Does COVID-19 trigger unethical behaviour?
According to the majority of Australian respondents, surveyed by the CFA Institute, the coronavirus pandemic might trigger more unethical behaviour and regulators should focus more on educating the public about the risk.
The survey found that there was some evidence emerging that levels of insider trading went up in global stockmarkets during the COVID-19 pandemic and 51% of Australian respondents believed that it was likely the current crisis would result in unethical actions in the investment management industry, compared to 45% globally.
Further to that, 82% of respondents in Australia said that companies that received emergency support during the crisis should not pay dividends or compensate executives with bonuses, compared to 75% globally, and 81% of Australian respondents thought that the regulator should focus on market surveillance, compared to 82% globally.
However, a similar percentage of respondents (85%) were of the opinion that a ban on short-selling should not be considered but a review of exchange traded funds (ETFs) activity during the crisis should be initiated to determine the nature of their potential systemic impact.
As far as the regulatory response was concerned, 50% of respondents believed that conduct regulation should not be relaxed to encourage trading and liquidity (26% thought that it should be relaxed), with 69% of respondents suggesting that regulators should actively seek the appropriate response through consultation with industry.
At the same time, Australian respondents predicted large-scale bankruptcies and a further acceleration of automation to reduce costs. Also, further consolidation was also a theme, as well as divergence between emerging and developed markets, and a potential reduction in the globalisation of financial markets, the survey found.
“Among the most concerning findings is that most Australian respondents believe that the COVID-19 crisis could trigger unethical behaviour from finance and investment professionals, as opportunities to gain in volatile trading will undoubtedly present themselves,” Lisa Carroll, chief executive of CFA Societies Australia said.
“During times of crisis, all participants in the financial services industry need to ensure that they do not prioritise their personal financial interests ahead of those of the investing public or their companies or adopt illegal practices. This is something regulators will need to monitor closely as the pandemic leads to stressed market conditions, volatility and sharp changes in asset values.”
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