Views on improving the integrity of global capital markets
12 December 2012

CFA Institute: Market Fraud, Mis-selling Concerns Cloud Asia-Pacific Outlook

Following the big interest in last year’s CFA Institute Global Financial Market Sentiment Survey (GMSS), the results of the 2013 survey — shaped by input from the nearly 6,800 CFA charterholders worldwide — are sure to raise some eyebrows.

According to the GMSS, the top ethical concern for financial markets in the Asia-Pacific region is market fraud (insider trading, bogus IPOs, to name but a few). Following closely on the heels of this general fraud concern is the age-old problem of mis-selling of financial products by financial advisers. These two ethical challenges have been chart toppers for years in the unsavory category of “bad ethics,” but the list is long. One-third (33%) of respondents chose market fraud, 25% mis-selling, 21% the integrity of financial reporting, with market trading practices, disclosure/use of financial derivatives, and investment management services/structure rounding out the dubious list. Sadly for Asia Pacific, concerns about fraud have risen by almost 30% over last year’s results, and the 33% level compares to only 19% on a global scale.

Looking at the individual country level, the results are even more stunning — in Japan, for example, 59% of respondents cited market fraud as the top ethical concern for 2013. The obvious misconduct in a Madoff-style scandal involving AIJ Investment Advisors made headlines with news that the firm had collected assets from pension funds with phony performance numbers seem to have had an impact. Other news about insider trading involving both buy- and the sell-side firms has clearly rattled confidence.

Unfortunately Japan was not an exception. Next door in China, about half of the CFA Institute members responding to the survey (51%) also saw market fraud as the biggest ethical issue facing the financial industry there.

While this shift to general fraud marks a change from last year’s survey, when mis-selling by financial advisers was the top ethical concern in Asia Pacific, it hardly matters.  The swing from one to the other seems more like picking your poison, as both conditions are serious detriments to market trust and confidence. By way of comparison to the Asia Pacific, 36% of survey respondents in the Europe, Middle East, and Africa (EMEA) region and 26% in the Americas region identified mis-selling as the top ethical issue.

Almost all respondents (98%) acknowledge a strong lack of trust in the financial industry. When asked what was most needed at the firm level to improve investor trust and confidence, the vast majority of respondents, both globally and in the Asia-Pacific region, said that strong ethical culture by top management and executives was essential along with increased adherence to ethical codes and standards. This figure, by the way, is especially high in India, where 82% of the financial experts surveyed are taking this stance.

What is interesting to note here is that CFA Institute members see much more negative impact to trust and confidence from bad internal actions than external shocks. That is good news in terms of having tangible ways to help fix and stimulate a better ethical conscience and reputation for our industry. For example, the adoption of things like the globally recognized CFA Institute Asset Manager Code of Professional Conduct and other demonstrable actions by corporate leadership can ultimately impact whether an organization behaves in an ethically sound manner. Efforts to establish integrity in the capital markets in Asia Pacific must therefore come from within the financial organizations, and it must be initiated at the top.

Download the full survey today to see the full range of topics and issues considered by CFA Institute members.

As revised 13 December 2012

Photo credit: ©

About the Author(s)
Alexander Flatscher, CFA

Alexander Flatscher, CFA, is a former director of professional standards at CFA Institute. He was responsible for promoting the ethical standards, policies, and positions of CFA Institute in the Asia-Pacific region.

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