Ethical Issues in Banking - Example

Name Course Instructor Date Ethical Issues in Banking Introduction Moral Voices encourage business to rethink the present situation in the aftermath of the global crisis of 2008. Prior to this notorious financial scandal and accounting frauds has shaken the global banking sector. More recently, at least in most countries, the banking industry has been scrutinized regarding its role and contribution to the society’s common good. Were one to offer a superficial consideration to the banking institutions and the effects of their actions in the world, it could be mistakenly concluded that money is just another traded commodity (Rabinowtz, p. 12). It is eminent that money will be treated as just another product. To handle money as a commodity, therefore, without ethical implications and effect is to overlook vital ethical issues, issues that are financed, promoted and effectively created. Ethical issues within the banking context, this paper confront showcase significant aspects that need to be addressed. Objectivity and Independence It is important to allow for objectivity and independence in banking (Winbladah, p.51). In banking system, it is important for the bank to allow for objectivity and give the investing party its independence. Prudently, objectivity and independence implies that the bank is not biased on either personal relationships or benefits such as gifts or compensation. As a result, bank’s employees need to avoid any forms of biases when handling their clients. The banking process should, therefore, allow for their clients independence. Consequently, the customers seeking banking services need to be well versed with their rights in relation to independence.. In the case of a company, the banking system provided need to offer the company a chance to fulfill their objective of choosing the specified banking system and aid it in the later fulfillment of the company goals (Winbladah, p.51). The company’s independence should also be provided where workers are attuned to the fulfillment of such attributes. Consequently, the banking system needs to give freedom to its clients to freely deposit or withdraw money from the bank. Prudently, when the bank offers objectivity and independence there will be no acts of unethical behavior in the banking system. Violation of these leads to unethical issues in banking. Loyalty The employees need to be loyal to the employer and the clients (Winbladah, p.51). Loyalty is interrelated in that in the event that workers are not treated in a dignified manner by the employers they are not loyal to the clients. In effect, the employees must be diligent, careful, and thorough so as to avoid conflicts of interest that may arise. Consequently, the employers need to be loyal to their employees and provide an enabling environment for proper working of the employees. If all this is provided the clients who are the bankers will be served with proper code of conduct by the workers at the bank and unethical issues will not arise in the banking process. The customers will get the best services free from unethical menace. Loyalty will make the workers even to avoid taking bribes from either the clients or the employees in order to get involved in unethical acts such as transferring money from accounts or even actual stealing of money during the banking system (Winbladah, p.51). The recommended ethical code of conduct will be followed in the banking system, and the mandated goal of the whole process will be achieved. Therefore, loyalty of the three parties makes the banking system to base on an ethical code of conduct. Responsibility of the Bank in Handling Financial Crisis Essentially, being responsible for handling of matters that relate to financial crisis determines the ethical way the bank might be in dealing with the banking issues (Smith, p. 2). When the bank is accused of any financial crisis either rigging of cash deliberately or accidentally, the way the bank will handle the issues will enable the customers to determine whether the banks bases on ethical factors in solving their crisis or not. Consequently, the observation obtained from the scandal will enable the customer to determine the correct bank to bank with. In this regard, the bank needs to use ethical methods for solving any crisis that befalls them (Smith, p. 2). Therefore, when the bank should not at any point bribe the accuser or even try to find a way of evading the case, instead the bank should use the correct procedural judicial way of solving the issues. As a result, the customers will develop confidence in the bank after the case since the correct procedures will be used. Evidently, solving an issue during a crisis will enable the customers to determine the ethical code of conduct of a certain bank in its banking systems. Concerns of Human Rights The human rights concern is another ethical issue in banking (Smith, p. 2). The bank needs to be well versed in human rights and at all times try and guarantee them to its customers. Consequently, the clients seeking for banking services should also be aware of their human rights and need not at any point to allow the bank violate the rights. Additionally, any scandal that involves the money and the client at the bank need to be handled with care basing on the human rights act. When a client experiences any form of human rights violation by the bank need to take the bank to court (Smith, p. 2). For instance, in 2008 HSBC Bank paid fines of 1.9 billion USD for their part in a Mexican drugs money laundering scandal. In this case, human rights of the clients had been violated by the bank. The client had to sue the bank and after the case the bank had to pay fines to the clients. Therefore, a bank that respects human rights shows an indication of ethical consideration of the banking system. Executive Remuneration In banking in order to have the recommended ethics by the workers