Institutions of finance have been caught up in the world dynamics of regulation that require operations to be based on ethical standards. The financial sector is governed by international monetary regulatory groups, such as the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision, which set principles and standards to advance vigilance, transparency, and accountability. Furthermore, the Basel III regulation surfaced complicated capital adequacy requirements and risk management levels for global financial resilience (Helmig et al., 2013).

In addition, monetary establishments are under the immense examination of international players, such as investors, clients, and the media. In our highly interrelated world, due to fast changes in time among these countries, news about banks’ unethical behavior can travel and very quickly erode their reputation and financial standing on a global scale. One of these could be the Wells Fargo fake accounts case in 2016. This scandal ruined the bank’s reputation and brought them substantial financial penalties and loss of customer trust (Doshi et al., 2019).

2)    Local Pressures:

Here, the financial firms are under regulatory protection, and the general public demands expediments regarding ethical behavior. Financial regulation authorities such as the Financial Conduct Authority (FCA) in the U.K. and the U.K. Securities and Exchange Commission (SEC) in the U.S. are in charge of the law practice and rulemaking to stop deceptive activities and protect consumer interests. The regulators carry out audits, investigations, and inspection roles in the execution and enforcement of ethical standards and legal requirements (fair practices, personality, data, and financial policies and procedures) (Doshi et al., 2019).

Moreover, financial institutions compete with each other by trying to demonstrate to customers, shareholders, and the community that they embrace good values and corporate social responsibility. From the clients’ perspective, Banks should be accountable and provide indisputable services without fraud. The stakeholders are no exception and want to see emerging leaders who fully adhere to corporate governance rules and policies.

Task 3 (b)

Institutional ethics, in which each individual leads the decision-making process, are essential to financial institutions. Thus, David, as well as the small bank operations manager, acts in the face of ethical dilemmas to which careful consideration of his professional obligations and moral duties is needed.

1)      Duty to Report:

One of the primary ethics principles involved is David’s obligation to report some fraudulent activities such as check kiting issuance to the competent authorities. As a finance specialist, David should act in the interests of the bank while keeping in mind the interests of its stakeholders. This duty includes reviewing and providing guidance on ethically or legally questionable activities that could damage the institution’s reputation or clients. By ignoring the check-kiting activity, David brings about the possibility of his implication in continued fraud, which violates his professional ethics (Banks, 2016).

2)      Conflict of Interest:

Although David is friends with the chief financial officer (CFO), who is involved in the check-kiting, the relationship poses a possible conflict of interest. Professional ethics require professionals to be objective and impartial in their decision-making, irrespective of any situations that personal relationships bring for them. David will have to deal with this predicament properly to ensure that his course is within the moral requirements and not just a desire or bias, personal or based on loyalties.

3)      Transparency and Accountability

Ethical conduct in the banking industry involves honesty and responsiveness to account for financial services. Bank customers trust banks to ensure the inviolability of their Business and the security of their funds. By letting this phenomenon be wild, the bank jeopardizes its reputation and violates the trust of its clients. The principles of professional ethics obligate David to ensure accountability and transparency in his battle against corruption, even if he has to implicate people with whom he has personal relationships.

4)      Legal Compliance

Market practitioners must adhere to the laws and regulations regarding the industry in question. Check-kiting is one fraudulent activity that is against the banking rules. David ignoring these criminal operations breaks ethical rules and positions the bank in legal danger. Ethics in the workplace require him to take the lead in confronting unfair practices and stopping situations that could harm the organization and its shareholders more (Wang & Calvano, 2013).

Task 3 (c)

1)    Ethical Theories & Decision Making

In this case scenario, David, as the manager of operations at a minor bank, encounters intricate ethical dilemmas concerning check-kiting, personal relationships, and duties.

a)      Utilitarianism:

In utilitarianism, acts are judged based on their consequences and aim to increase utility for most people. In the situation when David should make the decision responsible for the numerous stakeholders, including the bank, its clients, the CFO, and himself. Through reporting the activity of check kiting to the bank, David might assist in saving the bank and its customers as much harm of financial type as possible and thus provide more utility. Yet, he should also consider the conceivable drawbacks, like crumbling his personal relationships with the CFO or his upper management retaliation (Cohen & Ahn, 2016).

1. Deontology:

Deontological ethics concerns actions’ inner right and wrong, which do not depend on their consequences. In the deontological view, David is required to observe ethical norms and bear legal accountability by reporting fraudulent conduct. No matter how personal relationships and consequences shape the picture of those events, David is obliged to act under up-to-date ethical and banking norms and standards (Chakrabarty & Erin Bass, 2013).

c)      Virtue Ethics:

According to virtue ethics, we work on our moral personality and identify such traits as honesty, integrity, and courage. David’s deliberations, specifically, should be based upon these virtues, even the difficulty of their personal life. By displaying integrity and accountability in his actions, David maintains his primary goal, contributing to the bank’s ethical climate (Slote, 2023).

