CFA Level 1 - Ethics

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6 components of the CFA Code of Ethics?

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PEJMAR

Priority - Always put your client's interests first.

Encourage - Practice and encourage others to act professionally and ethically to reflect credit on yourself and the profession.

Judgment - use reasonable care and judgment when
performing all professional activities. IE conducting investment analysis, making investment recommendations, taking investment actions.

Maintain - keep your knowledge up to date and encourage other professionals to do the same.

Actions - employ integrity, competence, diligence, and respect in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues in the investment profession.

Rules - promote the integrity of capital markets by following the rules.

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Terms in this set (65)

6 components of the CFA Code of Ethics?

What are the Standards of Professional Conduct?

I. Professionalism
II. Integrity of Capital Markets
III. Duties to Clients and Prospective Clients
IV. Duties to Employers
V. Investment Analysis, Recommendations, and Actions
VI. Conflicts of Interest
VII. Responsibilities as a CFA Institute Member or CFA Candidate

What is Standard I?

Professionalism
I-A: Knowledge of the Law
I-B: Independence and Objectivity
I-C: Misrepresentation
I-D: Misconduct

Standard I-A?

"Knowledge of the Law: covers laws, rules and regulations"

M&C must understand and comply with all applicable laws, rules, and regulations (including the CFA Institute Code of Ethics and Standards of Professional Conduct) of any govt, regulatory organization, licensing agency, or professional association governing their professional activities. In the event of conflict, M&C must comply with the more strict law, rule or regulation. M&C must not knowingly participate or assist in and must disassociate from any violation of such laws, rules, or regulations.

What are the types of exam questions you can expect regarding applying Standard I-A?

Standard I-A covers laws, rules and regulations, will be tested on some possible violation of the law, and how a CFA Member or Candidate should proceed. The following questions may apply:

Did the Member seek the advice of counsel?
Consulting an attorney is typically seen as a good defense against an alleged violation of Standard I-A. Many cases involve someone who works for a firm that has violated the law (made misleading statements on a prospectus, for example). In these cases, look to see if the CFA member or candidate sought and followed the advice of counsel.

Did the member report the violation, and to whom did the member report it? For any potential violation of a law, rule or regulation, if the situation suggests that the member either went along with it, did nothing, tried to cover it up or was afraid to say anything for fear of losing his or her job that is a clear sign that the Standard has been violated. In any example, look for evidence that the CFA member tried to do the right thing. If that person's firm is potentially guilty of violating a law or regulation, he or she needs to start by reporting this situation to his or her supervisor and/or compliance officer. If the situation is not remedied, he or she should distance him or herself from the potential violation and seek the advice of counsel.

For multinational operations, which country's laws apply to the situation at hand?
In the real world, it can be ambiguous if an advisor is domiciled in one country and operates in another. For the purposes of the CFA Level I exam, the candidate isn't expected to be a lawyer and make a judgment - the exam will indicate which country's laws apply to the situation. If a broker or advisor operates solely or exclusively in a country, assume that those laws apply unless it's stated otherwise. The rule of thumb (which states it's the law that applies if it's stricter than the Standards; otherwise, the Standards apply) is usually going to make it easy to arrive at the right answer.