there is a need for executive remuneration (Ethical Issues Relating to Banking, p.3). The executive pay must be considered and offered to the needs and expectations of these workers. The bank needs to give enough salary to its workers and coworkers in order to avoid stealing from the bank. When the workers mainly the executives are paid properly, they will not develop any form of greediness to steal from the bank so as to fulfill their interests. This ethical issue will guarantee the security of the clients’ money. As a result, very many bankers will flock into the bank knowing that their money will be safe since the workers are trustworthy. Proper remuneration of the executive, therefore, plays an acute role in ensuring ethical issues in the banking system are adhered to. Customer Service Customer service is another fundamental aspect of ensuring that ethical issues are observed in the banking system (Ethical Issues Relating to Banking, p.5). Essentially, the banks claim to aim at good customer service; however, the evidence suggests the contrary. In a research done by Central Finance Board ending in 2014, most banks were shown producing very poor services to their customers. Evidently, unethical acts such as corruption were seen in most banks according to the report. Additionally, most customers had to pay an extra fee in order to get a quick service. Other banks were shown delivering very poor services to their clients. A delay in transactions was and delivery of basic services was shown in many banks. Consequently, these unethical acts discouraged the customers to obtain services from the affected banks. Consequently, in order for a bank to have the required ethical code of conduct, customer service should be prioritized (Ethical Issues Relating to Banking, p.5). Quick provision of services will motivate the customers to continue seeking for the banking services from the specified bank. Therefore, the bank whose fundamental goal is ensuring proper and required customer service provision in haste will not face any unethical issues in banking. Complexity in banking systems Complexity in banking system is another factor that should be considered in the ethical issues in banking. There is a widespread complaint about the complexity of the retail banking arrangements. These arrangements have faced many critics who argue that the current system of free banking which has no charge for operating current accounts is flooded with unethical acts(Ethical Issues Relating to Banking, p.4). Additionally, the critics say that there is a loss in the case of bank overdraft and the case of bouncing cheques. The system also limits competition hence making it difficult for small organizations such as credit unions to compete effectively. The banking system needs not to be complex in the name of providing free banking services to the customers but in reality it blocks completion. Prudently, the system has to be made simple so that even the credit unions can compete effectively. Significantly, ethical issues in banking involve the development of a simple banking system that profits both the bank and the banker. The system has to offer incentives that lead to later competition in the banking system. Financing totalitarian regimes Financing and supporting totalitarian regimes are also a key aspect as far as the ethical issues in banks are concerned (Serrano, p.27). An ethically based bank needs to give frequently loans to companies operating in the countries governed by totalitarian regimes for example countries like Burma and North Korea (Serrano, p.27). Consequently, these companies in turn use the same money to enter into these totalitarian markets. Evidently, giving financial support to the companies operating in the totalitarian regimes will aid in the economic improvement in this countries. This is ethical since boosting the economic standards of another country is one of the recommendations based on good ethics. The growth of the economy in these regimes will create employment opportunities for the citizens. In this regard, for a bank to be considered ethical in offering its banking services it should be able to give financial support to the companies that operate in the totalitarian regimes in order to boost the economy of these countries. Fulfillment of this aspect shows the importance of the bank to the society. Therefore, a bank that does not offer financial support to its customers especially through loans is considered to be unethical in the banking system. Donations Otherwise known as CSR initiatives, an effective banking system that is focused on ethical issues has to finance, donate and offer sponsorships to the community (Serrano, p.27). The bank should be able to do a proper research to the party that needs financial assistance to establish if the client involved deserved the donation or sponsorship. Prudently, the sponsorship should not be given out on the basis of family affiliation to the bank or the superiority of the family. In essence, there should be stipulated parameters that have to guide the donation of the finances by the bank. The beneficiaries of the donations have to be in bold need of the money and need to convince the bank in the documentation that the donation will be of great help. Significantly, the beneficiary of the donation needs to benefit from the finance due to their relation with any of the executives of the bank (Serrano, p.27). The bank should not give financial aid to a group of people who are after doing something bad in the society. Prudently, any financial institution that offers banking services need not to finance illegal groups or organizations that are against the good will of the family values. The bank will be considered unethical in its banking services when it offers financial support to groups or individuals who are against the good will of the family or society. Social Enterprise Involvement in social