Views on improving the integrity of global capital markets
26 January 2014

The Role of Ethics in Shaping the Future of Hong Kong’s Investment Industry

Suggest organizing a seminar on the importance of ethics in the investment industry and chances are that you may be advised to have modest expectations about attendance. However, a recent conference in Hong Kong, “The Importance of Ethics in the Future of Hong Kong’s Asset Management Industry,” attracted professionals from across the industry to discuss the increasingly important subject of ethics, especially as it relates to the future of the local investment industry. CFA Institute, the Hong Kong Investment Funds Association, the Alternative Investment Management Association, and the Hong Kong Society of Financial Analysts organized the event.

In the keynote speech James Shipton, executive director of the Intermediaries Division of the Securities and Futures Commission in Hong Kong, focused on the importance of an ethical culture for financial firms. The speaker pointed out that, even though the regulatory framework has improved across many jurisdictions, events such as the LIBOR-rigging scandal are a reminder that unresolved problems remain. It is necessary, Mr. Shipton pointed out, to focus on human behavior, emphasizing that a sound corporate ethical culture is needed to reduce the likelihood of scandals happening again in the future.

From the standpoint of a CFA charterholder, it was particularly interesting to take note of the speaker’s reference to the importance of establishing a culture of ethics at the firm level. CFA Institute has long educated the investment community about the necessity of an ethical culture at the firm level because it is indispensable for building trust and market integrity. Trust built through ethical practice creates and promotes a foundation of integrity and sustainability, allowing capital markets to achieve more efficient allocation of capital, a healthier economy, and greater wealth generation for investors — all for the ultimate benefit of society.

The keynote speech was followed by a panel discussion featuring Christopher Darling, CIO-Asia of Lloyd George Management, Nathan Lin, CEO of GF International Investment Management, Deborah Bannon of Mercer Investments (Hong Kong) Limited, and Vincent Chow, who is in charge of the pension fund at Power Assets Holdings Limited. It was impressive that while the panelists had different perspectives, they all agreed that ethics was playing an important role when it came to the sustainability of markets. For example, whereas the asset owner representative was interested in the ethical behavior of asset managers with whom he entrusts funds because it helps him act in the best interest of his plan’s beneficiaries, the asset manager representatives discussed benefits their firms’ ethical cultures provide in terms of raising their attractiveness to existing and new clients.

The view that promoting ethical behavior as part of the corporate culture represents a competitive advantage for asset managers appears to be becoming more mainstream in Asia. To demonstrate that his firm voluntarily operates based on high ethical and professional standards, Mr. Darling shared with the audience that his firm has adopted the CFA Institute Asset Manager Code of Professional Conduct. This principles-based code has so far been formally adopted by nearly 1,000 firms globally. One of the benefits for asset managers is that formal compliance with this code sends a message to their stakeholders that they are voluntarily operating under high ethical and professional standards.

The view of CFA Institute is that it is in the long-term interest of industry participants to conduct business in an ethical manner to avoid negative consequences such as bad publicity, legal sanctions, and the loss of reputation — all of which threaten to wash away the short-term benefits of misconduct and have longer-term consequences for investor trust. In addition to complying with regulations, which many times are reactive to problems that already have arisen, an ethical culture is desirable as it helps to avoid issues before they become problems. In this sense, it was encouraging to confirm at the conference that momentum is growing around the important role ethical culture is playing in the development of the financial market in Hong Kong both now and in the future.

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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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