Question

Part A Scenario A: You are an investment performance analyst for a fund management company. After providing client account investment performance reports to the client-facing departments, you notice the reporting system missed a trade. These reports have not been finalised and released to clients. Correcting the omission in the report will result in a huge loss for a client. This client had previously expressed concern about the under-performance of its funds under your firm’s management and expressed that it may terminate the contract with your firm if these investments continue to underperform.

Scenario B: You are a senior manager of a bank in charge of the corporate lending department. You are responsible for the oversight of the approvals of loans, loan documentation, risk assessment, valuation and models and all other areas associated with corporate banking. You have delegated each of the tasks mentioned above to specific teams. It has recently been brought to your attention that a particular loan that did not pass the risk assessment test had been approved and that you had signed off on it. The loan is now being processed for documentation and the client had been informed that the loan was approved.

Required: Based on both scenarios above, describe each situation from the perspective of integrity.

Part B Distinguish between credo, code of ethics and code of conduct.

please answer the question before 5.30 . thank you

Answer 1

Solution A:

Scenario A: Integrity refers to the act of adhering to a set of principles, morals and ethics. In our case for Investment Performance Analyst we see that the agent (a.k.a our analyst) has a "possible" trade off between correcting an omission vs. losing a client. Let us weight our options here:

Option 1, Do not tell the client and let the report go to the client with the error intact - well in this option we can see that the integrity was clearly compromised but the client will not be furious and infact might even be happy with the numbers she sees. But this would be short lived relief for the client and a long time reputation loss for the firm. Sooner than later the actual profit number had to be released to the client and then not only we will lose one client for sure but we will also lose the reputation of the firm and with it the potential of acquiring new clients.

Option 2, Correct the omission - this is an option where we have our integrity intact. Now the possibility of losing the client is still there but we can tell her the reason for the loss in profits and let her decide if she would continue with the firm as a client. In this option we do the right thing and let the quality of the relation and past performance dictate the outcome for the analyst and no damage to reputation happens in this case. This option therefore might look loss making in the short term but is the correct way of ensuring a long-term business sustainability.

Scenario B:  We can again see that our agent (the Banker) has a trade off, either to let the loan pass through documentation and earn the bank its interest rate or cancel the loan and let the client know that there was a mistake and that the bank will not be able to provide the loan. We will continue to analyse this case using the option method:

Option 1, Let the loan pass - for the bank and the banker this option means that the bank earns the interest on the "approved" loan and also has a client who might come again for another sevices or product offerings from the bank. But as often happens with the integrity comprise, which this clearly is the case, the gains will be short lived and we will have much more potential for losses for both the parties involved. For the bank, the risk assessment failure might mean that the chance of loan failure or loan default is large and thus the bank might lose more money on the principle defaulted than on the interest earned, as for the person if she defaults on the loan her credit score might come down significantly and she might suffer for the default for many years to come.

Option 2, Stop the Loan processing - in this option you let the client know that the risk assessment came out negative and that the loan disbursment will not be beneficial for both the parties. Also you can apologise on the false loan approval notification. We see again that the integrity of the agent helps in abeiting long term losses by taking the short term pains and losses and in the process working on the company's core integrity aspect.

Solution B:

Credo Vs Code of Ethics and Code of Conduct:

A credo differs from a code in a major way in that a code is prohibitive - often inticed in law and regulations, It sets forth rules, restrictions, regulations, and the like, for which violations are disallowed. Also a code can be set in principles and you can have laws getting derived from the code itself.

A credo is not prohibitive or binding, meaning a credo is a set of guidelines to be followed but it is not restrictive in the truest sense.

Code of Ethics Vs Code of Conduct:

Often times a code of ethics preceds a code of conduct, and it behaves like the "Company's Constitution" with general principles to help guide employee behaviour. A code of conduct "applies" a code of ethics in various conditions. For example: A code of ethics might say that the employees shall work with integrity and should be truthful to the client under every circumstances. Now for a code of conduct the charter will be much more focused and shall say that the employees must remain true on the words with clients for the terms and conditions of their workings and that any discrepancy in the words should be bought under knowledge immediately with the concerned teams.