A Discussion on Ethics and the FRM Course

Estimated reading time: 9 minutes


The role of ethics

Is there really a need for ethics in the Financial Risk Manager course? The short answer is…absolutely yes. In the past, financial risk management was almost like an esoteric exercise.

It was designed to trim losses and achieve high compliance.

That is slowly changing as more and more businesses fall victim to an array of intricate intangible risks. Such risks will range from breach of conduct to endless cyber threats.

In addition, the scope of risk management is expanding to encompass ethical decision making. Ethics is part of the principles enshrined by the Global Association of Risk Professionals.

Though there are strong policies, systems, and procedures for addressing risk; it would all be worthless if there is no right human attitude and acceptance.


Using ethics to improve risk response

One of the prominent types of risks today is having unethical behavior within an organization. Adequately and swiftly addressing this aspect of risk can help to tackle all other types of risks at their roots.

GARP has a guiding code of conduct for all qualified professionals to adhere to. Ethical decision making does improve the effectiveness of risk management and creates a strong and intelligent risk culture.


Complex system failures start with human failure

Organizations typically understand too well the importance of ethics…once there is a problem.

Businesses have learnt lessons from the Deutsche bank scandal to Uber scandals and Equifax’s Data Breaches; big system failures start with simple human failings.

For this reason, employers want companies steered by leaders that adhere to a strong code of ethics.

These include highly ethical risk management professionals that work to avoid conflict of interest, bad deals, and dishonesty of all sorts.

The world over, particularly in the financial industry, certified individuals are known to be ethical.


Ethics, risk awareness and risk management

Businesses are waking up to the realization that every employee and stakeholder has a role to play in risk management.

With that realization, the demand for highly qualified risk professionals that can help to properly communicate risk to all individuals has skyrocketed.

As opposed to just countering risk with complex systems that usually have blind spots, risk professionals aim to promote risk awareness, value systems, and ethics.

To accomplish that, one needs to be a good communicator, lead by example and to have relevant risk knowledge. The FRM certification helps leaders to check right on these boxes.


A strong value system helps with growth

The financial environment today is marred by uncertainty, grey areas, and inherent variability.

Companies with strong value systems can safely navigate this environment and avoid the risk of non-compliance or unethical employee conduct. Sadly, too often value slogans remain to be empty words in company reports.

For these words to have practical meaning, employers are on the hunt for risk management professionals that can make the tough calls and propel risk awareness to the fore.

Certified individuals are increasingly proving worthy of that mantle.


Financial risk thrives in the dark

Ethical lapses that groom big scandals, among other types of risks happen in the least visible places. These scenarios happen where they are opportunities to hide, where there is less supervision and under-staffing.

Increasing the level of risk awareness in such areas can help to shine a light on the operations and root out risk before it happens. For that reason, the need for experts has been on a steady climb in the past few years.


Breach of privacy and ethics

When what is private is laid bare for all to see, ethics is typically a factor that determines whether a company survives or fails.

Wiki-Leaks revelations caused irreparable damage to a certain political campaign, and insider information of Big-Tech companies that are exploiting users often leads to fines reaching tens of millions of dollars.

With a strong adherence to ethical standards in business dealings, such risks can be avoided.

Some of these risks may stem from a company exploiting grey areas of regulation, but in the public eye, ‘grey’ is just as shady as black when it’s not in their favor.

Given the far reaching implications of information and privacy breach, companies realize the importance of keeping a clean house.

In turn, that has driven up the demand for qualified risk professionals, particularly those trained in this program by GARP.


Leaders that lead by example achieve the best results

Leaders that ‘do as they say’ have a better chance at managing risk and properly influencing others within the organization.

It is important to remember that ethics, code of conducts, and value systems are not laws and no penalty is stipulated for those in violation.

Nonetheless, the cost of their disregard can be extremely expensive and detrimental. When leaders understand risks and adhere to a strong code of conduct, they can help to steer the company into a better future.

The behavior of a company leader often influences what the rest of the staff members do. For that reason, employers and corporate boards are filling top positions with highly educated risk professionals.

Many firms are in desperate need of persons that practice what they preach. Again, ambitious individuals are planning for such leadership positions through GARP’s program.


Ethical leadership births long-term competitive advantage

As other companies struggle to counter risk with complex systems, others are taking a simple approach by encouraging ethics and ethical conduct.

The latter proves to be effective; as it leads to compliance, high-risk agility, and a positive collaboration towards risk management.

GARP-certified leaders are, therefore helping companies take all the spoils when the competition fails to counter risk by disregarding ethical conduct.


Ethical responsibilities in the financial sector

Ethical consideration is the responsibility of anyone that seeks to achieve compliance with financial regulations in any part of the world.

The 2008/2009 financial crisis is a full reminder of the need for strong ethics, not just for the industry’s sake but for each company’s bottom line.

