This course aims at raising awareness and scrutiny of students to possible ethical challenges firms, managers and employees face when thinking about financial laws and regulations and their enforcement. It adopts complementary perspectives, starting from economics building blocks, followed by real-life and up-to-date examples. The scope of unethical financial behaviors covers mostly market abuses as defined by the Market Abuse Regulation, with price manipulation, insider trading, and communication of false information (in particular accounting frauds). This course contributes to a better understanding of how ethical issues play a role in finance, and in particular in investors’ trust in finance, how ethics may conflict with firms’ strategies, and of how managers’ and employees’ decisions can impact financial markets and investors’ wealth.
The ultimate goal of this Ethics and Finance course is to prepare students to potential ethical dilemmas they might face along their careers. Upon successful completion of this course, students will be able to challenge and put into perspective the financial behavior of firms (financial institutions and listed firms in particular) in terms of ethics, from an economic perspective.
Main instructor: Laure de Batz
In Fall 2024, this course was streamed to partner universities in five countries and supported by six local instructors:
Karen Petrosyan (Armenian State University of Economics in Gyumri, Armenia),
Žaneta Lacová (Matej Bel University, Slovakia),
Balázs Fazekas (University of Debrecen, Hungary),
Joanna Dzionek-Kozłowska (University of Lodz, Poland),
Ewa Stawasz-Grabowska (University of Lodz, Poland), and
Viktoriia Kyfyak (Yuriy Fedkovych Chernivtsi National University, Ukraine).
Economic theories, globally notorious cases of financial fraud, financial innovations and subsequent challenges in terms of enforcement and investor protection were put into perspective and complemented by local examples. Students engaged with the specificities of financial regulation, supervision, and enforcement in their respective countries. Stylized facts regarding domestic financial markets and market participants were presented, including the spillovers of financial innovations.
Over 60 students successfully completed the course and were awarded the course certificate.
The literature and statistics on transition countries in this area are limited to non-existent. Financial support from the International Visegrad Fund enabled the team of the main and local instructors to collect country specific data and case studies and develop local materials for present and future use.
The first step was to introduce and compare the national specificities in terms of financial supervision. The ultimate question is how much a given country invests in financial supervision and whether this investment encourages legal compliance and deters crimes. The national competent authorities tasked with financial supervision, their budgets and labor force are depicted in the following tables over the period 2014-2023 for Armenia, Hungary, Poland, Slovakia, and Ukraine.
The intensity of supervision of financial markets varies significantly across the five countries and over time. The following tables provide the number of sanctions (i.e., intensity of enforcement) and the size of the fines (i.e., severity of enforcement) imposed in Armenia, Hungary, Poland, Slovakia, and Ukraine from 2014 to 2023. The intensity and severity of enforcement echo two pillars of the Becker (1974) model of crime: What is the likelihood of being caught cheating financial regulations and, if so, what will be the magnitude of the punishment.
According to the Market Abuse Regulation (EU No 596/2014), market abuses consist of insider trading, market manipulation, and the publication of false information (such as accounting frauds). They prevent full and proper market transparency, which is a prerequisite for investor protection and trading for all economic actors in financial markets. Such market abuses have been documented worldwide. Market abuses harm the integrity of financial markets and public confidence in securities and derivatives. The countries under review have not been spared and the local instructors summarized the most notorious financial crimes in Armenia, Hungary, Poland, Slovakia, and Ukraine.
The media coverage of financial crimes can play a critical role in information diffusion: it can contribute to education by setting example and by imposing a reputational penalty for alleged or sanctioned crimes, if stock prices react accordingly. The next set of documents investigate media coverage of financial crimes and sanctions imposed by financial markets supervisors (either central banks or dedicated authorities) in Armenia, Hungary, Poland, Slovakia, and Ukraine.
Each country has a specific banking industry, with varying degrees of concentration, different types of banks, and a varying share of foreign shareholders. Additionally, the weight of banks differs in the economy financing. Finally, banking profitability varies. All in all, none of the region’s banks are potentially “globally systematically important banks,” which would lead to additional capital requirements, according to the Financial Stability Board methodology of identification of potentially systemic banks developed in the aftermath of the Great Financial Crisis. To examine its impact on local banks in the study countries, local instructors collected information on country’s banking sector in Armenia, Hungary, Poland, Slovakia, and Ukraine.
Finally, crypto-assets have been increasingly under the scrutiny of investors and regulators. Mining, speculation and financial innovation attract a wide range of financial markets participants. In parallel, an increasing number of scams and Ponzi schemes also involve crypto-assets, often without any protections for investors when the scams are revealed as the regulation of the assets is limited to non-existent. For each country under review, the following documents summarize a status on crypto-markets developments and regulatory initiatives: Armenia, Hungary, Poland, Slovakia, Ukraine.
