Taken to extremes, the  3  BIS Review 98/1999  system as a whole could be brought into disrepute. This is why we promoted the Code of Banking Practice issued jointly in 1997 by the two industry associations. The Code is intended to be observed by authorised institutions in dealing with their personal customers, and it provides an extremely useful mechanism for the promotion of fair and transparent banking services in Hong Kong. What tools can banks use to manage ethics in their own organisations? No doubt you will have been discussing this during the course of the seminar and I will not go into a lot of detail in this speech. Clearly, the first essential is for the bank itself to be clear about the key ethical values to which it subscribes. It then needs to ensure that the organisation and the employees act in accordance with these values. This can be done through the adoption of codes of conduct. The former Commissioner of Banking issued a guideline in 1986 which requires all authorised institutions in Hong Kong to prepare a code of conduct for their staff setting out the standards to which they are expected to adhere. It is also necessary to have policies and procedures designed to ensure compliance with the standards specified in the code of conduct. For example, many companies now employ “ethics officers” and give their staff specific training and advice on ethical issues.
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.