What makes this a non-compromising subject is that many countries are establishing legislation that targets to raise the standards of ethics in their financial industries.

This course by GARP aims to achieve better risk management through rigorous training and the following of a comprehensive code for risk professionals.


Enterprise reputation rests on ethics

In the scandals mentioned earlier, the biggest cost is not the millions of fines that companies had to pay. Rather, it was the tainted reputation that ensued as a result of poor choices.

Ethics is not just important for compliance purposes; clients and investors demand honesty too.

Consequently, believing that ethical conduct doesn’t matter can be extremely damaging to a firm’s reputation, and its future.

A corporate culture that embraces good ethical conduct is a critical ingredient in effective risk management.

In a complex and evolving era, there needs to be continuous dialogue between risk practitioners and regulators to address the challenges and loopholes in ethics and regulation.

The GARP Global Network can help any company to attain fool-proof risk management in their respective organizations.


Ethical values at the heart of enterprise risk management

In any financial environment, smart businesses will want to leverage ethics to help with compliance and enterprise risk management.

Top companies are molding their compliance and ethical guidelines to touch on all business practices from the front desk to the boardroom.

Ethical conduct is, and will always be, a vital tool in the monitoring, design, and administration of a proper risk management environment.

There are ever-rising expectations for having a stronger ethical culture in companies of all sizes around the world.

Additionally, the tone for ethical conduct must be established from the leadership level and spearheaded by senior management.

Because of this trend, certified Financial Risk Manager professionals are advancing their careers faster than non-certified individuals.


Broadening the perspectives of risk

Financial risk often spawns to non-traditional areas, including reputation, occupational, and many others that affect the firm’s bottom line.

No risk management strategy is as comprehensive in addressing risk scenarios as having good ethical conduct.

Nonetheless, as companies and work-forces become global, the gap between ethical theory and reality widens as well.

Professionals in multinational organizations face challenges in countries where corruption is rampant, or where ethics conflict with politics or even culture.

The FRM program can help to develop a broader perspective of risk, and through networking on a global scale, these professionals are better equipped to handle this new side of risk.


Addressing the relationship between ethics and risk

Many employers now believe that financial risk professionals need new skills to meet the changing nature of risk.

In particular, top leadership needs to hone their critical thinking skills and technical abilities to address challenges within their organizations.

Among the top financial certifications that champion high skills in risk management and ethics is the FRM course. The certification creates professionals with a sound understanding of risk at all company levels.

These well-paid persons can keep up with the changing nature of risk and can maintain best practices in many scenarios.


Embracing professional bodies that champion risk management

For high competency in risk management and ethical behavior, employers are encouraging individuals to seek membership in relevant professional organizations.

More companies are also moving to sponsor personal growth and ethics through professional certifications such as GARP’s offering.

Updating employee knowledge on current risk and ethical standards improves performance in management and value creation.

Highly qualified risk professionals can help in creating policies and procedures to carry out risk training, monitoring and reporting.


Setting up escalation and investigation systems

As part of minimizing risk by encouraging ethical conduct, most organizations are moving to improve their reporting, investigation, and punishment mechanisms.

Such systems typically encourage persons to report incidences of misconduct anonymously.

Risk managers then investigate and resolve the issues before they severely impact the organization. These systems also involve addressing the root cause of unethical behavior.

Here, an in-depth analysis is done to effect resolving the issues within the shortest possible time-frame.


An ongoing process in risk management

Top organizations will take a proactive approach in creating an ethical culture. That is because compliance and ethics work hand-in-hand in supporting all risk management functions.

By supporting and encouraging the right moral conduct, companies can achieve a more comprehensive risk evaluation framework. Ethics can assist in proactive identification, analysis, and management of many types of risks.

Many companies around the world have dedicated teams that work on strengthening and monitoring ethical standards.

As a result, employees may have to sit for code-of-conduct exams, while leadership is taking responsibility for ethics, compliance, and control.

In short, businesses have committed themselves to a culture of continuous improvement and high ethical practices.


Maintaining value focus

Ethics is a major component of all company decisions, both big and small. For the sake of integrity and reputation, organizations are championing better values through improving the knowledge base of their workforce.

Company values play a significant role in all processes, including, but not limited to;

  • Reward systems
  • Human resource policies
  • Promotion decisions
  • Performance management, and
  • Employee evaluation

On all these occasions, managers recognize not only the short-term implications, but also the long-term impact they present. Moments of crises can even help to create a robust ethical culture owing to the intense emotions associated with such occurrences.

The rest of the organization will learn a great deal from the behavior of properly-trained leaders in such moments.


Our Conclusion

Ethics and financial risk management need each other. Ethics can guide appropriate behaviors in relevant situations, while risk management aims to minimize losses and other adversities within an organization.

For sound risk management in an organization, its people must conduct themselves ethically.

GARP champions high standards in financial risk management through the FRM program and we encourage all to take a serious look at it.

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