FSPB to develop code of ethics for finance industry

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THE FINANCIAL SERVICES PROFESSIONAL BOARD (FSPB), a newly formed industry-led body, is in the midst of developing a code of ethics and standards of professional conduct for Malaysia’s financial services industry.

“We’re hoping to come up first with the code of ethics, maybe in six months’ time or so,” inaugural chairman Tan Sri Azman Hashim tells The Edge. Azman, a veteran banker, is chairman of AmBank Group.

FSPB may well be the first in the world to develop professional standards and ethics that run across all subsectors of the industry, namely banking, capital markets, insurance and Islamic finance.   

“What we propose will run across the board and that’s the unique part. I think we’re going to be the first to do that and we hope that they (the standards) will be accepted not only in Malaysia but also internationally. It will be a big deal if we succeed,” says Azman.

For that reason, some of the world’s top practitioners of the financial services industry were made board members of FSPB, including Axel Weber (chairman of UBS AG), Sir David Tweedie (chairman of the Board of Trustees, International Valuation Standards Council and former chairman of the International Accounting Standards Board) and Carlson Tong (chairman of the Securities and Futures Commission of Hong Kong).

“Having this type of people on the board gives us international input, so hopefully, what we come up with can be accepted internationally,” Azman explains.

On whether FSPB’s upcoming code of ethics and professional standards will be compulsory for the industry to adopt, he says: “At the moment, the thinking is that it’s not compulsory. But we plan to work with the different associations in the industry, like the Association of Banks in Malaysia (ABM), so that when we come up with the thing, there’s buy-in. Once there’s buy-in, they can make it compulsory for their members, perhaps. This is what we want to achieve.”

He goes on to say that if there’s buy-in from the industry, it could be left to the associations to penalise the people who breach the code or standards. “The associations could be the ones to monitor it because it’s in their interest to make sure their members behave, seeing as it affects their image and the standard of the industry.”

Launched in September, FSPB is endorsed by Bank Negara Malaysia and the Securities Commission Malaysia. It is supported by a secretariat hosted by the Asian Institute of Finance.

Azman is quick to dispel the notion that the body was created because ethical and professional standards in Malaysia are in decline.

“People ask, are we in such a bad state that we need this? It’s the opposite, really. This issue of ethics and professional standards really came up during the 2008 financial crisis ... because there was a lot of unethical and unprofessional conduct (in the financial services industry) in the West. Since then, this issue has been in people’s minds, more so in the West. But not so here because in Malaysia, we have very strong financial governance through Bank Negara. I would say our central bank is of world standard. They apply very close supervision and oversight of the financial system, so that’s why we behave very well.

“I think, in the case of Malaysia, ethically and professionally, we don’t see many scandals. I don’t remember any big scandal here in the last 10 years,” he remarks.

Industry players acknowledge that the last major scandal in Malaysia was probably the BMF (Bumiputra Malaysia Finance) scandal of 1983, which involved fraud, murder and a bailout by the government amounting to hundreds of millions of dollars.

Azman firmly believes that the core ethics a banker should possess are trust and integrity. The bedrock of the financial services industry is trust, he says. “People put money with you and you’re supposed to look after it. Therefore, integrity is paramount in your behaviour. Once you have integrity, I guess the rest comes with it — you have to be fair, honest, don’t take advantage and behave professionally. Things like that come into play.”

Companies need to balance profits and ethics, he highlights. “If you are a banker, you cannot be anything other than ethical. In the US, they had deviated. You can see that in order to get their bonuses and commissions, they were prepared to sell to people investment products that were rubbish, knowingly. Then, because of money, rating agencies were willing to stamp AAA ratings on (products), so people bought them. But this is cheating and innocent people lost their money. So this is very unethical, very unprofessional — and there was a loss of confidence and trust in bankers after the financial crisis.”

He points out that what happened in the US affected the image of all banks. “So, it’s really in the interest of the industry to protect itself from this happening again.

“I think, in the case of Malaysia, ethically and professionally, we don’t see many scandals. I don’t remember any big scandal here in the last 10 years,” he remarks.

Industry players acknowledge that the last major scandal in Malaysia was probably the BMF (Bumiputra Malaysia Finance) scandal of 1983, which involved fraud, murder and a bailout by the government amounting to hundreds of millions of dollars.

Azman firmly believes that the core ethics a banker should possess are trust and integrity. The bedrock of the financial services industry is trust, he says. “People put money with you and you’re supposed to look after it. Therefore, integrity is paramount in your behaviour. Once you have integrity, I guess the rest comes with it — you have to be fair, honest, don’t take advantage and behave professionally. Things like that come into play.”

Companies need to balance profits and ethics, he highlights. “If you are a banker, you cannot be anything other than ethical. In the US, they had deviated. You can see that in order to get their bonuses and commissions, they were prepared to sell to people investment products that were rubbish, knowingly. Then, because of money, rating agencies were willing to stamp AAA ratings on (products), so people bought them. But this is cheating and innocent people lost their money. So this is very unethical, very unprofessional — and there was a loss of confidence and trust in bankers after the financial crisis.”

He points out that what happened in the US affected the image of all banks. “So, it’s really in the interest of the industry to protect itself from this happening again.”

This article first appeared in The Edge Malaysia Weekly, on December 1 - 7, 2014.