Code of Ethics

It Is Time for a Code of Ethics and Standards for the Financial Services Industry

I don’t know about you, but I have had it with the dishonesty, unethical behavior, and incompetence of those in the financial industry. I think it is high time for those in the finance/business community to start being accountable professionals. When I think of the waste and hardship caused by the latest financial disaster, it makes the daily decisions that professional engineers make seem trivial. It is time for society to require those in the financial industry to have a code of ethics and a set of standards for the products they develop!

As I began thinking about this, I decided to revisit our National Society of Professional Engineers Code of Ethics for Engineers. Here are the introductory sections.

“Preamble
Engineering is an important and learned profession. As members of this profession, engineers are expected to exhibit the highest standards of honesty and integrity. Engineering has a direct and vital impact on the quality of life for all people. Accordingly, the services provided by engineers require honesty, impartiality, fairness, and equity, and must be dedicated to the protection of the public health, safety, and welfare. Engineers must perform under a standard of professional behavior that requires adherence to the highest principles of ethical conduct.

I. Fundamental Canons
Engineers, in the fulfillment of their professional duties, shall:

Hold paramount the safety, health, and welfare of the public.
Perform services only in areas of their competence.
Issue public statements only in an objective and truthful manner.
Act for each employer or client as faithful agents or trustees.
Avoid deceptive acts.
Conduct themselves honorably, responsibly, ethically, and lawfully so as to enhance the honor, reputation, and usefulness of the profession. “

For the complete Code of Ethics, click on http://www.nspe.org/Ethics/CodeofEthics/index.html

As a professional engineer, when I put my signature and certification stamp on a set of plans and/or calculations for a building, bridge, or foundation, I take very seriously the words of this Code.

· Wouldn’t it be nice if the banker or financial analyst who designed one of the latest whiz-bang financial products was a recognized professional who had to put his/her signature and stamp on the product?

· What if the financial products designers had the public welfare upper most in their minds instead of personal greed based in incentives?

· What if the financial designers had to act as faithful agents for their clients – the public?

· What if they truly conducted themselves honorably, responsibly, ethically, and lawfully?

· What if we looked at the financial products and financial models like we look at bridges, airplanes, pipelines, medicines, and food?

· What if the financial models and plans had to disclose the design calculations, to quantify the financial risk, and to show the safety factor built into the product.

· What if we looked at financial components of financial products like we look at wood and steel design and quality specifications?

· What if we required financial components to have design and quality measurements and standards like bolts or beams?

· What if we required the folks deigning the products to be tested and registered with government agencies before they or their companies could offer their products for sale?

· What if we required testing of the financial components, models, and products and the results reviewed and approved by code enforcement before they could be produced or sold?

· What if we had peer-reviewed products and services and cooperative standards writing groups that wrote standards for financial components and products?

· What if we had national quality standards for financial components, models and products?

· What if university business schools did the basic research on financial components from the frame of mind of building a sound, durable, and ethical financial machine that enhances human welfare and human financial safety?

The list of questions and analogies could go on. I am sure those in banking and finance already feel overburdened with regulations, audits, and requirements. After rereading the list, I am sure they would say if we tried to model finance after engineering, we would stifle creativity. We would reduce competition. It would cost too much. We already have professional licensing for real estate appraisers, home inspectors, and financial advisors.

But obviously what we have isn’t working. I figure the financial mess we are in right now will cost the world a minimum of 25 trillion dollars and at least five years of progress. Getting our basic financial and quality standards for designing and evaluating financial components and products in order would be a trivial cost.

I am aware that my questions and comments might be considered superficial and naïve, and that those in the social science of economics think that what they do can’t be tested in other than real life situations. I am also reminded that we need to consider the role of the consumer in all of this. Our “need it all now” American life style leads many to blindly sign mortgages, to over charge, to over spend, and to over leverage themselves to the extent of never getting out of debt.

We have a complicated system mess on our hands. However, I am not sure how much more complicated it is than building a safe car that can be used anywhere in the world or building and running a railroad, or conceiving, developing, testing and selling a new pharmaceutical drug. We should insist that financial products, models, algorithms, etc., be treated similarly to components like bolts and end products like bridges that require full disclosure of the math, that go through thorough testing, that have to have financial impact statements written, that meet government and/or industry standards. We should insist that a competent professional takes responsibility and perhaps even require a signature and stamp affixed to them.

Ray W. Wilson, P.E.