Notes

Outline

State Bank of Pakistan The Role of Regulators Globally in Promoting Ethical Standards Dr. Ishrat Hussain, Governor State Bank of Pakistan

Powers of the Regulator Prosecute cases of insider dealing Power to levy fines New civil regime for combating financial abuse A Code of market Conduct (setting out behavior which would be unacceptable in the markets) (As outlined by the Financial Services Authority - 6th May 1998)

Ethical Standards in Banking What does it mean to be ethical? It means attaching high importance to core ethical values such as: Honesty Integrity Fairness Responsibility Citizenship Accountability

Ethical dilemmas involving banks Given the aspect of globalization ethical standards may be very different from those of the banking business. Should banks go for profit opportunities at the expense of moral responsibility? Should banks look at the commercial aspect at the expense of the ethical dimension? Ethical dilemmas Can also arise when banks try to innovate  - when they stray outside their home territory

What banks can do Banks need to be careful about business relationships Relationships with politicians Banks need to be aware of the media and social pressure groups. The spill over effect as the global market place gets smaller

Role of the Regulator To ensure that businesses “know their customer” This promotes ethical standards and ensure that business dealings are in line with the business ethical values To promote prudent behavior is important to an institution’s reputation capital and thus its franchise value Regulation of market transactions Regulation of market participants

Market Protection - Regulators role It is essential that financial markets are protected from financial abuse Damages to the market damages the economy as a whole  To ensure that financial abuse does not happen the regulator will have a set of coherent and comprehensive civil powers

Key Roles Played By the Regulator To protect the market from abuse and to tackle it when it occurs To tackle financial crime To tackle insider dealing more effectively To enhance the reputation of the financial markets as a clean and fair place to do business

Basic features of Financial Self-Regulation Self Policing arrangements Self regulatory Organizations (SROs

Business Ethics – Personal Ethics People in the name of business are of the view that business ethics do not affect a person’s personal character. However, this is not true. You cannot separate business ethics from personal ethics Business ethics will spill over into personal lives and personal values will spill over into the lifeblood of the business It is important to be ethical in ones business dealings. People refuse to do business with people who are unethical Values are essential in a healthy society The bottom line is that there is no difference between business ethics and personal ethics

Three Levels of Ethics Personal Level where ethics is a way of life personal level concerns us all It is a matter of freedom The way we act and make decisions In practice, ethics constantly affect our choices.

Group Membership Group Membership where group membership is like a company where ethics are like laws, codes, customs, rites Under this level there are many ways of making decisions

Universal Level Universal Level It is the ideal level to which we always aspire, but never reach. This is the horizon looked at by people and companies One aspires to be respected as human beings