Section 7 of the Banking Ordinance goes on to say, among other things, that our functions include the following aspects that have a distinct “ethical” flavour: •  taking reasonable steps to ensure that authorised institutions operate in a “responsible, honest and business-like manner”;  •  promoting and encouraging “proper standards of conduct and sound and prudent business practices” ;  •  suppressing “illegal, dishonourable or improper practices”. These specific functions can be related to our general function of promoting the stability of the banking sector. Clearly, if banks are involved in illegal or improper activities (such as fraud or money laundering) this may threaten the reputation not only of the bank concerned but also of the banking system as a whole. This in turn may lead to a loss of public confidence in the banks. I believe however that our functions also imply a broader interest in the concept of “fairness” in the provision of banking services. This is not to say that the HKMA should act as a “consumer watchdog” in investigating and adjudicating on disputes between banks and their customers on matters such as the cost or quality of banking services. But at the same time we should not be indifferent to how banks treat their customers in general. If banks consistently provide a bad or unfair service, this may damage the reputation of the banks and destroy customer loyalty and confidence.
It is also necessary to ensure that the behaviour of the organisation is in practice aligned with these values and that employees buy into them, so that the organisation actually practises what it preaches. Let me try to put some flesh on these arguments with some practical examples of ethical dilemmas involving banks that have been in the news recently. I have said that banking business is becoming more complex. One aspect of this is the globalisation of business activities which may be summed up as the tendency of the world to become one market place. As banks reach out beyond their home market, they become exposed to unfamiliar business environments and customers whose ethical standards may be very different from their own. This puts extra strain on the “know your customer” policy upon which regulators are so insistent. Business dealings with Russia are a case in point. Here you have the situation of a country that is making the transition from a communist to a capitalist economy. This naturally creates profit opportunities for Western banks. It could indeed almost be argued that these banks have a moral responsibility to assist in transforming the Russian economy. Unfortunately, somewhere along the line, this transformation has gone wrong, and the borderline between what is legitimate and illegitimate business in Russia has become blurred, to say the least. In this situation, what should a bank do? The decision can obviously be viewed in strictly commercial terms. But there is an ethical dimension as well.