On 28th September , Martin Wheatley of the FSA outlined proposals to overhaul the rules for setting LIBOR (London Interbank Offered Rate) – the rate at which banks lend money to each other and which has been the focus for so many scandals.
Brooke Masters at the FT says: “The shake-up from the UK regulator is a bold effort to restore faith in Libor after a manipulation scandal that has engulfed more than a dozen financial institutions on three continents.”
Over the last ten years we have seen politicians across the world – from the UK to America and the UAE to Asia – all struggling with the mechanics of regulation to manage global markets.
Regulation alone is unlikely to change behaviour. We need to consider in how we can effectively engender a culture of ethical behaviour within financial institutions. Would increased regulation, on its own, have changed behaviour at Barclays who have been fined for mis-selling financial products and LIBOR rigging? We need to consider the consequences of weak leadership, poor management of risks, inadequate training and rather limited understanding of the consequences of such malpractice.
These issues are of central importance as we launch our new MSc in global finance and banking. As part of this we have opened a trading room at the School using Thomson Reuters Eikon, which is a trading software used widely within industry, and a simulation software called Financial Trading System. Not only can students gain experience of trading in real time without the risk of expensive mistakes but, in a first for Bradford, they will be given an insight into ethical dilemmas faced by managers and the impact of insider trading.
We can simulate many of the City’s bad practices and learn from mistakes made in recent years. These will include a whole range of trading challenges – from looking at the consequences of selling insurance to people who don’t need it to doing trades based on insider information. Students will see at first hand where selfish, illegal and collusive behaviour leads. And as recent experience suggests, this type of training is vital to educate managers of tomorrow and to avoid the mistakes of the recent past.
Until now business schools have only covered ‘ethics’ in passing on finance and MBA degrees, but it is clear from the sub-prime catastrophe to the LIBOR scandal, that ethics are no longer a ‘nice to have’ aspect but an issue which is core to global financial success.
A student who has just joined our MSc in finance, made an interesting comment. Originally from Kazakhstan, Zhanibek Demeuov, has been working in a Dubai oil company for the last two years. He said: “I think the ethics discussions will be really interesting and important. How do different cultures see different ethical challenges? This programme will make us more aware of the risks and different attitudes to risk and how to manage them. It’s a growing issue – look at Nick Leeson of Barings and Kweku Adoboli of UBS who gambled a record £1.4bn on unauthorized deals. What has the financial world learnt from these?”
That’s a good question that Zhanibek poses and many ordinary people think ‘not much’ has been learned.
I firmly believe that business schools, firms and universities have a key role to play in changing the culture and ethics at play in global financial markets – and perhaps together we can make a contribution to establishing trust, and providing a sound ethical basis for firm and individual behaviour, which are both vital to restoring growth in the global economy.
How far can business schools help to change the culture and ethics at play in global financial markets?