From CompliNEWS Ethics | Financial Services Intelligence Watch
By Lee Rossini
In financial services, trust is a valuable asset. Clients trust financial institutions with all aspects of their financial lives, including their financial futures. For this reason alone, ethical behaviour cannot only be a compliance requirement; rather it is a strategic imperative. While policies, regulations, and controls are essential, they cannot be a substitute for a strong ethical culture that guides everyday decisions when no one is watching.
An ethical culture is the shared system of values, behaviours, beliefs, and practices that encourages employees to consistently make decisions that are honest, fair, transparent, and in the best interests of clients and stakeholders. Professor Linda Treviño, one of the world’s leading researchers in business ethics, defines ethical culture as the formal and informal systems, including leadership, rewards, policies, and social norms, that influence ethical behaviour throughout an organisation. Recent research continues to reinforce this definition, highlighting that ethical cultures are built through both organisational systems and day-to-day behaviours.
Regulators are starting to recognise that organisational culture is one of the strongest predictors of client outcomes. The UK’s Financial Conduct Authority (FCA) describes culture as the habitual behaviours and mindsets within an organisation and identifies purpose, leadership, governance, and reward systems as the primary drivers of employee behaviour. An ethical culture goes beyond compliance with laws and regulations. Ethical businesses understand that long-term trust is more valuable than short-term profit.
An unethical culture usually develops gradually rather than through a single event. Warning signs include pressure to achieve financial targets at any cost, incentives that reward sales without considering client outcomes, poor accountability, and leaders whose behaviour contradicts the organisation’s stated values. In these environments, employees may fear speaking up, mistakes are hidden rather than discussed, and ethical concerns are viewed as obstacles to business performance. Over time, employees become desensitised to misconduct, leading to conflicts of interest, mis-selling, fraud, or poor treatment of clients. Organisations lacking integrity usually suffer from weakened investor confidence, reputational damage, and increased regulatory scrutiny. Integrity must therefore become part of everyday business practice rather than a compliance exercise.
Building an ethical culture requires deliberate leadership and consistent reinforcement across every level of the business:
Leadership must model ethical behaviour
Culture begins with leadership. Employees observe what leaders do more closely than what they say. Decisions about promotions, remuneration, client treatment, and accountability send powerful messages about organisational priorities. Leaders who demonstrate humility, fairness, and transparency establish the behavioural standards for everyone else.
Define purpose beyond profit
Successful financial institutions articulate a purpose centred on creating value for clients and society, not solely on financial performance. When employees understand how their work contributes to improving clients’ financial wellbeing, ethical decision-making becomes easier.
Align incentives with desired behaviours
Reward systems should recognise not only business performance but also how results are achieved. If employees receive bonuses solely for revenue generation, they may ignore client interests or organisational values. Performance management should include measures of integrity, collaboration, client outcomes, and risk management.
Create psychological safety
Harvard professor Amy Edmondson’s research on psychological safety demonstrates that employees are far more likely to report concerns, admit mistakes, and challenge unethical behaviour when they feel safe from retaliation. Regulators are starting to recognise psychological safety as a key characteristic of healthy organisational culture.
Encourage employees to speak up
Mary Gentile’s influential Giving Voice to Values framework shifts the focus from recognising ethical issues to equipping employees with the confidence and practical skills to act on their values. Organisations should provide confidential reporting channels, respond constructively to concerns, and celebrate employees who raise issues responsibly.
Make ethics part of everyday conversations
Ethics should not be discussed only during compliance training. Regular discussions about ethical dilemmas, client case studies, conflicts of interest, and decision-making reinforce organisational values and help employees navigate complex situations.
Hold everyone accountable
An ethical culture requires consistent accountability regardless of seniority or business performance. Employees quickly recognise whether ethical standards apply equally across the business. Fair and transparent consequences for misconduct strengthen organisational credibility.
Measure culture continuously
Culture cannot be managed unless it is measured. Employee surveys, client feedback, whistleblowing data, conduct incidents, staff turnover, and behavioural indicators provide valuable insights into cultural health. Continuous monitoring enables leaders to identify emerging risks before they become systemic problems.
Successful institutions recognise that ethics and commercial performance reinforce one another. Businesses that demonstrate integrity attract loyal clients, engaged employees, stronger investor confidence, and greater regulatory trust. It can be argued that integrity creates healthier markets and more sustainable business performance, while regulators continue to emphasise that healthy cultures reduce conduct risk and improve client outcomes.
Ultimately, ethical culture is not created through policies alone. It is built through thousands of daily decisions made by leaders and employees who consistently choose to do what is right, even when it is difficult. For financial services businesses, cultivating an ethical culture is no longer optional. It is fundamental to long-term resilience, reputation, and sustainable success.
References
Treviño LK & colleagues’ Ethical Culture in Organizations: A Review and Agenda for Future Research’ Business Ethics Quarterly (2024).
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