The recent Deutsche Bank probe into the mis-selling of risky foreign exchange derivatives in Spain, as reported by the Financial Times, highlights the importance of governance and ethics in the financial industry.
The investigation highlights the consequences of staff acting in "bad faith" and exploiting flaws in the bank's controls, ultimately violating the trust and confidence of customers.
Small and medium-sized companies often bear the brunt of such incidents, as they end up buying complex financial products that were marketed as safe and cheap, only to be exposed to extensive risk and crippling losses. When institutions fail to detect misconduct early, the consequences can be steep. Redress, sanctions, and the media's favourite brand of "decisive action" – i.e. firing senior management and slashing compensations – are just a few of the pricey remedies happening in these circumstances.
Courtesy of The Financial Times. The Deutsche Bank mis-selling probe is nearing its conclusion © Alex Kraus/Bloomberg
This serves as a cautionary tale for other companies to consider the importance of governance and ethics in their operations. A company's reputation and business line can be significantly impacted if it fails to follow basic principles of transparency and fair treatment of customers.
Moreover, incidents like this, harm the overall reputation of the financial industry, making it imperative for companies to adhere to the highest standards of governance and ethics.
At WieldMore, we take pride in being an independent investment management company, which means we do not need to sell products that we do not believe are suitable and appropriate for our clients' risk profile.
The Deutsche mis-selling scandal also highlights the growing importance of Environmental, Social, and Governance (ESG) fundamentals in business. Companies are being held accountable not only for their financial performance but also for their impact on the environment and society. Investors are becoming more vigilant about a company's environmental, social, and governance (ESG) practices. Those with lacklustre governance may find themselves at increased risk and facing unexpected reputational harm.
In conclusion, governance and ethics play a vital role in the success and sustainability of a business. By prioritizing these principles, companies like WieldMore can not only mitigate the risk of scandals like the recent mis-selling incident, but also cultivate a strong reputation and increase their appeal to investors.