Contextual Analysis of

the Financial Sector &

Banking Industry of Sri
Lanka from an Ethical
Perspective

The University of West

London
The Claude Littner Business
School

Module Code: MS7SL820

Module Title: Business Ethics in Action

Module Tutor: Rizwan Anise

Shalani Heshani Katukurundage

UWL ID: 21346491

Word Count: 2282

Date of Submission: 23.03.2017
Contents

1Abstract…………………………………………………………………………………………02
2. Introduction……………………………………………………………………………………02
3. Importance of an Ethical Culture in the Finance Sector & Banking……………………….....03
4. Unethical Business Practices in the Financial Sector & Banking…………………………….04
5. Ethical Dilemma in the Banking & Finance Industry for Discussion………………………...06
6. Critical Business Situation……………………………………………………………………10
7. Stakeholder Impact Analysis on the Critical Business Situation……………………………..11
8. Analysis of the Critical Business Situation Based on Normative Theories of Ethics………...14
9. Triple Font Theory of Moral Decision Making……………………………………………….18
10. Policy Recommendations…………………………………………………………………....19
11. Conclusion…………………………………………………………………………………...19
12. Reference List………………………………………………………………………………..20
Abstract
The study would investigate on the impact of business ethics in the Finance Sector and banking
and its professionalism by their products’ advertisements and critically analyze the business
situation of the Central Bank proposing a Code against unethical and misleading advertisements
by the financial sector businesses. The ethicality and the morality of the business situation would
be elaborated based on the Normative theories and the Triple Font theory of business ethics and
finally following with policy recommendations.

Introduction
Business Ethics is all about doing the right thing with reference to moral principles. CIMA official
terminology (2015).

Strong ethical principles add value to a brand and help businesses to increase the long term
profitability. CIMA official terminology (2015).
The role of a banker and a finance officer is based on trust. Financial institutions mainly play the
role of an intermediary by directing funds from those with a surplus to those with financial
deficits in the form of accepting deposits and lending money. They are vested with the
responsibility of safeguarding the customers’ deposits thus accepted and return the money back
on their demand. Green, F (1989)

Source: Google images (n.d.)

Importance of an Ethical culture in the Finance Sector & Banking
Unethical Business Practices in the Financial Sector & Banking
Ethical Dilemma in the Banking & Finance Industry for Discussion

Out of the above stated situations, the situation I would consider most effective on the ethical
stance of a bank and other finance company is their promotional activities as it effects on the
entire public’s perception on that particular financial institution.

Advertisements on Financial products being misleading & Unethical

Advertising is a dynamic means used by organizations to attract customers and expand the
outreach for their products. Such advertising by several organizations in a particular industry will
improve the product awareness and demand for the range of products in the industry.
Commercial advertisements are the main drive/vehicle for financial investment by customers.
Such advertisements could deceive consumers even if that was not the intention of the
advertisements. It all depends on what a reasonable ordinary member of the public would
understand from the advertisement.

Testimonial advertising
Balance Transfer Installmen

t Plan?
CRITICAL BUSINESS SITUATION

Central Bank Warning against Misleading/ Unethical Advertisements and Introducing a Code
against Misleading Ads.
B,

The Code against Misleading Ads

Stakeholder Impact Analysis on the Critical Business Situation
Let’s analyze the impact on different stakeholder groups on the Central Bank’s Code for self-
disciplining advertising in the Financial Sector.
Stakeholder Group
Major Shareholders
The Board of Directors
Level of Interest
High power/ High Interest
(Key Players)
High power/ High Interest
Management Response
The Code against unethical
advertisements is for the wellbeing of
the entire society. Though initially it
would be on voluntary basis if Central
Bank realizes the businesses are not
adhering to it, it would be enforced as a
law. The Code would ensure the
general public understand the risks
associated with the financial products
better. E.g. in the case of FDs when
customers realize the 17% interest is
only for FDs with 5 year maturity they
might not want to opt for it. In this
sense the return on shareholders might
affect in the short run. However, the
ethical stance of the business would
ensure sustainability and increased
revenue in the future. Therefore
management must Consult the major
stakeholders and inform them on the
long term impact to the business by
gaining trust & confidence of the
customers and also the possible legal
consequences in the future on non-
adherence.
The board of directors would have
concerns in terms of the effect on
company profits. Sales of the financial
products would be affected in the short
 run. As their salaries and bonuses
would be based on company profits
they would not be satisfied with the
Code. However, if they are explained
on the long term impact on the business
by developing a loyal customer base
they would have less objections on the
short term impact. Therefore, the
management will have to involve and
consult them in the key decisions.
The Government High Power/Low Interest