enterprise is also another fundamental aspect in ethical issues in banking (Mittal et al. p. 201). Evidently, by lending and raising money, a bank can efficiently help develop a community. Additionally, a bank is expected to get actively involved in supporting the community development in which the bank is located. This is done through the support of the banks to organizations such as cooperatives or credit unions or even getting involved in the community initiatives. Therefore, a bank that gets involved in the social enterprise of the community or the place where it is located plays an important role in the financial, ethical conduct. Contrary, a bank that does not bother about the social enterprise in its banking system is governed by ethical principles that are supported by the ethical code of conduct in banking. Client Duties Ethical issues in banking also base on duties to the client (Mittal et al. p. 201). When transactions are carried out for a client the intermediary, for example, a broker must do what they can to protect the client's interests above their interests. In banking, the personnel in charge of the banking system has to ensure that the clients’ interests are fulfilled. Nevertheless, the client has to expect caution and discretion as of their rights. Therefore, the bank should be able to take caution and description just to satisfy the client. The client has the duty to follow up any financial transactions in their account just to keep track of the updated record. This duty will enable the client check or realize any undue transactions in their accounts (Mittal et al. p. 201). The client, therefore, need not to leave all the banking process to the workers but should also keep track of records of their accounts. In effect, any bank that does not offer client duties does not base on ethical issues that are involved in the banking systems. The workers at various banks need to remind their customers or clients of their duties so as to avoid losses or undue transactions in future. Tax Compliance Many banks in the United Kingdom have created schemes that make their client avoid paying taxes (Hoffman et al. p. 23). Tax avoidance is an unethical issue in the banking system. Evidently, many banks have created schemes that enable rich people to pay little or no tax at all. This has made very many banks to get exuberant profits due to the existence of the sophisticated tax avoidance schemes. Tax avoidance by either the bank or the rich individuals who get help from the bank are unethical since the government will not be able to raise the revenue for its projects. Consequently, the banks that have the sophisticated tax avoidance schemes should be closed down or sued in the judicial courts and the correct charges charged against it. Additionally, the rich individuals who get help from the banks to avoid payment of tax are failing the country or the location of the bank (Hoffman et al. p. 23). Necessary action needs to be taken. Transparency Transparency seems obvious since most of the banks slogan is transparency, in real sense several banks lack transparency in their banking systems (Federwisch, p. 206). Lack of transparency is unethical in the banking system since banking involves handling money. Matters of money need to be clearly outlined. If possible the profits made from the banking system over a given period of financial year have to be made public. Additionally, in case of suspension, hiring, promoting or even firing of working personnel in the bank, the information should be made transparent to the bank and the clients. The transparency of the banking system of a bank will make the clients to have confidence in the banking system and decide to invest in the bank (Federwisch, p. 206). Essentially, a bank which lacks transparency bases on unethical ways of operation. Conclusion Conclusively, ethics as a code of thinking and doing what is right has a pivotal role in the banking system. There are very many ethical issues that govern the whole process of banking. An effective banking system has to put into consideration the above discussed ethical parameters about banking. Consequently, avoidance of the above discussed ethical issues renders the banking system provided by the bank unethical. The banking system that does not base on the ethical issues will loose clients, and the whole banking process might collapse. Many banks claim to ethically oriented in service delivery but in real sense they lack the proper ethics. A client who needs the banking services from a bank needs to be well versed with the ethical code of conduct in financial institutions especially banking in order to avoid facing troubles when either transaction or depositing money. Prudently, ethical issues in banking are fundamental aspects of every financial institution. Work Cited Ethical Issues Relating to Banking: Central finance Board. 2015. Web. 25th May 2015. Hoffman, Douglas, and Judy, Siguaw. "Incorporating Ethics Into the Services Marketing Class: The Case of Sears Auto Centers." Marketing Education Review 4 (1994): 26-32. Web. 25th May 2015. Federwisch, Anne. "Ethical issues in the financial services industry." Santa Clara, CA: Markkula Center for Applied Ethics (2012). Web. 25th May 2015. Mittal, Suman., Anita, Saxena, and Mitu, Matta. "Ethical Issues in Service Marketing (With special reference of banking industry)." Global Journal of Finance and Management 6.2 (2014): 179-184. Web. 25th May 2015. Powers, Ed. "How to Reduce Customer Churn in Cloud Computing." 2012. Web. 25th May 2015. Serrano, Ricardo. Ethical Issues Facing Banking Industry: Fidelis International Institute. 2015. Web. 25th May 2015. Rabinowtz, Phil. Ethical Issues in Community Interventions: Community Tool Box. Web. 25th May 2015. Smith, Tori. “How Ethical Is Your Bank ?” Web. 25th May 2015. Winbladh, Johan. "Ethical Issues Facing the Financial Service Industry." 51-58. Web. 25th May 2015. Read More