Professionalism more important than regulations

February 17, 2013

The financial reforms that are in full swing around the world will remain incomplete and ineffective if they do not also fundamentally improve the behavioural norms of those working in finance and investments. Yet, the signs are that an unbalanced emphasis on new regulations and industry structures risks neglecting the equally important need to improve the values and conduct of practitioners. Nitin Mehta from CFA Institute and Raghu Mandagolathur from CFA Society Kuwait discuss the need for behavioural change for finance and investment professionals.

 


Happily, the template for a solution already exists: professions have long regulated their members' behaviour for the ultimate benefit of society. Of course, it was not always so. In earlier times, there were no restrictions to practise as a doctor, lawyer or an accountant. But frequent experiences of malpractice led to an inevitable realisation that controls were required to establish standards of practise in order to protect the public.

Today, most of us would not consult a doctor for our health unless she was properly certified, current in her expertise, and followed an ethical code. Yet, many readily entrust their savings to those who do not have these qualifications. After the recent crisis, it seems high time that what we expect from healthcare is also demanded from 'wealthcare'. Greater professionalisation of workers in finance should be sought as a remedy which complements new regulations.

Society  rightly demands  more  from  a  profession  and  its members  than  it  does  from  a  trade and its craftsmen.  In return for status, self-regulated autonomy, and often rich rewards, a profession extends a public warranty that it has established conditions of entry, standards of fair practice, disciplinary procedures and continuing education for its members. In doing so, the profession improves the quality of its practitioners for the benefit of their clients. While the most conscientious employers and practitioners join professional associations and adopt their standards, many more do not. A lack of consistent regulation is usually the cause of such a state of affairs.

The GCC region is initiating major regulatory reforms as a swift response to the financial crisis and its aftermath. Celebrated cases of corporate failures, restructurings, defaults and other impediments are sought to be remedied through establishment of new regulatory structures (like ESCA in UAE or the Capital Markets Authority (CMA) in Kuwait) or through new strictures. However, this is not an assurance to prevent recurrence of similar problems or emergence of new problems. The money management industry in the GCC should progress on professionalism as much as it progresses on regulatory reforms. Recruitments to key positions involving financial advice both at institutional and retail level sill happen based on networking skills and language proficiency rather than professional skills as measured by relevant global qualifications combined with multi-disciplinary experience. As the region goes through the next phase of massive government expenditure, it is imperative that regulatory progress is accompanied by a realization of the need to professionalize the workforce especially at a decision making level. 


The recent crisis revealed how serious flaws had developed in the culture of finance. Over recent decades, secular shifts in values resulted in too much emphasis on profits and not enough on professionalism;  an excessive celebration of innovation and entrepreneurship, and not enough of ethics; an unhealthy focus on building a career, instead of character and competence. In other words, a swing in favour of business success and away from professional values. If this arc is not reversed and trust restored, there may not be much of a business left.

Much needs to be done urgently. Regulators should drive broader professionalisation of the financial sector; greater emphasis on professionalism must properly complement and balance the regulatory and industry overhaul reshaping finance. At the same time, employers should require their most valued employees to actively seek professional status as a condition of employment; long-term competitive advantages and investor confidence could be built in this way.  And individual practitioners should adopt the higher standards and obligations of a profession, transforming their work into a vocational calling. Nothing less than such co-ordinated action will reshape the future of finance and protect the laity. 

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