Ethical Practices of Financial Services Organisations

Roll no: 2012090 MMS II Finance A
Business Ethics and Corporate Governance Assignment 01
Ethical Practices of Financial Services Organisations

It should perhaps be said from the outset that there need not be anything intrinsically unethical about the financial services organisation. The financial services organisation provides essential services, which are fundamental to support a modern economy and society, such as safeguarding money and providing domestic lending. However, given the vital role that the financial organisations play, the moral hazards may be more acute and it is therefore logical that the financial organisations and the financial services industry as a whole should be subject to higher ethical standards than the other commercial sectors. The question is what these ethical standards and practices should be and how we judge them, and what we are ultimately aiming for is central to the theme. When an aspect of the law needs to be determined, there is a mechanism for deciding what the outcome should be. But how should ethics and its grey areas be determined? Should public opinion be the point of reference? To do so could be a dangerous approach as public attitudes change over time, ethics is not a static concept. While we may agree about the norms at the higher level, how they are applied in practice will be hotly contested and bitterly fought. We can already see this in the retail sector, where the line between mis-selling and mis-buying can be closely contested. What constitutes a mis-sold product for one person may be seen a fair transaction for another. Clients and shareholders can also push firms to conclude transactions or pursue profits at the expense of ethics. The fundamental principles or practices that any financial services organisation should instil in are as follows: Not pursuing profits at the expense of everything else including reputation of the organisation. Behaviour that is marked by integrity, fair dealing and acting in the best interests of the clients. Commitment to and delivery of the technical excellence. Prioritising good ethics over the instructions of clients where they conflict. Looking beyond the question of what is legal, that is being prepared not to act in a certain way on the basis that it is unethical, even though is legal. Consistent application of positive ethical behaviour across the industry. Financial institutions -including banks of all sorts, credit agencies, private equity firms, pension funds, insurance companies, and the like- have long been considered by most people to have no other object in view than the creation of wealth. The performance of financial institutions is therefore measured solely on the basis of their capacity to maximize financial assets, that is, it has been measured with evaluation factors that review only their monetary bottom-line results. How much return do they get on their investment decisions? How much are they able to maximize the assets in their custody? How much profit can they derive from the loans and credits they subscribe, from the bonds they float, from the equity they successfully issue on the financial markets? Banks are judged by their ability to develop

financial instruments such as complex derivatives and sophisticated credit schemes that help connect the money of investors with the companies in need of those financial resources in the best possible way. In pursuing these ends, banks, and financial institutions in general, have long defended the confidentiality of the information pertinent to their business, be it data about their clients, the sources and the destinations of the economic resources they handle, their credit-giving policies and procedures, and many more aspects of the banking profession that tend to be little transparent and not very communicative about their way of doing business. Financial institutions have become very complex and sophisticated in the way they operate. The products and services they offer tend to be more and more complicated. The ways they invest resources, the way they design, promote, and implement credit facilities, all become less evident year after year, and the speed at which they evolve is ever accelerating. This complexity and sophistication of the industry is in part a response to the shifting and evergrowing needs of the banks clients. Companies in need of financing, and of financial services, tend to have more and more complex businesses with complex needs and requirements of capital. Globalization also plays an important role. Banks customers often do not have a localized headquarters but they operate virtually everywhere in the world. Today, it could be argued, it is more difficult for banks to know in detail where these customers operate and what exactly they do and how they run their businesses. Moreover, clients change, merge, get acquired, move in and out of businesses and markets much more rapidly than in the past. It is not only banks that change so quickly, but their clients, and their clients needs also move and evolve at a higher speed. Unfortunately, governments, regulators, and other institutions simply cannot cope with this rate of evolution in a satisfactory manner. Banks are moving too quickly for the reaction-time of governments and other organizations. As a consequence, many important issues are being overlooked by the institutions charged with directing our societies toward the common good. Were one to give only a superficial consideration to the financial institutions and the implications of their actions in the world, one could erroneously conclude that money is just another commodity being traded. There is a danger that money will be treated as just another product that makes things possible, as a simple means to accomplish an end. However, such an approach bears the risk of becoming a highly inhumane approach when we look it in detail. Money is not just another commodity being handled. Money, both in the form of credit and in the form of investments, makes a huge impact on the world. Money is a means, not an end; but, it is a powerful means to do things and therefore evil use of money can indeed create a considerably negative impact on our world. Where money comes from, and the destination it might have (that is, the sources from which it proceeds and the places where it ends up being used), should not be treated as just another business transaction. Money, in all of its forms, has implications and consequences. The things we do with money, and the things we allow to be done with money, are not irrelevant from a moral and an ethical perspective. Money implies actions, money allows things to happen, money promotes and enacts changes. Money is a very important, if not the most important fuel for the happenings in the world. Money helps, money builds, money buys, money creates and acquires, but money can also destroy, pollute, kill, and support evil. Money should not be considered simply in terms of the percentage points being generated as

