Some equate ethical behavior with legal behavior: If you are following the law, youmust be acting appropriately. Ethical principles, like laws and regulations, prescribe appropriate constraints on our natural tendency to pursue self-interest that could harm the interests of others. Laws and regulations often attempt to guide people toward ethical behavior, but they do not cover all unethical behavior. Ethical behavior is often distinguished from legal conduct by describing legal behavior as what is required and ethical behavior as conduct that is morally correct. Ethical principles go beyond that
which is legally sufficient and encompass what is the right thing to do.
Given many regulators’ lack of sufficient resources to enforce well-conceived rulesand regulations, relying on a regulatory framework to lead the charge in establishing ethical behavior has its challenges. Therefore, reliance on compliance with laws and
regulation alone is insufficient to ensure ethical behavior of investment professionalsor to create a truly ethical culture in the industry.
The recent past has shown us that some individuals will succeed at circumventingthe regulatory rules for their personal gain. Only the application of strong ethical principles, at both the individual level and the firm level, will limit abuses. Knowing the rules or regulations to apply in a particular situation, although important, may not be sufficient to ensure ethical conduct. Individuals must be able both to recognize
areas that are prone to ethical pitfalls and to identify and process those circumstancesand influences that can impair ethical judgment.