BEC - Legal and Ethical Issues Lesson

Legal and Ethical Issues

Legal IssuesAs the Internet removes the geographic boundaries of the bank, the question arises as to who can regulate the bank. Without regulation, practices such as money laundering and phishing and an illegal website (or a simple page) with the same 'look or feel' as a legitimate site.

While online banking is subject to the same laws as brick and mortar banks, specific issues arise from the use of the Internet as a banking site. As the Internet removes the geographic boundaries of the bank, the question arises as to who can regulate the bank. Without regulation, practices such as money laundering and phishing, and an illegal website (or a simple page) with the same 'look and feel' as a legitimate site (promping the user to leave confidential data) can occur. Money laundering is the conversion of large amounts of money the source of which one wants to hide (eg, from drug trafficking) into a form that appears to be legitimate. The process often involves multiple international transactions across currencies and financial institutions in order to obscure the source. Phishing is illegal action combining an unsolicited e mail (spam). 

In 2001, the U. S. Patriot Act was created to prevent the use of the U.S. financial system for personal gain by corrupt foreign officials. A companion legislation to the Bank Secrecy Act of 1970, the Patriot Act was further amended in 2010 to provide for additional information sharing between financial institutions and government agencies to deter money laundering and terrorist activity. Review the links below to learn more about the U. S. Patriot Act and its provisions.

Ethics

Online banks also share in the same ethical issues as traditional banks but face others that are unique to their venue. The venus is the scene of any event or action. Banks have a legal and ethical obligation to protect the information they have on their customers. Security breaches are of special concern to online banks, where privacy issues can make or break a bank's reputation.

In 2005 the Federal Deposit Insurance Corporation (FDIC) issued guidelines for what needed to be included in a bank's code of ethics. The titles of the topics included:

  • Safeguarding Confidential Information
  • Ensuring the Integrity of Records. Integrity is the quality of being honest and having strong moral principles.
  • Providing Strong Internal Controls over Assets. Internal controls are a process for assuring the achievement of an organization's objectives in operational effectiveness and efficiency.
  • Providing Candor in Dealings with Auditors, Examiners, and Legal Counsel. Candor is the quality of being open and honest in expressing frankness.
  • Avoiding Self-Dealings and Acceptance of Gifts or Favors
  • Observing Applicable Laws
  • Implementing Appropriate Background Checks
  • Involving Internal Auditors in Monitoring Corporate Codes of Conduct or Ethics Policy. Internal Auditors are independent, objective assurance and consulting activities designed to add value and improve an organization's operations.
  • Providing a Mechanism for Reporting Questionable Activity
  • Clear Penalties for Breach of Code of Conduct or Ethics Policy. A breach is an act of breaking or failing to observe a law, agreement, or code of conduct.
  • Providing Periodic Training and Acknowledgement of the Policy
  • Periodically Updating Policies to Reflect New Business Activities

The way that banks spell out their particular code of ethics is as individual as the bank itself. Banks have many of the same ethical issues as any e-commerce business. Building a reliable code of ethics is essential to the security of the bank and to maintaining customer trust.

 

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