a return on an investment over a period of time. Given that banks are the official intermediaries of money, we need to look at how they handle money and what they do with it. By facilitating money to others, financial institutions enact and empower them to do things with it. What clients end up doing with the money they get from a bank, then, is then not irrelevant from an ethical viewpoint. This is all the more obvious when we consider that the money banks handle, is indeed to a large extent, investors money, not their own. To handle money as a commodity with no ethical implications and impact is to overlook critical moral issues, issues that could in fact be financed, and thus, enacted, promoted, and effectively created, by the investors money. In the end, whose money is the banks money? Who in fact owns the money that financial institutions are investing and lending? In the end, it is the money of individual investors. It is the money of pension funds, constituted in turn by the savings, the taxes, the retirement plans of single individuals like you reading this paper. Given the fact that money can be used in a wrong way -and it frequently does get used in such a way- and considering that money is eventually funded to a very large extent by individual investors, we should ask: is it still morally acceptable that financial institutions invest and lend money indiscriminately, watching only the bottom-line? Should bank secrecy and confidentiality never be held to answer for the moral and ethical implications that money can have in our world? Is it acceptable that governments and regulators lag behind financial institutions questionable way of doing businesses because the markets cant wait? Can we rightly ignore where our money is being used, what it is financing, where it is being invested, as long as it generates a good return in percentage terms? Can banks really justify their armslength approach to their investments and financing consequences and impacts on our world as far as they generate more money? How banks use money is not irrelevant from a moral and ethical perspective. Crime, pollution, corruption, violation of human rights, threats to human life, totalitarian regimes, and all sorts of wrong-doing need and use money every year. Financial institutions play a key role in the supply and movement of money. In this essay we intend to draw your attention to the key role the banking industry plays in that supply chain of money. Moreover, we will call your attention to the fact that it is your money, which can play a key role in that supply chain and that is not morally or ethically avoidable anymore to investigate and to actively question how banks are using that supply chain to channel your money, with financial practices that can be fueling wrong doing across the world. Let us clarify that, whenever investors money is channeled to evil-investments by financial institutions, it is the bank who is guilty of this wrong-doing and not the individual investor, unless of course, the individual investor were aware of the wrong-doing (and if he were just as easily able to invest his money elsewhere, and if he were a significant enough investor to influence the company or fund in question). What we attempt here is to call the investors attention to the importance of the potential damage that their money could do when invested in the wrong destinations. We have several concerns regarding financial institutions and how they use money. Banks can channel economic resources in different ways that make money result in some form of evil-doing. The two main ways in which banks can do this are (a) by lending money to others, that is, by issuing credit facilities to their clients, these being customers corporations, governments, individuals, etc., and (b) by actively and directly investing money, that is, owning shares, be it in the name of others or for themselves, in companies, projects, or

countries, that conduct different forms of wrong-doing. Owning shares of companies that could be conducting wrong-doing is, of course, not exclusive to financial institutions; however, the large sums of funds that banks have available to invest make these investments particularly relevant when we analyze ethical issues facing banks. When banks lend money to others, the bank may not be doing wrong by itself; it is these other entities which might be engaged in wrong-doing. However, this does not excuse banks from their moral responsibility. Money enables and promotes actions, and in this sense, banks lending money to evil-doers are facilitating their activities. It is not valid to argue that a bank is only in the business of financing and lending and that therefore they carry no ethical responsibility in the wrong-doing. Banks effectively enact, enable, and promote the realization of actions with their lending of financial resources. In the lines below we will discuss how banks and financial institutions have been known to effectively fuel wrong-doing through the issuance of credit facilities to clients in questionable businesses, and through other actions that range from actively holding shares of companies with questionable practices, to speculation and other questionable matters. 1. Usurious practices: Banking is a business concerned with protecting and growing peoples money. As such, one of its principal purposes is to generate wealth, in the form of financial returns for its shareholders. As in any industry, it is understandable and acceptable that banks try their best to maximize their investments and therefore, it is logical that banks charge interest rates on the loans and financing activities they offer to their clients. However, banks that charge excessive interest rates, abusive commissions, or ultra-profitable credit charges that go beyond reasonable standards for taking an extra benefit from a specific situation in detriment to their customers, are guilty of usury. Usury may be defined as demanding significantly more money back from customers than is just and fair. Financial institutions consistently engaged in usury are accordingly a subject of our concern. While we do not necessarily endorse bureaucratic regulations which may be excessively burdensome and counterproductive, we do expect banks to act morally with respect to lending practices within their organizations which are potentially usurious. We are concerned that banks are frequently charging excessive rates and imposing unfair advantages for themselves upon customers. We thus expect banks to take care to implement policies that prevent wrong-doing in the form of usury and similar sorts of abusive practices. Financial institutions are also guilty of some forms of usury when they encourage their customers, especially individuals, to go into excessive debt by taking irresponsible credit at too high interest rates. Some credit customers, specially those located in low-credit penetration communities are frequently being subjected to excessive marketing and pressure to drive them into credit at advantageous interest rates that go beyond what is customary in the industry. 2. Speculative Banking: The assets a bank lends and invest should be handled responsibly, even moreover so, when we consider that the bank is investing and lending money that belongs to other people, i.e., the individual and institutional investors whose money they manage. Engaging in excessively

