Long-term relationships with customers are being replaced by more transient transactions with counterparties. •  Raghuram Rajan observes how increasing product complexity and reliance on technology has created a detachment from the customer. •  It ultimately leads to a reductionist view of finance where “money is the measure of all worth”, a state that is hardly conducive for ethical conduct. 3  Second, compensation structures tend to over-emphasise profits as performance measures. Excessive focus on sales targets and commissions has incentivised a “trading mentality” which is often associated with too much risk taking or scant regard for client interests or the sustainability of relationships. Third, and more fundamentally, departures from ethical conduct are too easily tolerated as the norm. 2  Mark Carney, “The Future of Financial Regulation”, MAS Lecture, Singapore, 2014. 3  Raghuram Rajan, “Where Money is the Measure of All Worth” in Fault Lines: How Hidden Fractures Still Threaten the World Economy, 2010. 2  BIS central bankers’ speeches  •  In a global survey of financial sector executives by the Economist Intelligence Unit, more than half the respondents felt that their career progression would be difficult without being “flexible on ethical standards”. •  If you look at the email and chat room messages between traders involved in the rigging of financial benchmarks, they betray a lack of any sense of guilt or wrongdoing. •  In fact, traders were congratulating and complimenting each other on their manipulation.
•  And when subsequently questioned by their superiors or regulators, they offered an array of self-justifications, chief of which is “everybody does it”. But everybody does not do it. I believe the vast majority of people working in the financial industry are committed to serving their clients or customers fairly and with integrity. But the unethical actions of a few have undermined trust and created instability. Reform of the financial industry will not be complete until this issue of trust and ethics is addressed. This requires “getting the culture right”. And by culture, I mean the shared values, attitudes and norms that guide actions. There is increasing international regulatory guidance to improve risk governance and align compensation schemes with long-term sustainability and customer interests. This is necessary but not sufficient. There are limits to what externally imposed rules can do to promote the right values in financial firms. •  Because culture develops from within a firm, it invites a certain resonance from the members of that firm – in a way that will be difficult for an externally imposed set of rules to achieve. •  For the same reason, the behavioural norms that a firm’s culture and value system promotes are more amenable to internal governance and self-policing than rules that rely on external enforcement. In short, rules tell us what we can do, but values tell us what we should do.