Views on improving the integrity of global capital markets
23 June 2014

From Pope Francis to IMF Chief: “Capital Markets Should Benefit Society”

Posted In: Uncategorized

Imminent changes to the CFA Institute Code of Ethics and Standards of Professional Conduct have seemingly received a papal blessing. Beginning 1 July, the Code and Standards will require members to “Promote the integrity and viability of the global capital markets for the ultimate benefit of society.” In recent comments, Pope Francis continued his outspoken criticism of the financial sector, stating that “it is important that ethics once again play its due part in the world of finance” and that markets “serve the interests of people and the common good of humanity.” The new language of the Code of Ethics addresses the larger purpose of capital markets and tries to address the growing concern that many have raised about the role and effects of capitalism.

Pope Francis is not alone in calling for action. Financial leaders acknowledge the sentiments regarding the goal of a prosperous society expressed by Pope Francis and reflected in the change to the Code of Ethics. In a speech titled “Economic Inclusion and Financial Integrity” at the Inclusive Capitalism forum last month, International Monetary Fund Managing Director Christine Lagarde pointed out that the true purpose of finance “is to put resources to productive use, to transform maturity, thereby contributing to the good of economic stability and full employment — and ultimately, to the wellbeing of people. In other words — to enrich society.”

The economic and social carnage left in the aftermath of the global financial crisis have caused many to wonder if capitalism can fulfil that purpose. As economist Joseph Stiglitz pointed out in his book, The Price of Inequality, for many, capitalism is “failing to produce what was promised” — improving the standards of living of most citizens — “but is delivering on what was not promised — inequality, pollution, unemployment, and most important of all, the degradation of values to the point where everything is acceptable and no one is accountable.”

In her comments to the Inclusive Capitalism forum, Lagarde acknowledges that “to restore trust, we need a shift toward greater integrity and accountability. We need a stronger and systematic ethical dimension.” According to Lagarde, “Getting back on the right path requires education and leadership that is sustained over many years … most importantly of all, it requires investors and financial leaders taking values as seriously as valuation, culture as seriously as capital.”

Through changes to the Code and Standards and ethics education products that emphasize developing a culture of integrity, among many other projects, CFA Institute is seeking to provide that education and leadership. In addition to emphasizing an investment professional’s responsibility to protect the integrity of capital markets for the betterment of society, other changes to the CFA Institute Code and Standards seek to bolster ethical practice by strengthening the responsibilities of supervisors and more directly addressing and disclosing risk and limitations of the investment process.

Mark Carney, governor of the Bank of England and chairman of the G20’s Financial Stability Board, in a speech last year at the University of Western Ontario business school, said that “to restore trust in the broader financial system, global financial institutions need to rediscover their values.” Company leadership (boards, senior management) needs to “promote a culture of ethical business” practices. But Carney cautioned that “a top-down approach is insufficient. Employees of the financial institutions need a sense of broader purpose, grounded in strong connections to their clients and their communities.”

“Integrity cannot be legislated, and it certainly cannot be bought. It must come from within.”

Photo credit: iStockphoto/neneos

About the Author(s)
Jon Stokes

Jon Stokes is the director of Professional Standards at CFA Institute. His responsibilities include developing, maintaining, and providing interpretation on the organization’s Code of Ethics and Standards of Professional Conduct, Asset Manager Code of Professional Conduct, and other ethics codes and standards. He has designed and created on-line ethics education programs for CFA Institute, including the CFA Institute Ethical Decision-Making and Giving Voice to Values education programs. Stokes has led numerous in-person and online ethics trainings for members, societies, and investment professionals and contributes to the ethics curriculum at all three levels of the CFA Program. He holds a JD degree.

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