speculative investments and irresponsible credit lending practices is morally unacceptable, and in many cases, not even good business. We believe bankers and financial professionals should take a responsible approach in all investment and lending operations with its customers money. Even in the case of high-risk, high-return type of clients, a bank is the ultimate entity making the investment decisions for the investors, and practices of speculatively investing heavily in too-risky securities just for the sake of short-term returns should be considered cautiously, especially given the massive loss of wealth that we have witnessed during the current financial crisis. The point is that there is always an ethical component involved in these too-risky investments that is being ignored. This crisis has made evident that investing in financial securities of questionable value (such as derivatives without the adequate collateral, sub-prime mortgages, irresponsible adjustable-ratemortgages, and other investments that do not undergo the serious due-diligence required) have frequently resulted in clients wealth destruction. The situation of over-speculative, over-risky banking gets especially complicated from a moral perspective when we consider that clients seldom receive the necessary, detailed information to let them know what kind of investments their bankers are undertaking with their money. Another aspect of concern regarding speculative banking, which has also been evidenced in this crisis, is the fact that many financial institutions have been involved in speculative investments resulting in enormous losses for their customers while their executives continue to receive compensation packages and bonuses in the millions of dollars. While we understand that the banking profession has traditionally generated a lot of wealth for its executives, their excessive bonuses become an ethical concern when their clients wealth has been destroyed precisely because of these forms of speculative investment practices. 3. Financing Arms Manufacturing and Trade in India: Many banks are actively financing the military industry around the world. While we recognize the moral acceptability of a country taking care to defend its population, and thus investing in arms and weapons, we are concerned with excesses and human rights violations involved in this activity. We are specifically referring to indiscriminately destructive, overlydamaging weapons and their manufacturers and distributors. These usually fall in the category of so-called cluster munitions which are highly-destructive weapons which not only destroy an enemys military target, but quite frequently kill thousands of innocent civilian victims. Why are cluster munitions so harmful? Cluster-munitions are designed to destroy large areas, thus their use often results in the destruction of civilian settlements, killing innocent people. On top of this, cluster-munitions weapons cause damage after the military attack as they contain many explosive components that did not act at the moment of the attack but remain active there, and explode afterwards. A potential mine field is created wherever clustermunitions have been used and their destructive potential can last for years hidden under the ground. This information has been corroborated several times by different organizations around the world, and yet regulation does not actively prevent the manufacturing of these weapons, and of course, regulation doesnt prevent financial institutions from either investing or lending money to these companies.

It is believed that a large percentage of cluster-munitions victims are civilians. Several studies support these statistics, and yet, manufacturing companies have no difficulties in securing credit from banks. More than 60 financial institutions have been identified to be involved in financing these companies, and it has become such a lucrative business that between the period of 2004-2007 more than 10 billion euro have been channelled to the six major cluster-munitions manufacturers which are: GenCopr (USA), Lockheed Martin (USA), Raytheon (USA), Textron (USA), Thales (France), and EADS (The Netherlands). All these companies openly produce cluster-munitions arms that have been used in several conflicts such as in Iraq (by the US army), in Lebanon (by the Israeli army), and many other places like the former Yugoslavia or Sudan. Some weapon-manufacturing companies have obtained credit facilities of very considerable sizes from well-kwon financial institutions. We are talking about credits in the billions of dollars. We cannot pretend that Banks did not know the purpose of the financing facilities they were arranging. Even worse is the fact that banks now also own shares in these cluster-munitions manufacturers. Several reputed financial institutions own shares in companies like GenCorp, Lockheed Martin, Textron, and Raytheon, which add up to double-digit equity positions in those companies. Owning shares in a company known to manufacture such weapons has ethical and moral implications. Money invested in securities enables companies to do things with it, and therefore, these investments have corresponding ethical repercussions. To own such a considerable amount of equity in a company means the owner is actually involved and interested in the progress of that company and in the performance of the products it manufactures and sells. 4. Financing and Supporting Totalitarian Regimes: Banks frequently give loans to companies operating in countries governed by totalitarian regimes such as Burma, North Korea, or Sudan. Those companies in turn use the money to enter those markets. Some of these countries are plagued with corrupt government authorities that frequently require them to give substantial bribes to allow them to operate in those nations. By financing these companies, banks are allowing money to flow into these totalitarian regimes which have no respect for human rights and who use this money to strengthen their positions in their respective countries. The fundamental problem is not that a company be present in a country with a repressive regime, but that its business there is somehow complicit in propping up or perpetuating the repressive regime. 5. Financing of Companies with little or no commitment to social responsibility: The banking industry usually grants credit facilities to companies, and helps in raising capital in the financial markets, to companies operating with no socially-responsible agendas, or with little commitment to one. We are referring, amongst others, to companies operating in thirdworld countries that allow child-labor, overwhelming pollution of the environment, black economies, and so forth. We have observed companies that have little respect for their workers and which have consistently violated labor laws (mainly in developing countries) having no problem securing credits from well-known banks. So far, banks have not been

