business ethics.pptx Customer perception towards banking

Customer perception towards banking

1. Ethical and Unethical Practices in Finance Examining Good and Bad Practices with Real-World Examples

2. Banking ETHICAL PRACTICES: Providing transparent information about financial products and services to customers. Ensuring fair treatment of customers and loyalty to regulations regarding lending practices. Implementing robust security measures to protect customers' financial information. UNETHICAL PRACTICES : Mis-selling financial products by providing misleading information or hiding important terms and conditions. Charging excessive fees or interest rates without adequate disclosure. Engaging in discriminatory lending practices based on factors such as race or ethnicity.

3. Punjab National Bank case In 2018, Punjab National Bank (PNB) revealed a $1.8 billion fraud involving jeweler Nirav Modi and his uncle Mehul Choksi. They misused Letters of Undertaking (Lou's) to obtain credit from overseas branches of Indian banks without providing collateral. The scandal exposed weaknesses in PNB's controls and sparked reforms in banking regulations and oversight mechanisms in India. The fraud involved Nirav Modi and Mehul Choksi exploiting loopholes in PNB's systems, allowing them to conduct unauthorized transactions over several years. The case led to arrests, legal actions, and efforts to recover the misappropriated funds. It also prompted a broader reassessment of risk management and compliance practices in the Indian banking sector, highlighting the need for stronger regulatory oversight and reforms to prevent similar incidents.

4. Insurance Ethical Practices Fulfilling claims promptly and fairly according to the terms of the insurance policy. Providing accurate information about coverage, exclusions, and premiums to policyholders. Offering suitable insurance products tailored to the needs and risk profiles of customers. Unethical Practices: Denying valid insurance claims without proper investigation or justification. Misrepresenting policy terms or coverage to policyholders. Engaging in fraudulent activities such as staging accidents or submitting false claims.

5. The Mediclaim Scam in Mumbai: This high-profile case vibrated the insurance industry in India and revealed the intricate web of fraudsters operating in the health insurance sector. In 2010, the Mumbai Police uncovered a massive Medi claim (health insurance) scam that involved several medical professionals, insurance agents, and policyholders. Here’s how the scam worked: The Setup: A network of corrupt doctors, hospitals, and insurance agents colluded to defraud insurance companies. They targeted various health insurance policies, particularly those with cashless benefits. The Modus Operandi: Policyholders would undergo unnecessary medical procedures, including surgeries and hospitalizations, to inflate their insurance claims. These treatments were often performed without any medical need. Falsified Bills: Inflated bills and forged medical records were submitted to insurance companies to claim reimbursements. Sometimes, even non-existent patients and medical facilities were fabricated.

6. The Mediclaim Scam in Mumbai: Cashless Claims: The scam heavily exploited cashless health insurance facilities. Fraudsters would visit network hospitals, show their policies, and get admitted for unwarranted treatments, all while the insurance company settled the bills. Exorbitant Claims: Some claims were so inflated that they exceeded the policy’s sum insured. In such cases, insurance companies had to bear the excessive costs. Busted: The scam came to light when a senior citizen policyholder became suspicious of the high premiums and complained to the insurance regulator. Investigations revealed a widespread network of fraudsters, and many were arrested and charged.

7. Auditing Ethical Practices: Conducting independent and objective audits in accordance with professional standards and regulations. Maintaining integrity and objectivity in reporting audit findings and opinions. Disclosing any conflicts of interest and ensuring independence from audited entities. Unethical Practices: Planning with clients to manipulate financial statements or conceal fraudulent activities. Failing to disclose relevant information or conflicts of interest that may affect audit independence. Compromising audit quality or integrity for financial gain or client relationships.

8. Auditing case Satyam Computers (2009): This Indian IT company's founder, B. Ramalinga Raju, orchestrated a massive accounting fraud for years. The company inflated profits, created fake invoices, and manipulated bank balances. Auditors from PricewaterhouseCoopers (PwC) were criticized for failing to detect the discrepancies, despite potential red flags. This case led to stricter regulations and a heightened focus on auditor responsibility in India.

