Background and Case
The baking system typically forms the backbone of different countries’ economic development. This backbone concept is founded on the idea that it offers liquidity to the private sector, individuals, and entrepreneurs, making it more vulnerable to any financial crisis, leading to the focus on this area. Essentially, fundamental concepts such as responsibility, prudence, honesty and trust form the basis of financial services and activities, including banking. Particularly, the banking system requires professionals to apply ethics in their duties to promote sustainability in the banking system. There are ethical standards to prevent bankers from engaging in harmful activities that could have detrimental impacts on the banking system’s business operations.
However, this is not the case in the banking industry, specifically in the United Kingdom (UK). Aldohni (2016, 6) explains that the 2008 financial crisis revealed several weaknesses in the banking and financial industry in the UK, exposing various defects in the regulatory and legal sectors. The exposure contributed to a complete restructuring of the country’s financial regulatory structure for improved supervision and protection of its market participants. Regardless of the changes, the banking industry in the UK is still faced with various ethical issues, making it essential to analyse these factors to assist in providing effective solutions to the issues. The need to make early predictions associated with financial performance in a nation is crucial in preventing a financial crisis, as the 2008 crisis had significant adverse impacts on the economy. It is crucial to consider the factors associated with the fundamental ethical values in the banking industry to improve the business ethos of the sector, positively impacting the economy.
Aims and Objectives
Aims
The study’s first aim involves investigation, empirical examination and analysis of the4 impact of the 2008 financial crisis 2008 and how this translates to the ethical standards in the banking industry. The study aims to assess how the ethical performance of banks affects the overall performance and understand how best to avoid a financial crisis through ethical banking to promote sustainability. The second aim is to establish the ethical concerns affecting the UK banking industry, affecting clients and banks through performance. Thus, the study attempts to establish the ethical issues in the UK banking sector and the adverse impacts associated with these issues. The specific objectives created to assist in meeting the aims include:
Objectives
- To examine how ethics impacts the banking industry’s financial performance.
- To assess the ethical issues within the banking industry and how these can be used to predict future baking industry performance in the UK.
- Explore the association between customers, ethical standards in the banking system and financial performance.
Initial Literature Review
Media reports indicate a significant drop in the public’s attitude towards the banking industry in the UK. Since the financial crisis in 23008, the banking industry in the UK has been under major criticism, fueled by the critical role it played in the crisis, which crippled the country’s economy. Aldohni (2016, 265) emphasises that the financial crisis revealed how contaminated the banking industry was, especially regarding the business model culture, which adversely impacted financial performance. According to Muradoglu, UK financial services experienced significant behavioural problems which contributed to the financial crisis in 2008 due to the increased leverage, which had been going on for a long time without an alarm to correct the issue (2010, 8). The increased leverages had adverse impacts on the nation’s financial capacity, leaving it vulnerable to failure and distress, demonstrating a lack of effective, ethical standards within the banking industry. Therefore, based on the public’s increasingly negative attitude towards the banking industry, it is evident that various unethical practices are contributing to the negative attitude affecting the industry’s financial performance.
Customer treatment is another ethical issue in the UK banking industry affecting its performance, which is greatly influenced by the industry’s culture. The banking industry culture has significantly affected customer treatment, leading to unethical practices associated with customer treatment. Essentially, the culture within organisations shapes how things are done and aligns the values that people stand by with the organisational strategies. The Financial Conduct Authority (FCA) asserts that firms in financial services must establish a culture that is highly pertinent to the customers it offers its services to especially considering the primary role that the industry has in building a society’s economy (2018, 22). The ethical issues that arise from the culture in the UK banking industry include deceitful manipulation of the interest rates, excessive compensation levels and poor customer treatment. Jones and Pollitt (2016) explain that the client’s interests are not always prioritised as most of the banks in the industry only look out for profits more than client satisfaction which is the basis of any business establishment (2). Poor client prioritisation and treatment significantly impact the banking industry culture, affecting the public’s attitude towards the sector and adversely impacting financial performance.
