This issue of Moral Cents presents just two articles with the first being a large and comprehensive report evaluating the LIBOR manipulation five years after the discovery of this dismal practice. Regulators began investigating the manipulation of LIBOR by a colluding clutch of international banks in 2012, after the Financial Times published an article by a former trader recounting how LIBOR manipulation was common since at least 1991. Rishi Hardowar writes a thorough report on the scandal, examining its causes, the investigations, the resulting plethora of regulatory commissions plus their reports and the limitations of new regulations. Ultimately, benchmark manipulations like the LIBOR case will cease if there is genuine commitment from top management at financial institutions to put ethics before short-term profits. The debate is not whether sanctions or incentives prove more effective against a culture of impunity. Rather the two are complementary. Still, a proper regulatory system with a well-designed compensation structure is still not enough to eliminate the risk of future manipulation of some benchmark or other. Significant reduction of manipulation succeeds if all stakeholders from regulatory authorities to banks have a firm commitment to a robust culture of ethics. This approach leads to the end of that culture of impunity Hardower believes was the underlying reason for LIBOR manipulation.
On the other hand, banks may become obsolete in the near future anyway. Genevieve Crawford’s article on the ethics and financial implications of the Revised Payment Services Directive or PSD2 that comes into effect in the European Union in 2018 shows banks should be worried. PSD2 is considered the biggest technological innovation in retail banking since the Internet. In the payment system space, PSD2 allows third party providers (TPPs) to gain access to customer accounts and hence offer services in competition with banks. These TPPs will be able to initiate payment using a software bridge between the merchants website and the online banking platform. TPPs may aggregate online information of one or more payment accounts, presenting it in a form of a single dashboard for the customer. This directive could result in dramatic erosion of bank profits as they lose market share to FinTech firms.
Dr. Kara Tan Bhala
Moral Cents: The Journal of Ethics in Finance is published by
Seven Pillars Institute for Global Finance and Ethics
Editor: Dr. Kara Tan Bhala
Articles Editor: Eric Witmer