2)    Factors to Consider in Decision

Several factors should be considered by David when making his decision:

a)      Legal Compliance:

As David enters the banking industry, he needs to monitor his behavior to ensure it is within the regulations and legal compliance. Checking for dishonest or fraudulent activities, such as kiting, is ethically imperative in addition to legally mandated.

b)     Professional Integrity:

The ethical impact of Business is a primary concern of the financial professional, who must be honest and transparent in all his personal transactions. Underpinning ethical standards is one of the fundamentals to retain the integrity and credibility of the banking sector.

c)      Conflicts of Interest:

David needs to scrutinize potential conflicts of interest, including those related to his friendship with the CFO and the boss. Even though interpersonal relationships can trigger emotional reactions, they should not hinder him from doing what is right or harm him as a representative (Janssen et al., 2017).

d)     Consequences:

David should think over his deeds, bearing in mind the impacts they bring not only on him directly but also on others. The problematic conversations and strained relationships during the complex reporting of the check-kiting activities are small compared to the harm that the results of inaction could cause. The long-term consequences will take control of the bank and the stakeholders.

3)    Potential Causes of Action by David

a)      Report the Fraud:

Should he be able to handle the case and notify his manager, David could also alert the right regulators about this specific check-keeping case. This thinking thus necessarily points to his fulfilling the moral duty of preserving the lawfulness and interests of the bank and its customers.

b)     Seek Guidance:

A feasible option for David is to ask for help from his mentor, the ethics committee, or a legal advisor, considering the best ethical way to solve this problem. Another great help would be contacting a knowledgeable person to save time he may take in coming up with rational decisions.

c)       Address Conflicts of Interest

David can disclose his relationships with the CFO and his reporting boss to uphold a good faith principle and avoid conflicts of professional ethics. Regular communication and fairness of the process play well together.

Ultimately, it becomes clear that David has to be morally guided primarily by the ethical theories of utilitarianism and deontology in addition to legal compliance, professional integrity, conflicts of interest, and potential consequences. If the moral issue of the case is given due attention and a consideration of ethical principles is taken into account, David can make a judgment with a valuable quality of proper morals, which then will uphold the honor, truth, and responsibility principles.

Task 4

 Let us scrutinize agency theory by taking a closer look at components such as using extrinsic motivation and opportunism and then present some alternatives that might be more suitable.

1)    Strengths of Agency Theory

a)    Clarity and Predictability:

Agency theory offers a simple structure for considering various organizational linkages. It defines these concepts and determines the roles and expectations of principals and agents. It integrates these affairs by creating contracts that set out the parties’ rights, duties, and rewards.

b)     Risk Management:

Through early prevention of a possible crucial conflict of interest and disclosure of information, agency theory contributes to the creation of safety measures designed to eliminate risks. The mechanisms are performance-based incentives, monitoring, and bonding, which make the agent a true partner with the principal(Panda & Leepsa, 2017).

c)      Performance Incentives:

It highlights implementing reward systems and incentives that effectuate the agent’s behavior toward the principal’s interest. This is especially significant in cases of the principal not monitoring the agent’s actions when cost or feasibility issues prevent him from doing so.

2)    Criticisms of Agency Theory

a)      Overemphasis on Financial Incentives:

The prime sphere of agency theory is extrinsic motivations like bonuses and stock options. This approach can be unfair to decent and inner-self-driven motivations because they provide many individuals with professional pride, ethical standards, and workplace satisfaction.

b)     Assumption of Opportunism

Although agency theory hypothesizes that agents might become opportunistic in the absence of control systems, this may produce an excessive reliance on control mechanisms that do not facilitate trust and cooperation amongst the organization’s members.

c)      Cost of Controls

The theory defends supervision and bonding to enforce monitoring of the agent’s performance. However, this can be costly. Occasionally, these expenses are even higher than the gain in performance resulting from increased efficiency. #

d)     Narrow Scope

Conflicts of interest and discrepancies in information are the primary issues within the agency theory, but the theory might not have answers for other organizational dynamics like power relations, social norms, and cultural impacts on organizational behavior.

3)    Alternative Governance Approaches

a)      Stewardship Theory:

This concept suggests that an agent’s whole purpose is to align his/her personal interests with the organization to which he/she belongs. It implies that this leads to the unification of the organizational goals with the motions of the agents and to realizing that the agents’ rewards must be adjusted in light of this. This, therefore, brings about the realization of psychological empowerment and proper focus on the intrinsic rewards of agents.

b)     Resource Dependence Theory:

This approach focuses on the significance of external factors and how executives and board members can bring such assets to the Business. Thus, this type of approach concentrates on achieving these purposes. It serves as a transition from watching over and regulating to utilizing partnerships and networks, which, in so doing, results in superior organizational results.

c)      Sociological and Behavioral Approaches:

These methods ponder the larger framework of the societal and cultural narrative through which the relations of principal-agent work. The latter discourse puts norms, organizational culture, and social capital on the stage of tools to ensure alignment of interests and reduce the need for costly monitoring.

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