Research reveals that criminal activities within the baking industry associated with market rigging are also unethical, adversely impacting the sector’s performance. The London Interbank Offered Rate (LIBOR) is one of the activities reported under the rigging of markets. McBride stipulates that manipulating the interbank lending rates has adverse impacts on consumer loans due to harsher penalties administered for the consumer loans, the regulatory policy and the financial markets (2016). The author further explains that banks in the UK are also fined over $9 billion due to Libor rigging for brokers and individual traders responsible for Libor manipulation. Libor significantly impacts global borrowing, and when banks internationally rig the interest rates, it also affects different countries’ economies, an unethical practice which limits loan accessibility, affecting economic performance. Fabrizi, Huan and Parbonetti explain that Libor manipulation is an act of malpractice, and this is demonstrated through the punishments on banks; for example, Barclays in the UK is one of the banks associated with the most recent Libor rigging scandal, and after admitting misconduct, the bank was fined $453 million by the UK Financial Services Authority (FSA) (2020, 159). LIBOR manipulation is another major unethical issue ailing the UK banking system, requiring immediate action since this action’s ripple effects are felt globally.
Mis-selling payment protection insurance (PPI) is another unethical concern in the UK banking industry. This miss-selling is part of poor business practices implemented by some banks, adversely impacting organisational financial performance. “The UK’s large high street banks sold more than 10 million PPI policies to almost half of their loan customers, producing an estimated profit of £5bn pa before a ban was introduced in 2009” (Central Finance Board of the Methodist Church n.d. 1). This statement demonstrates the deals that banks in the UK make due to focusing on profitability instead of client needs essential due to the increased possibility of referrals. The banks prioritise the short-term outcomes more than the impacts and suitability of the products offered to the clients. Coppola (2019) stipulates that the PPIU scandal is one of the longest scandals running in the finance sector, especially among lenders, demonstrating the profit prioritisation over client needs in the industry. The wrong escalation in premiums, among other factors, affect affordability, limiting clients from accessing supporting financial aid, and failure to pay compensation from the banks adversely impact the clients’ needs, leading to poor financial performance.
Regulation, transparency, and accountability are compromised in the banking industry in the UK. Henry et al. (2017) offer a typical example of transparency element application in the UK banking sector, where the government announced that the country’s seven largest banks were willing to publish their lending information locally, providing a geographical overview of the personal lending patterns, but this is still deemed inefficient on the transparency levels. While the action may be perceived as a transparency activity, it is crucial to recognise that the type of information revealed is also significant. Aldohni (2016) explains that in the UK finance sector, individuality and unaccountability are common practices, promoting unethical banking, which is dominated by vices such as corruption due to poor regulation, adversely impacting the sector’s financial performance. The individuals’ self-interests drive the lack of accountability since the primary goal is to attain personal gains more than any client’s interests. These actions can contribute to poor lending techniques, impacting sustainability in the banks’ actions.
Research Methods
Typically, research is associated with finding solutions to identified issues after conducting a successful study and analysis of all the situational factors included. Sileyew (2019) believes that research methodology involves studying the research process, the principles and methods involved, the gathering strategies and the analysis and interpretation of the results (3). In this research, a combination of qualitative and quantitative research methods will be applied to achieve the established aims and objectives. According to Aspers and Corte (2019), quantitative research is a more numerical approach used in data production and analysis, using a more structured and rigid methodology, and the variables presented can be in the form of tabulations or other statistical approaches suitable for the specific information available (2).
The reason for using this approach in this research is its analytical nature, which allows the researcher to view the problem from different angles, analysing it effectively through comprehensive testing of the relationship between different variables in the study. In contrast, qualitative research involves a more flexible and less rigid approach because it emphasises information collection and analysis using words. This approach deals with meaning, perceptions, behaviours, experiences and feelings investigations associated with a phenomenon under study (Noyes et al. 2019, 6). In this approach, opinion surveys will be used in collecting primary data, while financial reports from different banks might offer the required secondary data.
Moreover, the regression and correlation analysis will also be implemented to examine the central tendencies in the unethical practices in the UK banking industry. More importantly, financial ratios will be used to cover unique strengths and weaknesses in the banking industry, as revealed by ethical and unethical standards. This information can be attained through credit quality in different banks, liquidity and profitability. Therefore, a combination of the qualitative and quantitative approaches significantly impacts the research, offering comprehensive analysis approaches which facilitate quality research outcomes that can be implemented in the practical banking system to promote positive outcomes through influencing ethical practice across banks in the UK.