9. Accounting Ethical Practices: Adhering to accounting standards and principles in preparing financial statements. Providing accurate and reliable financial information to stakeholders. Avoiding conflicts of interest and maintaining professional integrity in financial reporting. Unethical Practices: Engaging in earnings management or financial statement fraud to manipulate reported financial results. Concealing liabilities or inflating assets to mislead investors or creditors. Compromising independence or objectivity in financial reporting for personal gain or pressure from management.

10. Accounting case The collapse of Lehman Brothers in 2008 was one of the most significant events of the global financial crisis. While Lehman's demise was primarily attributed to its exposure to subprime mortgage assets and excessive leverage, there were also allegations of accounting fraud and deceptive financial practices. One of the central issues in the Lehman Brothers case was the use of a financial maneuver known as "Repo 105." Repo 105 involved temporarily removing securities from Lehman's balance sheet to make its financial position appear stronger than it actually was, particularly during quarterly reporting periods. By using Repo 105 transactions, Lehman could portray itself as having reduced leverage and improved liquidity, thereby misleading investors and regulators about its true financial health.

11. The accounting treatment of these transactions raised concerns about transparency and adherence to accounting standards. Critics argued that Lehman Brothers should have disclosed the extent of its Repo 105 transactions and their impact on its financial statements more clearly. The Securities and Exchange Commission (SEC) and other regulatory bodies conducted investigations into Lehman's accounting practices following its collapse. Ultimately, while there were suspicions and accusations of accounting fraud, proving intentional misconduct in a court of law can be challenging. However, the Lehman Brothers case prompted significant scrutiny of financial reporting practices and led to reforms aimed at enhancing transparency and accountability in the financial industry.

12. Taxation Ethical Practices: Complying with tax laws and regulations, including accurate reporting of income and deductions. Utilizing legitimate tax planning strategies to minimize tax liability within the bounds of the law. Providing full disclosure to tax authorities and maintaining transparency in tax matters. Unethical Practices : Engaging in tax evasion by deliberately underreporting income or overstating deductions. Using offensive tax shelters or offshore accounts to evade taxes illegally. Providing false or misleading information to tax authorities to avoid tax obligations.

13. Taxation case Summary: The Vodafone tax case involves a dispute between the Indian government and Vodafone Group Plc over the taxation of Vodafone's acquisition of Hutchison Essar, an Indian telecommunications company, in 2007. Cause: The Indian government claimed that Vodafone was liable to pay capital gains tax on the acquisition, arguing that it involved the transfer of assets located in India. Vodafone contested this claim, stating that the transaction occurred between two foreign entities and was therefore not subject to Indian taxation. Effect: The case went to the Supreme Court of India, which ruled in favor of Vodafone in 2012, stating that the Indian tax authorities did not have jurisdiction over the transaction. However, in response to the court's decision, the Indian government amended its tax laws with retrospective effect to tax such transactions, leading to widespread controversy and criticism domestically and internationally.

14. Credit rating Ethical Practices: Conducting thorough and objective analysis of creditworthiness based on relevant factors. Providing transparent and accurate credit ratings to investors and stakeholders. Avoiding conflicts of interest and maintaining independence from rated entities. Unethical Practices : Issuing inflated credit ratings to please clients or secure future business. Failing to disclose conflicts of interest or financial ties with rated entities. Manipulating rating methodologies or criteria to produce favorable ratings.

15. Stock Market: Ethical Practices: Facilitating fair and transparent trading of securities on regulated exchanges. Providing accurate and timely information to investors to support informed decision-making. Preventing insider trading and market manipulation through strict enforcement of regulations. Unethical Practices: Insider trading, which involves trading securities based on material non-public information. Market manipulation through tactics such as pump and dump schemes or spreading false rumors. Taking advantage of insider information about significant orders to make profits before clients can execute their trades.

16. Harshad Mehta case 1992 Indian Stock Market Scam: A stockbroker named Harshad Mehta tricked the system to make stock prices go up artificially. He did this by getting fake bank receipts that worked like fake money. With this fake money, he bought a bunch of stocks, which drove the prices way up. Investors thought the stocks were really valuable because the prices were so high, so they bought them too. The problem was, the prices were fake because of the fake money. Eventually, the scam was exposed, the stock prices crashed, and many investors lost a lot of money.