interested in questioning clients about their human-rights or social-impact agendas. Banks tend to look at the risk-return ratio of their investment as the sole basis for granting the credit. Some banks are financing companies, for instance in the infrastructure industry, that operate in a highly utilitarian way in some countries. Some infrastructure developers, for example, that build water dams around the world have been accused of impacting the communities in which they operate by forcing the displacement of people from their home communities to build the dams wherever it is more economically convenient for them to build them, regardless of the social impact this might have. Moreover, these companies have been accused of manipulating potable water sources in poor countries by linking itself to corrupt governments like the Burma Junta or the regime in Sudan. Banks lending money to companies like these facilitate their operations, and thus, often their wrong-doing. Making money available to companies operating in this manner fuels their wrong-doing. Funds channelled to these types of companies can easily end up in the hands of those totalitarian regimes. These funds are not only the banks money, but more importantly, the individual investors money. 6. Ecological Impact: We should expect banks to start looking more in detail at the potential ecological damage that their clients could be generating when receiving financing from them. Companies known to be involved in activities that result in substantial environmental damage through the extraction of fossil fuels for instance; companies polluting the seas through the release of toxic chemicals; companies that manufacture products which persist in the environment and are linked to health concerns; and any other company damaging the world should not receive financing so easily as they do today from banks and financial institutions. While we recognize that avoidance of all possible environmental damage is often very expensive and hard to achieve, we believe that the efforts should be at least seriously pursued. We expect companies to actively search for a balance between their activities, their production processes, their use of natural and human resources and the respect for the environment. The same goes for companies involved in unsustainable harvest of natural resources, including fishing, timber, and other natural resources should also be severely questioned by banks when asked for financing. Moreover, banks, pension funds and in general, every investor, should be very cautious when it comes to buying or holding securities (be it bonds, shares, etc.) in all these kinds of companies. By investing in these environmentally unfriendly companies, financial institutions give them access to important sums of capital, which in turn, results in larger environmental damage. The same rationale goes for companies involved in aggressive, unnecessary animal testing of cosmetics and household products or ingredients. We recognize testing is an important step of many manufacturing processes; it is abusive, unnecessary, excessive, testing which we want to avoid. Intensive farming methods, blood sports, trade in the furs of endangered species, and other animal unfriendly businesses are also of our concern when they make use of animals for unnecessarily violent and superficial entertainment activities. 7. Financing, Donations and Sponsorships contrary to the good of the family:

As financial institutions handle huge amounts of capital, the impact of their donations and sponsorships can be substantial and the money they channel through donations can have important impact on society. In this respect, we are particularly concerned with banks giving active support to organizations that advocate against the institution of family and against family-values. As we are convinced that the family is the basis for any healthy society, we are interested in seeing banks staying away from initiatives that somehow can affect the integrity of family or attack family values in any way. These activities could include granting financial support to causes that actively promote activism against family values. While we acknowledge that there are other points of view regarding the value of families and their role in society, we prefer to keep our investments, and recommendations for our clients investments away from companies promoting non-family friendly causes and activism. We prefer not to generate our wealth from investing in companies that opt for financing, promoting, and supporting entities and organizations that do not share our view on family and family values as the cornerstones of society, peace and harmony. 8. Involvement in Social Enterprise: The banking industry plays a key role in the development of the markets in which it operates. By lending and raising money, a bank can effectively help develop a community, but further than that, a bank is expected to get actively involved in supporting the development of that community in which it operates. More and more banks and financial institutions are praised when they support organizations such as cooperatives or credit unions, or get involved in financing of community initiatives. Given the fact that a bank benefits directly from the economic resources of a community, we would be concerned when a bank openly neglects to help those communities in which it conducts business. Example of Ethical Practices in Financial Services Organisation 1. HDFC Bank: The bank believes in adopting and adhering to the best recognized corporate governance practices and continuously benchmarking itself against each such practice. The bank understands and respects its fiduciary role and responsibility to shareholders and strives hard to meet their expectations. The bank believes the best board practices, transparent disclosures and shareholder empowerment are necessary for creating shareholder value. The bank has infused the philosophy of corporate governance into all its activities. The philosophy on corporate governance is an important tool for shareholder protection and maximization of their long term value. The cardinal principals such as independence, accountability, responsibility, transparency, fair and timely disclosures, credibility etc. serve as the means for implementing, the philosophy of corporate governance in letter and spirit. The code of ethics/conducts intends to ensure adherence to highest business and ethical standards while conducting the business of the bank and compliance with the legal and regulatory requirements, including the compliance of the section 406 of the Sarbanes-Oxley Act of 2002 and the rules and regulations framed there under by the Securities and Exchange Commission of USA and other statutory and regulatory authorities in India and USA. The bank values the ethical business standard very highly and intends adherence thereto in every segment of the business.

