Analyse specie areas of ethical practice within the current activities of financial services

I am a trainee journalist for ITV. My production has been seen by a financial services recruitment agency, Taylor Green. They were most impressed with the quality of my production. Taylor Green wants me to produce some materials for them. I will analyse specific areas of ethical practice within the current activities of financial service providers and the consequences of non-compliance. All businesses that operate in the financial services industry has a duty of care towards their customers. They must make sure they are completely honest when selling products to their customers.

They need to make sure they provide all details of products, what it is, how it works the benefits and also the risks; they cannot force products upon the customers. They should also not be supporting any business that is working in an unethical way. For instance, dealing with arms exporters and tobacco manufactures. In places where tobacco is made, many of the conditions are poor and the employers treat their staff unfairly and therefore is unethical. An example of unethical practice was when financial institutions like bank and building societies mis-sold payment protection insurance (PPI).

Banks devised an insurance product that was designed to not pay out due to the strict terms and conditions and began to force customers to buy the insurance when taking out loans, mortgages and credit cards. This was very unethical and the financial services were not taking any duty of care. The Financial Services Authority (FSA) then imposed fines to all banks and building societies who mis-sold PPI and were instructed the institutions to compensate their customers. Lloyds had to pay ?9. 8billion, Santander ?500million and the Co-operative Bank ?100million proving that they had to pay large sums of fines.

Lloyds were also fined again by the FSA because they were taking too long to compensate their customers. Another example of unethical practice where banks did not show a duty of care to customers is when Lloyds pressurised staff to hit sales targets or risk being demoted and have their pay cut. This meant they would pressurise customers into buying products that they didn’t really need. The Financial conduct authority (FCA) then got involved and fined Lloyd’s bank ?28 million. Lloyds failed to have a duty of care for their customers and staff.

Another example is when the Financial Services Authority fined HSBC ?3million for failing to properly look after customers information and private data. The FSA investigated HSBC and found that customers information and private data was unencrypted which meant the information could have easily been hacked. They didn’t show duty of care to their customers by not protecting all their personal information. One example of ethical practice where banks have shown a duty of care for their customers is the emergence of the Co-operative bank which is the first ethical investment bank in the UK.

If any customer invests their money into the Co-operative bank, they will only invest that money businesses that also only operate in an ethical manor. All businesses and individuals have a social responsibility in regards to the paying of tax. No business or person should avoid or evade the payment of taxes as it is unethical. Tax avoidance is the use of legal methods to modify an individual’s financial situation in order to lower the amount of income tax owed. An example of tax avoidance in the UK is Starbucks. Starbucks were manipulating their financial data to show that they had losses.

Corporation tax is only payable if you make profits, therefore Starbucks didn’t have to pay any corporation tax. Starbucks were still opening new coffee shops and so it was questionable how they did this when making losses. They had to appear in front of the parliamentary committee yet didn’t declare they were avoiding tax. Although they were not officially charged, the publicity impacted their reputation and customers stopped buying coffee from them. Therefore, Starbucks decided to pay out ?20million out of good will gesture over two years, ?10million each year.

Another example of tax avoidance is David Cameron. He inherited ?500,000 from his Dad which was in an offshore account. To avoid inheritance tax, he didn’t deposit all of the money into his account at once meaning it was below the amount that is taxable; he avoided to pay ?70,000 in tax which is very unethical. Additionally, Tax evasion is an illegal practice where a person, organisation or corporation intentionally avoids paying tax liability. Those caught evading taxes are generally subject to criminal charges and substantial penalties.

This can happen especially with Location Optimal Commerce on the Internet (LOCI). This is where people buy products online and pay lower Value Added Tax (VAT). In a result they pay lower tax and avoid paying UK VAT which is the highest at 20%. Harry Rednapp evaded tax. He received a payment of ?180,000 which he then put into an offshore account in the name of his dog. Her Majesties Revenue and Customs (HMRC) heard about this payment and took Harry Rednapp to court and said it was a gift which means it wasn’t part of his earnings and he could put it into an offshore account and got away with it.

It’s important for banks and building societies to investigate if large deposits are made into the accounts. This is because at the moment there is a lot of money laundering and fraud and so questions should be made. If they cannot give the correct answer, they will take legal action. Money Laundering is criminals disguise the original ownership and control of the proceeds of criminal conduct by making such proceeds appear to have derived from a legitimate source. An example of this is with HSBC. They were fined almost $2billion for failing to stop criminals using its banking systems to launder money.

Industrial democracy is another important factor; businesses should always treat their staff ethically. Nadia Eweida is an example where she was treated unethically. She worked for British Airways (BA) and was prohibited to wear a silver cross on a necklace. When she refused to conceal the cross she was fired. She went to UK courts to fight her cause for unfair dismissal, she lost. She then went to EU courts and won her case and BA had to compensate her worth ?26,000. An example of unethical treatment is when H;M amongst 36 other businesses failed to pay their staff the minimum wage.

They were fined a total of ?51,000 and also must pay the affected staff the ?177,000 they were underpaid. H;M owner Hennes ; Mauritz failed to pay ?2,604. 87 to 540 workers and the average underpayment for those affected was ?4. 82. In conclusion, I have now given examples of where there has been a lack of unethical practice and lack of duty of care. I personally believe that there are many authorities in place that are working well to control businesses and to ensure everyone is treated fairly.