Limitations and Ethics
While the study may be effective with strong supporting evidence, various limitations exist. First is the recent tremendous development in the UK banking industry, but there is still a lack of sufficient data associated with how unethical practice contributes to financial distress in the sector. This information is crucial in providing predictive perspectives about the future performance of the banking industry. Due to this limitation, most of the sources incorporated in the study may be generalised and not very specific to certain banks. The sample of banks used may not be sufficient to support the general recommendations made to the banking industry.
Another limitation is the exclusion of private banks. Extracting financial information from private banks is an extreme sport that may hinder the study’s timely completion, adversely impacting the study’s progress. This aspect means that the recommendations and findings are limited to public financial institutions and cannot be implemented in the private sector. The unethical practices identified in the banking industry are also limited to the public banking systems. Therefore, any model developed cannot be implemented in the private sector, yet the study is generalised to the banking industry and not the public only, limiting the study’s scope.
These limitations offer effective areas for future research, suggesting areas that researchers should pay attention to in future. The retail banking sector has more to offer than what is currently demonstrated, and this should be highlighted in future research. However, comparison in performance between the commercial and retail banks should be compared in association with the ethical standards implemented and not from a generalised banking industry perspective. A more inclusive approach should also be adopted in future research to increase the study’s scope without affecting the amount of information available for the reader or distorting the original point of view. Further, future studies should link the relationship between crisis and unethical practices in the banking sector, and this could be crucial as a preventative measure for looming financial crises in future. Further, the role of bank managers in propagating a working environment governed by ethical practices should also be comprehensively covered in future.
Ethics
The study recognises the importance of autonomy and privacy in information collection. In collecting information from the customers, privacy will be maintained by using the clients’ information to propagate anonymity and prevent publishing any information such as personal telephone numbers or addresses that can be used to trace them. Suppose the bank clients do not wish to engage after comprehensive education regarding the purpose of the survey; they shall not be engaged due to respect for autonomy. The right channel shall be followed in attaining financial information from the banks because this is sensitive information that can be misused if it lands in the wrong hands. Crucial information about the banks shall also not be revealed for privacy protection, and the right legal framework shall be followed in ensuring such information is well documented and authorised.
Contribution to Knowledge
First, the study comprehensively adds to the existing literature on the unethical practices within the banking industry in the UK. While this may be perceived as a small contribution, it is not. It is a major contribution due to the diversification of the content covered, allowing the readers to have different views concerning the unethical and ethical practices of the banks in the UK and how this impacts financial performance in the nation. It adds to a better understanding of the underlying issues of looming financial crises and the public’s duty to ensure that any form of crisis is averted. Further, it contributes to increased awareness in the banking industry concerning the malpractices in the sector and highlights the possible solutions that can be implemented to overcome these challenges. Information availability is crucial in decision-making, and this study comprehensively contributes to information availability, providing a vast range of references for other researchers interested in this sector, offering a foundation for different arguments.
Another major contribution is introducing a new conceptual model that the banking industry can implement to assist in overcoming the challenges associated with unethical practices. Once the study commences, identifying the problems is not enough. Reliable recommendations offer crucial information for the various involved banks and individuals to ponder on, to consider the suitability and practical application in ensuring the unethical practices are regulated. Additionally, the study also contributes to linking client loyalty to the financial performance of the banking industry and how this should be valued due to the significant impact it has. By identifying the effects associated with poor implementation of honesty, customer satisfaction, loyalty and trust between the clients and the banking industry, the involved stakeholders get a clearer framework on how the unethical practices impact UK’s financial performance. A bank survey capturing the clients’ perceptions also impacts the banking industry’s understanding of the clients’ needs and how the industry’s activities can be aligned to the customer needs for improved performance financially.
The study contributes to robust empirical findings based on evidence-based information critical to the banking industry’s performance. Customer loyalty dimensions in the retail banking sector and the associative relationship with the bank performance provide the right criteria for banks to examine their financial performance. Valuable findings from the study will reveal how customer satisfaction and loyalty relate and the relationship of these two with baking firms’ profitability. The need to prioritise client needs will be effectively highlighted with strong supporting evidence, eliminating any possible doubts about the recommended actions. The study findings are crucial for any firm in the baking industry in the UK willing to transform its performance based on client satisfaction and loyalty due to the ethical practices which promote such actions from the clients.