HDFC Bank recognizes the importance of good corporate governance, which is generally accepted as a key factor in attaining fairness for all stakeholders and achieving organizational efficiency. This Corporate Governance Policy, therefore, is established to provide a direction and framework for managing and monitoring the bank in accordance with the principles of good corporate governance.
The bank was amongst the first four companies, which subjected itself to a Corporate Governance and Value Creation (GVC) rating by the rating agency, The Credit Rating Information Services of India Limited (CRISIL). The rating provides an independent assessment of an entity's current performance and an expectation on its "balanced value creation and corporate governance practices" in future. The bank has been assigned a 'CRISIL GVC Level 1' rating for the second consecutive year, which indicates that the bank's capability with respect to wealth creation for all its stakeholders while adopting sound corporate governance practices is the highest. Under the terms of Banks organizational documents, HDFC Limited has a right to nominate two directors who are not required to retire by rotation, so long as HDFC Limited, its subsidiaries or any other company promoted by HDFC Limited either singly or in the aggregate holds not less than 20% of paid up equity share capital of the Bank. At present, the two directors so nominated by HDFC Limited are the Chairman and the Managing Director of the Bank. HDFC was recently voted as one of the worlds most ethical organisations. The framework of ethical practices at HDFC is as follows: Introduction This Code of Ethics / Conduct intends to ensure adherence to highest business and ethical standards while conducting the business of the Bank and compliance with the legal and regulatory requirements, including compliance of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and regulations framed thereunder by the Securities and Exchange Commission of USA and other statutory and regulatory authorities in India and USA. The Bank values the ethical business standards very highly and intends adherence thereto in every segment of its business. Applicability This Code of Ethics/Conduct is applicable to the following persons.

The Board Members Officials of the Bank one level below the Board Ethical Conduct

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The Board members / Officials shall engage in and promote honest and ethical conduct of business, including the ethical handling of actual and / or apparent conflicts of interest between personal and professional relationships. Conflict of Interest The Board members / Officials shall avoid conflict of interest and disclose to the Board any material transaction or relationship that reasonably could be expected to give rise to such a conflict. Confidentiality of Information The Board members / Officials shall ensure and take all reasonable measures to protect the confidentiality of non-public information about the Bank, its business, customers and other materially significant information obtained or created in connection with any activities with the Bank and to prevent the unauthorised disclosure of such information unless required by applicable laws or regulations or legal or regulatory process. Disclosure of Information The Board members / Officials shall endeavour to produce full, fair, accurate, timely and understandable disclosures in reports and documents that the Bank files with or submits to the Securities and Exchange Commission and other regulators and in other public communications made by the Bank. Compliance with Government Laws, Rules and Regulations The Board members / Officials shall comply with all the applicable governmental laws and the applicable rules and regulations. Variation of the Code and Waivers The Code shall be reviewed from time to time for updation thereof. Any variation in the Code or any waivers from the provisions of the Code shall be approved by the Board and shall be disclosed on the Bank's website. Contract or Term of Employment Nothing in this Code or other related communications by itself creates or implies an employment contract or terms of employment. Violation of the Code The Board shall have the powers to take necessary action in case of any violation of the code. CSR Activity

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In 2010, HDFC Life partnered with the Yuva Unstoppable in Ahmedabad, Gujarat to bring English, general knowledge and leadership development to government school children, touching the lives of about 1000 disadvantaged children. HDFC Life was awarded the Yuva unstoppable Icon Award by former president APJ Abdul Kalam in September 2010. 2. STATE BANK OF INDIA: To enhance management transparency and corporate governance, SBI Holdings recognizes that one of its most crucial Initiatives for Strengthening Corporate Governance management tasks is to build and maintain an organizational structure capable of responding quickly to changes in the business environment, as well as maintaining a fair management system that emphasizes the interests of shareholders. SBI Holdings recognizes the importance of conducting business activities in conjunction with a sound internal control system. The company has an internal control structure that preserves the transparency of management and enhances corporate governance. The representative director of the company is responsible for making all managers and employees aware of the importance of compliance with laws and regulations, as well as ethical standards. Compliance and ethics are both vital aspects of operating within the SBIH Groups Management Philosophy and Corporate Vision. In accordance with regulations for the Board of Directors, the board holds regular monthly meetings, and convenes for other meetings as required. This facilitates close communications among the directors and permits supervision of the performance of the representative director. A director has been appointed to be responsible for compliance matters, and SBI Holdings has a Compliance Department that directly manages compliance activities. SBI Holdings has established a system for submitting reports involving compliance matters directly to the Internal Audit Department and the corporate auditors. This reporting system allows directors and employees to provide information concerning violations of laws, regulations and the Articles of Incorporation, as well as other matters involving compliance. Compliance conferences are held to provide an opportunity to exchange information about compliance issues for the entire SBIH Group. These gatherings identify compliance issues and problems, and confirm that business operations are conducted properly. The director in charge of compliance and the Compliance Department hold these conferences along with the compliance officers of the group companies.
Risk Management at SBI: SBI Holdings manages risks that may impede the execution of business operations, or prevent the company from operating in line with its Management Philosophy and Corporate Vision. The Board of Directors appoints a director to be in charge of risk management in accordance with crisis management, risk management and group risk management regulations. In addition, the Risk Management Department monitors, properly evaluates and manages risk for the entire SBIH Group.

