Ethics in finance can be developed around three broad themes:
In financial markets
In financial services industry (including banking and insurance)
By financial people in organizations
Frauds in the financial sector
Legal authorities define fraud as a crime that “involves the use of dishonest or deceitful conduct in order to obtain some unjust advantage over someone else”.
Frauds include:
• Financial services sector, i.e., credit card fraud, cheque fraud and other types of identify-related fraud;
• Insurance fraud
• Telecommunication-related fraud
• Securities-related fraud
• Computer-related fraud
Types of bank frauds
• Unauthorized extension of credit facilities;
• Pledging of spurious goods;
• Hypothecating goods to more than one bank;
• Inflating the value of goods;
• Removing goods with the involvement or negligence of bank employees;
• Pledging of goods belonging to a third party;
• Accepting obsolete and inadequate stocks;
• Frauds in deposit accounts are opening of bogus accounts, forging signatures of introducers, and collecting through such stolen accounts or forged cheques or bank drafts.
• Frauds are also committed in the area of granting overdraft facility in the current accounts of customers
• Credit card fraud
• Phishing- Duplicate
Measures against bank frauds
Prevention of Money Laundering Act, 2002
Reporting of Cash and Suspicious Transactions
Types of Reports: Cash Transaction Reports (CTR), Suspicious Transaction Report (STR), Counterfeit Currency Report (CCR)
Reporting to RBI
Other guidelines are also given under the Act to curb the menace of money laundering
Compliance to Anti-Money Laundering Standards
The Banking Ombudsman Scheme, 2006
Frauds in insurance sector
We can identify three types of fraud in the insurance industry:
1. Internal fraud against the insurer committed by an employee;
2. Policy holder/claims fraud committed against the insurer, in the purchase and/or execution of an insurance product by obtaining wrongful coverage or payment; and
3. Intermediary fraud committed against the insurer or policy holders by intermediaries – independent broker/agent.
Frauds in insurance process
The possibility of fraud is prevalent during any one of the three stages in the insurance process:
a. Policy Proposal stage;
b. Policy Contract stage; and
c. Claim Process stage.
Frauds are seen in the both life and non-life insurance sector
Combating insurance fraud
The following measures can be adopted to combat fraud in the insurance sector:
1. Collection of proper evidence
2. Need for regulation
3. Regulation of allied services
4. Need for judicial co-operation
5. Insurers should aim at conviction
6. Need for transparency and fairplay
7. Insurers’ coalition
8. Building consumers’ awareness
9. Rewards for whistle-blowers
10. Effective legislation and judicial action
Role of ethics
Ethics plays an important role in finance and sources of ethical behaviour in finance and accounting can be from the following :-
– Code of Conduct for Accountants and Auditors
– Code of Conduct for Merchant Bankers
– Code of Conduct for Insurance Agent
– Code of Conduct for Bankers
– Code of Conduct for Brokers and Members
– Code of Conduct for CFO
Ethical issues in finance and financial terms are the biggest theory in financial sectors like shares and allotment of shares in capitalist market.
