Financial services face ethical challenges, report reveals

Financial services firms are facing significant challenges in ethics and compliance according to a new report by LRN Corporation.

The report, titled "Ethical Gaps in the Financial Services Sector: 2025 Ethics & Compliance Program Effectiveness Report," identifies key areas where financial services organisations are struggling with ethical decision-making, cultural assessment, and supply chain compliance. These issues are highlighted as requiring urgent attention as firms contend with an increasingly complex regulatory landscape.

Ty Francis, MBE, who serves as Chief Advisory Officer at LRN, commented on the significance of the report's findings. "For over a decade, LRN has been committed to identifying and sharing best practices that define successful E&C programs," he said. "This report offers crucial insights into the financial services industry, where strong regulatory oversight exists, yet significant gaps persist in how ethics and compliance are implemented across different levels of leadership."

A notable finding of the report is the disconnect between executive-level decision-making and the approach taken by middle and frontline managers. While 91% of executives reportedly make decisions consistent with company values, only 28% of middle managers demonstrate the same alignment. This 63-point gap indicates a stark divide in ethical expectations and their application across various leadership tiers.

Furthermore, measurement of ethical culture is another area where financial services firms seem to be lagging. The report highlights that only 40% of high-impact financial services programs regularly assess their ethical culture, in contrast to 45% of global high-impact programs. Moreover, just 33% evaluate the effectiveness of their E&C programs, compared to 39% of their global counterparts.

In terms of supply chain compliance, the sector shows a notable lag compared to global peers. Only 25% of financial services organisations have increased their focus on supply chain risks over the past year, compared to 32% in global programs. High-impact financial services initiatives particularly show a disparity, trailing behind global program efforts by 11 percentage points (28% versus 39%).

Francis further emphasised the need for broad investment in ethical culture initiatives. "These findings reinforce the need for financial institutions to invest in ethical culture initiatives beyond the executive level," he stated. "To close these gaps, firms must move beyond traditional compliance metrics, adopting a more strategic, data-driven, and leadership-integrated approach to E&C. Bridging the leadership gap, enhancing the measurement of ethical culture, and addressing supply chain risks will be crucial for strengthening ethical decision-making at every level and building more resilient, principled organisations."

LRN's ongoing research aims to provide insights that enhance ethics and compliance solutions, empowering companies to maintain ethical standards amidst evolving landscapes. The report underscores that E&C initiatives are integral to sustainable business success, extending beyond mere risk mitigation to encompass broader organisational resilience and trust-building.