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In the event of any potential or actual management crisis threatening the companys existence, the director in charge of risk management, as the person with overall responsibility, will gather pertinent information and consider and implement countermeasures and measures to prevent reoccurrences, while reporting on the situation and disclosing information to relevant institutions.SBI Holdings has established a structure for the overall management of information, including customer information, and has been strengthening its information management functions. As a part of these efforts, the company has established the Information Security Committee composed of members appointed from each division, with the director in charge of risk management as the chairman. The company is also responding to computer system risk by building a structure, including redundant systems and backup structures at multiple locations, which allows the company to respond to any type of contingency. Audits by the Corporate Auditors, Internal Audits and Accounting Audits: The Board of Corporate Auditors receives explanations from the accounting auditors on the annual auditing plan and other matters based on the Audit Report, when financial statements for the first half and full fiscal year are prepared. When necessary, the Board of Corporate Auditors also shares information and engages in discussions with the accounting auditor and the Internal Audit Department. The Internal Audit Department audits the execution of duties by the directors and employees, working to prevent any violation of laws, ordinances or the Articles of Incorporation, if necessary in cooperation with external specialists. The results of internal audits are reported to the Board of Directors through the representative director once every six months. Also, when required, the Internal Audit Department shares information with the corporate auditors and the accounting auditors regarding management-related issues or problems. 3. ICICI Bank: Companys Philosophy on Code of Ethics and Corporate Governance: Our corporate governance policies recognize the accountability of the Board and the importance of its decisions to all our constituents, including customers, investors, employees and the regulatory authorities, and to demonstrate that the shareholders are the cause of and ultimate beneficiaries of our economic activities. The functions of the Board and the executive management are well-defined and are distinct from one another. We have taken a series of steps including the setting up of sub-committees of the Board to oversee the functions of executive management. Audit and Risk Committee: The Audit and Risk Committee consists of five directors, all of which are independent directors. It provides direction to and oversees the audit and risk management function, reviews the financial accounts, interacts with statutory auditors and reviews matters of special interest.

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4. YES BANK: As a new age private sector Bank, YES BANK is establishing the highest standards of Corporate Governance right across the organisation. With an excellent Board of Directors and the institution of all recommended sub committees, the Bank is already compliant with all statutory requirements. The YES BANK Philosophy: To set the highest standards of Corporate Governance, benchmarked with global best practices, ensuring that the organization is managed and monitored in a responsible manner to Create and share value." Corporate Governance and Ethical Practices Initiatives at YES Bank: The composition of the Board of Directors of YES BANK is governed by the Banking Regulations Act, 1949, all RBI guidelines (including the Ganguly Committee recommendations), the Companies Act, 1956, listing requirements of the Stock Exchanges (Clause 49) and best of class practices. In compliance with the requirements the Companies Act, 1956, five board level subcommittees have been set up to ensure effective functioning of the Board. A code of conduct that binds the Board of Directors and senior management is in place. YES BANK is pioneering a business approach titled Responsible Banking which integrates Sustainability and Corporate Social Responsibility (CSR) within thelarger philosophy of the Bank. 5. BANK OF BARODA: Banks Philosophy on Code of Corporate Governance and Ethics: The Bank continues its Endeavour to enhance its shareholders value by protecting their interest by Ensuring performance at all levels, And maximizing returns with optimal use of resources in its pursuit of excellence. The Bank complies with not only the statutory requirements, but also voluntarily formulates and adheres to a set of strong Corporate Governance practices. The Bank has high standards of ethical values, transparency and a disciplined approach to achieve excellence in all its sphere of activities. The Bank is also following the best international practices. The Bank is striving hard to best serve the interests of its stakeholders comprising shareholders, customers, Government and society at large.The Bank is a listed entity; its not a company but a body corporate under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and is

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regulated by Reserve Bank of India. Therefore the Bank complies with the provisions of Revised Clause 49 of the Listing Agreement entered into with Stock Exchanges to the extent it does not violate the provisions of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and the Guidelines issued by Reserve Bank of India in this regard.
Board of Directors: The composition of Board of Directors of the Bank is governed by the provisions of the Banking Regulation Act, 1949, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, as amended and the Nationalized Banks. Asset Liability Management and Risk Management Committee: The Bank has constituted a Board level Risk Management Committee known as Asset Liability Management and Risk Management Committee to review and evaluate the overall risks assumed by the Bank. 6. UCO BANK: Need and Objective of the Code of Conduct of Ethical Practices and Corporate Governance. Clause 49 of the Listing Agreement entered into with the Stock Exchanges, requires, as part of Corporate Governance the listed entities to lay down a Code of Conduct for Directors on the Board of the entity and its Senior Management. Senior Management has been defined to include personnel who are members of its Core Management and functional heads excluding the Board of Directors. Accordingly the Bank has laid down this Code for its Directors on the Board and its Core Management. Banks Belief System: This Code of Conduct attempts to set forth the guiding principles on which the Bank shall operate and conduct its daily business with its multitudinous stakeholders, government and regulatory agencies, media, and anyone else with whom it is connected. It recognizes that the Bank is a trustee and custodian of public money and in order to fulfil its fiduciary obligations and responsibilities, it has to maintain and continue to enjoy the trust and confidence of public at large. The Bank acknowledges the need to uphold the integrity of every transaction it enters into and believes that honesty and integrity in its internal conduct would be judged by its external behavior. The Bank shall be committed in all its actions to the interest of the countries in which it operates. The Bank is conscious of the reputation it carries amongst its customers and public at large and shall endeavor to do all it can to sustain and improve upon the same in its discharge of obligations. The Bank shall continue to initiate policies, which are customer centric and which promote financial prudence.

