Why Financial Firms' Ethics Gap Matters To Us All

Forbes

28-03-2025

Firms operating in the City of London and other financial centers have become much more regulated in ... More recent years. (Photo by)
Many people — perhaps unfairly — struggle to think of financial services firms in the same context as ethics. Some of this cynicism is undoubtedly down to the fact that money is at the centre of what these firms do, but it is also likely that the fact that the industry is difficult for non-experts to understand adds to the sense that all is not always as it should be.
It is little wonder, then, that — as more and more members of the public become directly involved with these institutions through saving for their old age as well as buying their homes — the industry has fought hard to clean up its image. And it is certainly true that employees on New York's Wall Street, in the City of London and elsewhere for the most part behave nothing like their predecessors did in a world that was much less regulated than is the case now. This is not to say that nothing can go wrong. Scandals such as Bernard Madoff's huge Ponzi scheme discovered earlier this century and the collapse of the energy firm Enron a few years earlier are proof enough of that.
But, particularly since the financial crash of 2008 and the realization that the connectedness of the world's markets makes us all highly vulnerable, considerable efforts have been made to make the risks and returns of the industry less volatile. Some institutions have even lost their taste for the deal-making aspects to such an extent that they have closed parts of their operations. Only this week, it emerged that the international banking group HSBC had sacked London-based investment bankers on the day they expected to hear news of their annual bonuses as part of an effort to bring down costs and sharpen the bank's focus on its core businesses in Asia and the Middle East.
Against this background, it is especially disappointing to see a new report from LRN Corporation, which advises organisations a round the world on ethics and compliance, finds 'significant gaps' in how ethics and compliance are implemented across different levels of leadership. The study based on data from the organisation's recently published 2025 Ethics and Compliance Program Effectiveness Report reveals a clear disconnect between ethical expectations at the executive level and what it calls real-world decision-making among middle and front-line managers. In other words, organizations can say the right things and may even have the correct policies in place, but that does not mean that these translate into what actually happens on an everyday basis. Indeed, the report found that, while 91% of executives and senior leaders in 'high-impact' financial services ethics and compliance programs are reported to make decisions consistently in line with company values, only 28% of middle managers are reported to do the same. That is a staggering 63-point gap.
In a statement launching the report, Ty Francis, LRN's chief advisory officer, said the findings reinforced 'the need for financial institutions to invest in ethical culture initiatives beyond the executive level.' That is putting it mildly. Either something is seriously wrong with the recruitment procedures and/or the training is inadequate. Whatever the cause, and it is hard to imagine that the extraordinary rewards still enjoyed by those running some financial institutions do not create something of a sense of entitlement, things — probably particularly in the area of incentives — need to change pretty quickly. As LRN points out, effective ethics and compliance programs are no longer just about mitigating risk, they are also fundamental to sustainable business success. That is crucial in any sector, but in the financial industry — as we have seen only too recently — it is especially so.