The Street, The Bull And The Crisis: A Survey Of The US & UK Financial Services Industry Presented by The University of Notre Dame and Labaton Sucharow
State Of Play: Unethical Activity Continues To Persist
Nearly seven years after the global financial crisis rocked investors’ confidence in the markets and financial services in general, our survey clearly shows that a culture of integrity has failed to take hold. Numerous individuals continue to believe that engaging in illegal or unethical activity is part and parcel of succeeding in this highly competitive field. With legal and regulatory sanctions coming out on almost a daily basis, the industry has a long way to go to regain the confidence of the public.
- 47% of respondents find it likely that their competitors have engaged in unethical or illegal activity in order to gain an edge in the market. This represents a spike from the 39% who reported as such when surveyed in 2012. This figure jumps to 51% for individuals earning $500,000 or more per year.
- More than one-third (34%) of those earning $500,000 or more annually have witnessed or have first hand knowledge of wrongdoing in the workplace.
- 23% of respondents believe it is likely that fellow employees have engaged in illegal or unethical activity in order to gain an edge, nearly double the 12% that reported as such in 2012.
- 25% would likely use non-public information to make a guaranteed $10 million if there was no chance of getting arrested for insider trading. Employees with less than 10 years’ experience are more than two times as likely as those with over 20 years’ experience, reporting 32% and 14% respectively.
- In the UK, 32% of individuals said they would likely engage in insider trading to earn $10 million if there was no chance of getting arrested, compared to 24% of respondents from the US.
- Nearly one in five respondents feel financial services professionals must at least sometimes engage in illegal or unethical activity to be successful.
- 27% of those surveyed disagree that the financial services industry puts the best interests of clients first. This figure rises to 38% for those earning $500,000 or more per year.
- Nearly one-third of respondents (32%) believe compensation structures or bonus plans in place at their company could incentivize employees to compromise ethics or violate the law.
- 33% of financial services professionals feel the industry hasn’t changed for the better since the financial crisis.
Whistleblowing: Hope and Challenges
There is hope. The marked increase in whistleblower activity along with the strengthening of internal compliance procedures serve as a powerful deterrent to wrongdoers. Still, an alarming number of people report being subject to corporate policies and confidentiality agreements that they believe prevent them from reporting wrongdoing to outside authorities. These troubling policies and agreements can silence the reporting of all local, state, and federal violations. We applaud recent efforts by Congress and the SEC to address these questionable secrecy policies and agreements.
- While the majority of industry professionals (89%) would report misconduct given the incentives and protections such as those offered by the SEC whistleblower program, 37% of respondents are still not aware of the SEC’s program.
- 28% of respondents earning $500,000 or more per year (16% for all employees) say their company’s confidentiality policies and procedures bar the reporting of potential illegal or unethical activities directly to law enforcement or regulatory authorities. In the UK, this rises to 21% for all employees.
- 25% of respondents earning $500,000 or more annually have signed or been asked to sign a confidentiality agreement that would prohibit reporting illegal or unethical activities to the authorities.
- 19% of respondents find it likely that their employer would retaliate if they were to report wrongdoing in the workplace. This jumps to 24% for respondents from the UK.
The Professional in Crisis
We uncovered some of our most astounding results when we examined the ethos of the financial services professional, and the key influencers of bad behavior. Despite three years of significant reforms and high-profile prosecutions since Labaton Sucharow’s 2012 survey, this year, many figures are unchanged and many more have changed for the worse. Our evidence reveals a large number of individuals in the midst of—and losing—an ethical battle of the highest order.
- When looking at their own companies, 23% of all respondents believe it is likely that fellow employees have engaged in illegal or unethical activity in order to gain an advantage over competitors or others at the company, nearly double the 12% that reported as such in 2012.
- This rises to 28% for respondents in the UK, a full 6 points higher than the US.
- With no small amount of dismay, we note that individuals with the fewest years in the industry have the least confidence in their colleagues’ ethical conduct. Nearly one out of every four respondents with less than 10 years, compared to one out of five respondents with more than 21 years, indicate that they believe it is likely that colleagues have made ethical or illegal compromises in order to get ahead.
What would you do if no one was watching? This year, we again ask individuals how likely they would be to utilize nonpublic information to make a quick $10 million if there was no chance of being arrested for insider trading. Consistent with prior years, 25% admit they would likely do so.
- We are particularly dismayed by the ethical standards of the most junior employees in the industry. Looking at the total sample, 32% of employees with less than a decade in the financial services industry said they would likely engage in insider trading to make $10 million if there was no chance of being arrested. This compares to 14% of employees with more than 21 years in the industry.
- Respondents from the UK are either more willing to commit a crime they could get away with, or are more frank about it. A full 32% of individuals from the UK say they would likely engage in insider trading to make $10 million if there was no chance of being arrested, compared to 24% of respondents from the US.
- Testing the total sample, there is a 5-point spread, with 27% of males saying they would likely engage in insider trading to make $10 million if there was no chance of being arrested, against 22% of females. In the UK, the gender spread is even more remarkable; 34% of male respondents say they would engage in this insider trading scenario, compared to 23% of females.
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