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Philosophy of the Code: The Code envisages and expects adherence to the highest standards of honest and ethical conduct, including proper and ethical procedures in dealing with actual or apparent conflicts of interest between personal and professional relationships. Full, fair, accurate, sensible, timely and meaningful disclosures in the periodic reports required to be filed by the Bank with government and regulatory agencies. Compliance with applicable laws, rules and regulations. To address misuse or misapplication of the Banks assets and resources. The highest level of confidentiality and fair dealing within and outside the Bank.
General Standards of Conduct: The Bank expects all the Directors and members of Core Management to exercise good judgement, to ensure the interest, safety and welfare of customers, employees and other stakeholders and to maintain a cooperative, efficient, positive, harmonious and productive work environment and business organisation. The Directors and members of the Core Management while discharging duties of their office must act honestly and with due diligence. They are expected to act with that amount of utmost care and prudence, which an ordinary person is expected to take in his/ her business. The standards need to be applied while working on the premises of the Bank, at offsite locations where the business is being conducted whether in India or Abroad, at bank- sponsored business and social events, or at any other place where they act as the representatives of the Bank. Conflict of Interest: A conflict of interest occurs when personal interest of any member of the Board of Directors and of the Core Management interferes or appears to interfere in any way with the interests of the Bank. Every member of the Board of Directors and Core Management has a responsibility to the Bank, its stakeholders and to each other. Although this duty does not prevent them from engaging in personal transactions and investments, it does demand that they avoid situations where a conflict of interest might occur or appear to occur. They are expected to perform their duties in a way that they do not conflict with the Banks interest such as :
Employment / Outside Employment - The members of the Core Management are expected to devote their total attention to the business interests of the Bank. They are prohibited from engaging in any activity that interferes with their performance or responsibilities to the Bank or otherwise is in conflict with or prejudicial to the Bank.

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Business Interests If any member of the Board of Directors and Core Management considers investing in securities issued by the Banks customer, supplier or competitor, they should ensure that these investments do not compromise their responsibilities to the Bank. Many factors including the size and nature of the investment; their ability to influence the Banks decision; their access to confidential information of the Bank, or of the other entity, and the nature of the relationship between the Bank and the customer, supplier or competitor should be considered in determining whether a conflict exists. Additionally, they should disclose to the Bank any interest that they have which may conflict with the business of the Bank. They should disclose to the Bank if their holdings in total equity capital/ securities issued by Banks customer(s)/Supplier(s) /competitors(s) exceed 1% of such total equity capital /Securities issued by any of such companies. Related Parties As a general rule, the Directors and members of the Core Management should avoid conducting Banks business with a relative or any other person or any firm, Company, Association in which the relative or other person is associated in any significant role. If such a related party transaction is unavoidable, they must fully disclose the nature of the related party transaction to the appropriate authority. Any dealings with a related party must be conducted in such a way that no preferential treatment is given to that party. In the case of any other transaction or situation giving rise to conflicts of interests, the appropriate authority should after due deliberations decide on its impact.
Applicable Laws: The Directors of the Bank and the Core Management must comply with applicable laws, regulations, rules and regulatory orders. They should report any inadvertent non- compliance, if detected subsequently, to the concerned authorities. Disclosure Standards: The Bank shall make full, fair, accurate, timely and meaningful disclosures in the periodic reports required to be filed with Government and Regulatory agencies. The members of Core Management of the Bank shall initiate all actions deemed necessary for proper dissemination of relevant information to the Board of Directors, Auditors and other Statutory Agencies, as may be required by applicable laws, rules and regulations. Use of Banks Assets and Resources: Each member of the Board of Directors and the Core Management has a duty to the Bank to advance its legitimate interests while dealing with the Banks assets and resources. Members of the Board of Directors and Core Management are prohibited from: using corporate property, information or position for personal gain; soliciting, demanding, accepting or agreeing to accept anything of value from any person while dealing with the Banks assets and resources; acting on behalf of the Bank in any transaction in which they or any of their relative(s) have a significant direct or indirect interest.

