Research Handbook on Law and Ethics in Banking and Finance
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Research Handbook on Law and Ethics in Banking and Finance

Edited by Costanza A. Russo, Rosa M. Lastra and William Blair

The global financial crisis evidenced the corrosive effects of unethical behaviour upon the banking industry. The recurrence of misbehaviour in the financial sector, including fraud and manipulations of market indices, suggests the need to establish a banking culture that conforms to the highest standards of ethical and professional behaviour. This Research Handbook on Law and Ethics in Banking and Finance focuses on the role that law should play and the effectiveness of newly introduced regulations and supervisory actions as a driver for ethical conduct so as to reconnect the interests of bankers and financiers with the interests of society.
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Chapter 17: Enforcement, ethics and transparency: problems and perspectives

Costanza A. Russo

Abstract

Enforcement activities of the FSA have been under tight scrutiny in the recent past. The current FCA enforcement framework has been repeatedly amended to reflect and address those concerns. Yet enforcement is not a straightforward process and there may be a difficult balance to strike between different regulatory actions. After discussing the mentioned tension and the recent amendments to the Decision Procedure and Penalty Manual and to the Enforcement Guide, the chapter also analyses ethical problems associated with enforcement, particularly with respect to settlement and private warnings. Some of these problems still remain, despite the most recent reforms. It is then argued that FCA efforts of being more transparent and of actively addressing criticisms certainly represent the right course of action. Regulators enjoy a vast amount of power and discretion, and should be held tightly accountable. They should also be responsive to well-founded concerns. However, excessive responsiveness has its drawback too. Furthermore, even though transparency is widely – and in most cases rightly – seen as an indicator of ethical behaviour, doubts may arise as to its actual efficacy in delivering its intended aims. Credibility and effectiveness of action of enforcement authorities also require an institutional framework which is supportive of the efforts, of the activities and of the exercise of discretion from the regulator.

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