Why might a brokerage firm choose to create its own set of ethical guidelines?

• A. To avoid compliance with government regulations altogether.
• B. To address specific risks and ethical challenges unique to its operations that may not be fully covered by general industry regulations.
• C. To ensure that employees are not held accountable for unethical behavior.
• D. To eliminate the need for internal controls and audits.

Answer: (B)

Verified step by step guidance

1. Understand the role of ethical guidelines: Ethical guidelines are designed to ensure that a company operates in a manner that aligns with moral principles and industry standards. They help address specific risks and challenges unique to the firm's operations.
2. Recognize the limitations of general industry regulations: Government regulations provide a broad framework for ethical behavior, but they may not address the unique risks and challenges faced by individual firms. A brokerage firm may encounter specific ethical dilemmas that require tailored guidelines.
3. Consider the benefits of firm-specific guidelines: By creating its own set of ethical guidelines, a brokerage firm can proactively address areas of concern, such as conflicts of interest, insider trading, or client confidentiality, which may not be fully covered by general regulations.
4. Understand the importance of accountability: Ethical guidelines ensure that employees are held accountable for their actions and help foster a culture of integrity within the organization. This is crucial for maintaining trust with clients and stakeholders.
5. Recognize the role of internal controls and audits: Ethical guidelines complement internal controls and audits by providing a framework for ethical decision-making. They do not eliminate the need for these mechanisms but rather enhance their effectiveness in ensuring compliance and ethical behavior.