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Confidentiality and Fair Dealings: 1. Banks Confidential Information The Banks confidential information is a valuable asset. It includes all trade related information, trade secrets, confidential and privileged information, customer information, employee related information, strategies, administration, research in connection with the Bank and commercial, legal, scientific, technical data that are either provided to or made available to each member of the Board of Directors and the Core Management by the Bank either in paper from or electronic media to facilitate their work or that they are able to know or obtain access by virtue of the position with the Bank. All confidential information must be used for Banks business purposes only. This responsibility includes the safeguarding, securing and proper disposal of confidential information in accordance with the Banks policy on maintaining and managing records. This obligation extends to confidential information of third parties, which the Bank has rightfully received under non-disclosure agreements. To further the Banks business, confidential information may have to be disclosed to potential business partners. Such disclosure should be made after considering its potential benefit and risks. Care should be taken to divulge the most sensitive information, only after the said potential business partner has signed a confidentiality agreement with the Bank. Any publication or publicly made statement that might be perceived or construed as attributable to the Bank, made outside the scope of any appropriate authority in the Bank, should include a disclaimer that the publication or statement represents the views of the specific author and not the bank.
2. Other Confidential Information The Bank has many kinds of business relationships with many companies and individuals. Sometimes, they will volunteer confidential information about their products or business plans to induce the Bank to enter into a business relationship. At other times, the Bank may request that a third party provide confidential information to permit the Bank to evaluate a potential business relationship with that party. Therefore, special care must be taken by the Board of Directors and members of the Core Management to handle the confidential information of others responsibly. Such confidential information should be handled in accordance with the agreements with such third parties. The Bank requires that every Director and the member of Core Management, General Managers should be fully compliant with the laws, statutes, rules and regulations that have the objective of preventing unlawful gains of any nature whatsoever. Directors and the members of Core Management shall not accept any offer, payment, promise to pay, or authorization to pay any money, gifts or anything of value from customers, suppliers, shareholders/stakeholders etc. that is perceived as intended, directly or indirectly, to influence

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any business decision, any act or failure to act, any commission of fraud, or opportunity for the commission of any fraud.
Conclusion:
It can be said that the special nature of banking institutions necessitates a broad view of corporate governance where regulation of banking activities is required to protect depositors. In developed economies, protection of depositors in a deregulated environment is typically provided by a system of prudential regulation, but in developing economies such protection is undermined by the lack of well-trained supervisors, inadequate disclosure requirements, the cost of raising bank capital and the presence of distributional cartels.
In order to deal with these problems, it can be suggest that developing economies need to adopt the following measures. Liberalization policies need to be gradual, and should be dependent upon improvements in prudential regulation. Developing economies need to expend resources enhancing the quality of their financial reporting systems, as well as the quantity and quality of bank supervisors. Given that bank capital plays such an important role in prudential regulatory systems, it may be necessary to improve investor protection laws, increase financial disclosure and impose fiduciary duties upon bank directors so that banks can raise the equity capital required for regulatory purposes. A further reason as to why this policy needs implemented is the growing recognition that the corporate governance of banks has an important role to play in assisting supervisory institutions to perform their tasks, allowing supervisors to have a working relationship with bank management, rather than adversarial one .
Corporate governance is a continuous process of evolving best practices in response to market developments. RBI cannot be complacent. This is the constant thrust of RBIs initiatives in ensuring a vibrant corporate governance framework. Towards this end, a Committee on Financial Sector Assessment has been constituted by RBI and the government in September 2006, with a goal to undertake a self-assessment of financial sector stability and development. The Committee has set up four Advisory Panels, which will assist the Committee in its assessment exercise and will be drawn from nonofficial experts outside of RBI in areas related to financial stability assessment and stress testing; transparency standards; financial regulation and supervision; and Institutions and market structure.

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In the years to come, the Indian financial system will grow not only in size but also in complexity as the forces of competition gain further momentum and financial markets acquire greater depth. I can assure you that the policy environment will remain supportive of healthy growth and development with accent on more operational flexibility as well as greater prudential regulation and supervision. The real success of our financial sector reforms will however depend primarily on the organizational effectiveness of the banks, including cooperative banks, for which initiatives will have to come from the banks themselves. It is for the co-operative banks themselves to build on the synergy inherent in the cooperative structure and stand up for their unique qualities. With elements of good corporate governance, sound investment policy, appropriate internal control systems, better credit risk management, focus on newly emerging business areas like micro finance, commitment to better customer service, adequate automation and proactive policies on house-keeping issues, cooperative banks will definitely be able to grapple with these challenges and convert them into opportunities. Corporate Governance and Ethics plays a very pivotal role in financial services organisations. It is seen that the corporate governance revolves around the enhancing value, accountability at all levels; transparent and enhancing the image of the organization would be the major ingredients of good corporate governance. After Globalisation and financial sector reforms, corporate governance has been receiving a lot of attention in the banking sector. Banks in a broad sense are institutions whose business is handling other peoples money. A joint stock bank also known as the commercial bank, is a company whose business is banking. There are more particularly institutions that deal directly with the general public, a opposed to the merchant and other institutions more with trade and industry. These banks specialize in business connected with Bills of Exchange, especially the acceptance of foreign bills. A Merchant banker is thus a financial intermediary who helps in transferring capital from those who possess it to those who need it. Merchant banking includes wide range of activities management of customer securities, portfolio management project and counseling and appraisal, underwriting of shares and debentures, acting as banker for refund order, handling interest and dividend warrants etc. Thus, a merchant banker renders a host of services to corporate and promotes industrial development in the country.

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Ethical Practices of Financial Services Organisations

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Roll no: 2012090 MMS II Finance A

Business Ethics and Corporate Governance Assignment 01