Ethics, the dictionaries say, is the application to our practical lives of the moral principles prevailing in the community to which we belong. Those principles can come from a religious creed or from a secular "constitution"; they can therefore differ from one another, from person to person, from community to community; but there is a common core, of which the precept "do not steal" certainly belongs.
Finance is a very ancient human activity. It is based on the two pillars of credit (with its insurance variant) and money. From the earliest times, the exercise of credit and the handling of money have been surrounded by the fiercest suspicion. Anyone involved is always suspected of violating the precept "do not steal". And even if he doesn't violate it, he is still an unwelcome, alien person who takes advantage of a legitimate need or desire.
It is not so. Finance is an integral part of the economy, in particular of the tertiary sector, the one that produces and exchanges intangible services, which is now largely the majority. Furthermore, financial services are not ordinary services; they serve to turn the whole wheel of the economy, they are like the blood and the circulatory system in a human organism.
Amartia Sen said: How is it possible that an activity that is so useful has been viewed being morally so dubious?
È possible because finance is made up of debts, credits and money; not of steel pipes, or prescriptions, or supermarket shelves. The constituent elements of finance directly and immediately lead those who handle them into temptation. Temptation to violate moral principles even before the law.
Ethical finance sets out to respond to this problem, which is as old as the world. There is no universally recognized definition, but essentially ethical finance is the offer of financial services made by individuals who seek profit, yes, but who are also concerned with the common good. In the case of banks, the ethical connotation is manifested in particular in the attention to financial inclusion and in the promotion of activities considered beneficial from a socio-environmental point of view. It's not about volunteering or charity; we are dealing with companies in all respects, which however, unlike the others, explicitly propose to behave in an ethically correct way with customers and employees and therefore to be satisfied with a "fair" profit.
We would like all businesses to be like this, especially financial ones. Some come close to this model, some others are far from it. Can rules and regulations act in a way that encourages this type of behavior, Postgraduate Course , ethical?
The answer is yes. Binding rules and regulations can turn behavior in an ethical sense by setting limits, incentives and disincentives, promoting transparency and information, increasing users' awareness so that they are the first to demand fairness and responsibility from financial intermediaries.
The fundamental prerequisite of ethics is legality, i.e. compliance with the rules established by the legislator and by the regulatory authorities. This aspect is particularly relevant for banks, which more than any other company are based on trust: this can be undermined in the event of significant violations of the rules. And let's not think only of the micro-prudential discipline, aimed at guaranteeing the stability of the single intermediary, but also of that for the protection of the consumer, or the anti-money laundering one.
The rules on the remuneration of bank officers and managers are especially important from an ethical point of view. In Italy they have been introduced since 2008 and progressively strengthened in implementation of international and European guidelines.
In particular, individual incentive schemes must be consistent with corporate objectives and values, with long-term strategies; they must capture all the risks to which banks are exposed and take into account the actual results; must ensure that incorrect individual behavior determines the zeroing of bonus. The supervisory provisions do not impose, in line with international rules and in compliance with the autonomy of intermediaries, a "ceiling" on remuneration. Instead, they enhance the role of the shareholders, who are called upon to approve the incentive schemes and to set criteria and limits for the severance payments of the representatives. The Bank of Italy supervises compliance with these rules and intervenes - where necessary - with corrective actions and sanctions.
The notion of ethical finance received the most recent explicit recognition from the Italian legislator in 2016, with the introduction of article 111-bis of the Consolidated Banking Law. Specific parameters of conduct have been introduced in exchange for tax breaks. They are needed to be recognized status of an ethical bank, a governance system highly oriented towards the participation of savers/shareholders, an at least annual statement of the loans disbursed. Among other things, there are limits to pay differences within the bank and a ban on the distribution of profits.
These are additional requirements to those that apply to all banks. Even an ethical bank must face risks with adequate capital. The "ethical" objectives must therefore be reconciled with those of free economic initiative and safeguarding the stability of the financial system. On the other hand, the pursuit of ethical objectives can only contribute to the protection of the stability and integrity of both individual intermediaries and the financial system as a whole.
The fact remains that the benefits that ethical finance can bring to the functioning of the economy and to the well-being of a society are all the greater the more ethical values and objectives are disseminated and shared in the public administration, between companies and citizens.
Source: Bank of Italy