The Marketing Department Low Power/High Interest

Business Development Low power/ High Interest
Officers (BDOs)

Accredited Advertising High Power/ High Interest

Agencies Association (4As)

Media High power/High Interest

Potential Customers Low Power/ High Interest

Existing Customers
Low Power/Low Interest
The existing customers are those who
have already purchased the financial
products from the banks or other
financial institutions. They would not
show much interest on the revised
advertisements. The management
would need to exercise minimal effort
with regard to this stakeholder group.

Analysis of the Critical Business Situation based on Normative Theories of Ethics

Utilitarianism

From a Utilitarianism perspective the Code against unethical and misleading advertisements
should derive benefits to a larger portion of the stakeholders. It is true that improved clarity on
product risk information would enable better informed financing decisions by customers and
ensure the well being of the finanacial sector. Lets analyse this fact by considering different
stakeholders of the banks and other financial institutions.
Potential Customers – The potential customers would have greater access to product risk
information so that they could make better informed financing decisions.
Financial Institutions –The long term sustainability of the Financial institutions would be
ensured with a loyal customer base as customers would feel trustworthy and confident on the
financial products. Financial losses in terms of compensation payments for customers, penalty
payments and tarnishing of brand image could also be eliminated.
Government – The government would be favourably impacted as the Code would ensure the
wellbeing of the consumers, Finanacial system stsability would ensure economic growth and
development.
Shareholders – Shareholder returns may be negatively affected in the short run. Customers
being informed on the financial product risk factors which were previously not disclosed clearly,
would now reject certain financial products which they opted for earlier. However, in the long
term the ethical stance of the business would ensure stable returns.
Media – The main source of income for media stations is through the advertisements which
they telecast through electronic media and publish through print media. Their stream of revenue
may be negatively impacted as they would have to refuse certain advertisements which does not
adhere to the Central bank’s guidelines. However, as Financial institutions cannot refrain from
advertising their products, they will have to revise the artwork of their advertsiments according
to the Code by Central bank in a manner they would be accepted by the media channels. Also in
the long term the ethical image of the business would ensure long term existence in the market.
From the above discussion it is clear that the Code introduced by the Central bank, would ensure
the well being of the greater number of stakeholders in the long run though it would affect the
returns of some stakeholders in the short run to a certain extent.

Egoism

Finacial products are complex. Advertising financial products in an unethical and misleading
manner would lead to customers opting for credit cards, loans, leases without a clear knowledge
on the risks associated and finally failing to repay the dues leading to huge amounts of NPA for
banks and other financial institutions. When the finacial institutions are unable to recover the
loans granted they would be faced with liquidity issues and finally being bankrupted. In such an
instance the Central bank will have to infuse the required capital to prevent such institutions
collapsing and thus ensure the stability of the financial system. Therefore,as per the concept of
Egosim, The Central bank of Sri Lanka is keen on introducing a Code against unethical and
misleading advertisements in order to avoid any financial loses it would incur in terms of
funding bankrupt finacial institutions and compensation payments for customers.
The apex body for advertising agencies in Sri Lanka, the Accredited Advertsing Agencies
Association collabaroting with the Cebtral bank in this juncture is for them to establish a
favourable relationship with the regulators and to showcase itself as a good corporate body.
The fact that the advertising experts being on the view that the code should be adopted as a
guideline to develop self discipline and not as an enforcement by law, is for them to ensure their
relationships with their colleagues in the field of advertising are not impacted negatively.

