section 400 Applying the Conceptual Framework to Independence for Audit and Review Engagements Section 410 Fees Section 411 Compensation and Evaluation Policies Section 420 Gifts and Hospitality Section 430 Actual or Threatened Litigation Section 510 Financial Interests Section 511 Loans and Guarantees Section 520 Business Relationships Section 521 Family and Personal Relationships Section 522 Recent Service with an Audit Client Section 523 Serving as a Director or Officer of an Audit Client Section 524 Employment with an Audit Client Section 525 Temporary Personnel Assignments Section 540 Long Association of Personnel (Including Partner Rotation) with an Audit Client Section 600 Provision of Nonassurance Services to an Audit Client Section 800 Reports on Special Purpose Financial Statements that Include a Restriction on Use and Distribution (Audit and Revi... Conclusion References Ethical Considerations About the Implications of Artificial Intelligence in Finance Introduction Normative Framework Opportunities and Benefits of AI for the Financial Industry Decent Work and Economic Growth Strong Institutions Financial Market Stability Ethical Challenges of AI in Finance Non-maleficence Justice and Discrimination Autonomy and the Replacement of Human Beings by AI Autonomy and Data Protection Normative Implications Actions by the State Actions by Financial Institutions Conclusion References Stakeholder Accounting for Sustainability Applied to Nonfinancial Information in Banking Introduction The Specific Nature of Financial Institutions The Social Impact of Financial Institutions from an Endogenous Perspective: Their Own Results The Social Impact of Financial Institutions from an Exogenous Perspective Reporting Content Who to Report to? How to Report [About How?] How Far to Go [How Much?] The Limitations of Nonfinancial Information: The Question of Attribution The Problem of Attribution: Dividing the Indivisible A Question of Meaning: Value Ecosystems Conclusions References Index