The ethical sustainability of profits in financial services

Michael Armstrong (FCA), the Regional Director for Middle East, Africa and South Asia at The Institute of Chartered Accountants in England and Wales (ICAEW).

Since the 2008 global financial crisis - considered by many economists to have been the most serious financial crisis since the Great Depression of the 1930s - an enormous amount of work has taken place in financial services firms to fix the various aspects of the industry found to be deficient. Much of this work has centered on conduct, incentives and profits. It has been sponsored by a variety of national and international bodies, and has resulted in a mixture of mandatory regulation and voluntary best practice.

Despite clear financial incentives for ethical behaviour at the corporate level within financial services firms, such as the deterrent effect of very large fines imposed by regulatory bodies like the Capital Markets Authority or the Kenya Revenue Authority, there is evidence that banks remain strongly focused on short-term Return On Equity (ROE) metrics. Meeting these targets can often be at odds with good customer outcomes and distract from the way products and services work for customers.