Ethics of Duty

According to this perspective an action should be adopted without considering ones own desires,
social relations or circumstances.
The code introduced by the Central bank is fair by all those who require access to clear,
transparent information on financial products so that better knowledgeable financing and
investing decissions could be made with less dissappointment after purcahsing the product.

Ethics of Rights & Justice

The main contributors to this theory are John Locke and John Rawls.
The decision to introduce a code against unfair and misleading advertisements by the Central
Banks’s Consumer Affairs Authority, is in order to comply with the right of human for
information.
The Central bank is the ultimate regulator for all banks and other financial institutions in Sri
Lanka. Therefore, though adopting is on voluntary basis, non-adherence would lead severe
penalty payments in future. Therefore the financial sector businesses will have to revise their
advertisements in order to include more clarity and transparency in the information provided.

The Central bank’s code on advertising would do justice to the potential investors and borrowers
of financial products who are hunting for information prior to investment or borrowing. The
unfair competition existing among the financial sector key players would be eliminated to a
greater extent thereby protecting the consumers’ interests.

Virtue Ethics

Though the Central bank’s intention is to protect customers’ interests through introducing a code
against unethicality of advertisements, the public perception would differ from that. They would
think that this is another mechanism for government to collect revenue to compensate the budget
deficit by way of imposing penalty payments on banks and other financial institutions. The
opposition too would attempt to convince the society that there is an underneath intention of the
government behind this motive and try to gain a short term political benefit.
Triple Font Theory of Moral Decision Making

Application of the Triple Font Theory in the context of the Critical Business Situation of
Central Bank introducing a Code against Unethical Ads

The Moral Object

The moral object of introducing a code against unethical advertising is to improve the customer
know how on the risks associated with financial products and could thereby make wise
investment decisions. The unfair competition among the businesses in the financial sector would
be eliminated thus protecting consumer interests. Although in the short run businesses would
face certain disadvantages in their product sales volumes, in the long run it would ensure benefits
for the majority of the stakeholders.

The Intention
The accredited advertising agencies association is extending support to the Central Bank at this
juncture to uplift their image as a good corporate body and to strengthen their relationships with
the regulators. The fact that the advertising experts influencing the code to be of voluntary basis
is to ensure they have less pressure from the advertising giants in the field.

Consequences
The circumstances follow from the intention and the act. A particular objective act is chosen for
a particular subjective purpose, and the result is particular consequences. Ronald, L (2010)

The code by Central bank could be argued as morally good as it derives favorable results for
greater number of the stakeholders in the long run. Consumer interests are protected, the ethical
outlook of the financial institutions are enhanced, less intervention by the regulators and
financial outflows in the form of compensation and penalty payments.
 POLICY RECOMMENDATIONS

The Code thus proposed by the Central Bank of Sri Lanka ensures the protection of consumer
interests to the most. However, since the code is not enacted as a legal enforcement adherence by
the financial institutions and banks to the Code is questionable. There is no evidence of the
financial businesses embedding the Central Bank’s guidelines in their advertisements. Majority
of the businesses are still continuing with their usual advertisements.

Therefore, I recommend that the Code should be made mandatory with penalties being imposed
for non-compliance. The Central Bank in collaboration with the Accredited Advertising
Agencies Association (4As) should set rules and regulations for media channels in the event of
accepting advertisements by the financial institutions and 4As should be vested with the
responsibility of monitoring the media channels adherence to the rules.

The Consumer Sales units of banks and financial institutions would experience a reduction in the
sales volumes in the short run as the customers who earlier opted for certain financial products
without being clear on the risk factors associated would now refuse them. Finance departments
of these businesses would then attempt to cut down on the budget allocation for the Marketing
departments as products’ sales are not justified with the cost incurred on advertising while
imposing pressure and demotivating the marketing teams. Therefore, the top management
should make sure to revise the targets set for the sales units in the short run and also ensure there
is no reduction in the marketing budget allocation by the Finance and planning departments.

CONCLUSION
Reference List