17. Investment: Ethical Practices: Conducting thorough research and due diligence before making investment decisions. Acting in the best interests of clients and managing investments prudently to achieve their financial goals. Providing clear and honest communication about investment risks and potential returns. Unethical Practices: Churning, or excessively trading client accounts to generate commissions without regard for their best interests. Misrepresenting investment products or making false promises to lure investors. Engaging in conflicts of interest, such as recommending investments that benefit the advisor at the expense of the client.

18. Sahara India Parivar Scam Sahara India Parivar, a conglomerate with interests in finance, real estate, and media, was founded by Subrata Roy. The scam involved illegal fund-raising activities, primarily through optionally fully convertible debentures (OFCDs), a type of unsecured bond. Sahara raised billions of dollars from millions of investors, promising high returns, primarily targeting rural and less financially literate individuals. The Securities and Exchange Board of India (SEBI) found Sahara's fundraising to be illegal and ordered it to refund investors' money. Sahara failed to comply with SEBI's orders, leading to a protracted legal battle between Sahara and SEBI. Subrata Roy, along with other top executives, was arrested for contempt of court in 2014 and spent time in jail before being released on bail.

19. Financial Services Ethical Practices: Providing personalized financial advice tailored to individual client needs and goals. Offering transparent fee structures and disclosing potential conflicts of interest. Safeguarding client assets and maintaining confidentiality of sensitive financial information. Unethical Practices: Selling unsuitable financial products to clients for the purpose of generating commissions. Misrepresenting the risks associated with financial products or investments. Breaching client confidentiality or misusing client funds for personal gain.

20. The Wells Fargo Fake Account Scandal Summary: The Wells Fargo fake account scandal, which came to light in 2016, involved employees creating millions of unauthorized bank and credit card accounts without customers' knowledge or consent. This was done to meet aggressive sales targets set by the bank. The scandal led to significant financial penalties, damaged the bank's reputation, and resulted in numerous legal actions against Wells Fargo.

21. Causes: 1. The bank imposed unrealistic sales targets, pressuring employees to meet them by any means necessary. 2. Incentive Structures: Employees were incentivized through bonuses to open new accounts, encouraging them to engage in unethical practices to meet targets. 3. Corporate Culture: The bank fostered a high-pressure environment where unethical behaviour was overlooked as long as sales goals were achieved. 4. Lack of Oversight: Inadequate internal controls and oversight allowed fraudulent activities to go undetected for an extended period. 5. Management Pressure: Employees faced significant pressure from managers to achieve sales targets, often leading to fear of job loss if they failed to comply. 6. Whistle-blower Suppression: Initial reports and complaints about unethical practices were ignored or suppressed by management. 7. Misaligned Priorities: The bank prioritized short-term financial gains over ethical considerations and long-term customer relationships. 8. Poor Ethical Training: Employees lacked adequate training on ethical practices and the importance of customer consent

22. Effects: Financial Penalties: Wells Fargo incurred over $3 billion in fines and penalties to settle lawsuits and regulatory actions. Reputation Damage:* The bank’s reputation was severely tarnished, leading to a significant loss of trust among customers and investors. Customer Harm:* Many customers were subjected to unauthorized fees, damaged credit scores, and other financial inconveniences. Employee Terminations:* Thousands of employees were fired or disciplined as a result of their involvement in fraudulent activities. Leadership Changes:* Top executives, including the CEO, resigned or were terminated, leading to significant leadership upheaval. Legal Repercussions:* The bank faced numerous lawsuits and regulatory investigations, leading to long-term legal and financial repercussions. Operational Changes:* Wells Fargo was forced to overhaul its sales practices, implement stronger oversight mechanisms, and improve ethical training. Industry Impact:* The scandal prompted other financial institutions to re-evaluate their sales practices and internal controls to avoid similar issues.

23. Promoting Ethical Behavior in Finance Training and development programs for ethical conduct.
The role of leadership in fostering an ethical culture.
Implementing robust compliance and risk management frameworks.
Encouraging transparency and accountability.
Monitoring and auditing mechanisms to ensure compliance.