What? The financial world is one of the most ethical industry!

Seal of the United States Federal Reserve Syst...

Seal of the United States Federal Reserve System. The seal has most of the elements of the Board of Governors seal. A version is printed on all U.S. Federal Reserve Notes redesigned since 1996 (replacing the letter of the bank which printed the note, which was used in earlier designs). (Photo credit: Wikipedia)

A Look at the Financial Sector’s Underlying Great Ethics

Recessions on the scale of 2007’s so-called “Great Recession” do a number not only on the job market and the average investor’s finances, but also on the perception of the financial industry at large. Consumers are apt to blame the industry’s perceived lack of regulation, and its never-ending drive to bet on even bigger financial risks, for the problems of both their personal portfolio and the broader economy. The reality, though, stands in stark contrast to this perception.The financial sector is actually governed by a strict ethical code as well as extensive government regulations, reforms, and investigative agencies, that hold bankers and investment professionals to a much higher standard that people in a large number of outside occupations. Those in need of a few examples will find a plethora of regulatory approaches to choose from.1. The Securities and Exchange CommissionSimply put, no financial regulatory agency in the entire world compares to the size, weight, and importance of the United States Securities and Exchange Commission. The body is responsible for accepting complaints of potential abuse, as well as enforcing financial industry regulations and giving guidance to companies that are looking to enforce their own moral codes during regular trading or banking.

The SEC has been responsible for enforcing everything from corporate tax law to investment transparency, and this has forced banks of all sizes to be more clear about how they’re investing consumers’ money, the risk those investments incur, and how any financial losses will be reported, reimbursed, or otherwise handled.

2. Dodd-Frank Banking Legislation

In light of recent economic troubles, American legislators Chris Dodd and Barney Frank recognized that the banking and investment industry had moved beyond the existing regulatory oversight of the United States government. Specifically, things like default swaps and securities had technologically and theoretically evolved in a way that existing laws simply did not account for. That’s largely because the last major piece of financial oversight legislation was passed about 60 years before the Internet and computer-based trades came into existence.

The law requires full transparency of investments like swaps and derivatives, consumer protection procedures that included forming an entirely new government agency, and a massive consolidation of regulatory bodies to streamline operations. The result is banks that are better regulated, more in line with consumer needs and ethical expectations, and destined for safer creation of wealth well into the future.

3. The Consumer Financial Protection Bureau

As mentioned above, the Dodd-Frank regulatory reform bill created a new agency designed to protect consumers. Named the Consumer Financial Protection Bureau, this government agency is designed to do much more than simply facilitate complaints about banks from everyday customers or investors. Instead, its job is to help banks plan a way forward that simplifies their banking documents, more accurately explains how investments work, and offer consumers more affordable banking and investment tools overall.

The effect of this agency has already been felt by banks in the United States and abroad. Credit card agreements have gotten shorter, loan applications have expanded to more accurately reflect how the product works and how repayment is pursued, and investments are now clearly explained with simple language, bullet points, and statistical information.

Best of all, most of these changes have been voluntary. While general guidelines went into law several years ago, most banks have gone above and beyond these guidelines in an effort to learn from past mistakes and better educate their customers. It is this above-and-beyond approach to simplification and transparency that bodes so well for the financial sector at large.

4. Open-Door Policies on Compliance Disclosures

Before the collapse of Lehman Brothers in 2008, most financial corporations were admittedly rather secretive about how they were complying with federal and international regulations concerning their banking and investment behaviors. Information was certainly disclosed to the government upon request, but banks rarely released information voluntarily to either the government or the public. But they’ve learned a crucial lesson.

In the years following the recession, banks have almost universally become a bit more transparent. Information on compliance with federal rules, guidelines, and regulations, is now more readily available from big banks and smaller ones alike. Investment firms now disclosure more information about everything from derivatives to CEO salaries, with many of these disclosures being only a suggestion, not a regulatory requirement.

With Lessons Learned, Ethics are Now Tantamount to Financial Sector Success

There was a time when it might have been hard to see just how tightly regulated and highly ethical the financial sector was. In the current era, however, a series of reforms and voluntary reporting mechanisms has made this ethical commitment apparent. Professionals and individuals now know more about their investments, and they can more easily understand how their banks work, what risks they’re taking on, and how each of those things affects their own financial stability as well as their bank’s long-term performance.

But one should not mistaken legal with ethics. The financial world with not only comply with the regulation but should also be able to demonstrate “Ethical Courage”.
Do you have any examples of recent amelioration in the bank transparencies?
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