Ethics: an Essential Prerequisite of the Financial System

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Ethics in general deals with human behaviour that is acceptable or ‘right’, and that which is not acceptable or ‘wrong’ according to conventional morality. General ethical norms encompass truthfulness, honesty, integrity, respect for others, fairness, and justice. They relate to all aspects of life, including business and finance. Financial ethics is, therefore, a subset of general ethics.

Ethical norms are essential for maintaining stability and harmony in social life, where people interact with one another. Recognition of others’ needs and aspirations, fairness, and co-operative efforts to deal with common issues are an example of aspects of social behaviour that contribute to social stability. In the process of social evolution, we have developed not only an instinct to care for ourselves but also a conscience to care for others.

However, situations may arise in which the need to care for ourselves runs into conflict with the need to care for others. In such situations, ethical norms are needed to guide our behaviour. As Demsey (1999) puts it: ‘Ethics represents the attempt to resolve the conflict between selfishness and selflessness; between our material needs and our conscience’.

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