3.4) Duties to Employers IV (C): Responsibilities of Supervisors

Question 1

What is substandard 4(C) to Duties to employers?

Answer 1

Responsibilities of Supervisors

Question 2

What are the responsibility to supervisors?

Answer 2

Must make reasonable efforts to ensure that anyone subject to their supervision or authority complies with applicable laws, rules, regulations, and the Code and Standards.

Question 4

How is 4(C) responsibilities of supervisors implemented by members? (3)

Answer 4

• Must take reasonable efforts to prevent violation of laws, rules and Standards over whom they exercise authority or supervisory role.
• Must take reasonable efforts to detect violations – respond promptly, investigate thoroughly where suspicion, increase supervision or place limitations on
  wrongdoer’s activities.
• Firm must have adequate compliance system, otherwise decline supervisory responsibility in writing until in place.

Question 5

Example 36: Thembi Ngcobo has supervisory responsibility over Aaron Smith, a junior analyst. Aaron is new to the investment industry and his first report on
Venetian Merchants is not of great quality. However, as Ngcobo is about to leave on an overseas trip, she is short on time and signs the report off as a basis for portfolio investment without reading it in great detail. Is Ngcobo in violation of Standard IV(C)?

Answer 5

Solution: Ngcobo’s actions have violated Standard IV(C), as she did not exercise reasonable supervision over Smith when she signed off his report.

Question 6

Example 37: Charters, a trader with Blue Bay, reports to Clarke, Head of Trading. Whenever Charters is instructed to buy shares for the funds managed by Blue Bay’s best portfolio managers, he buys slightly more and allocates the excess to his own private portfolio. He pays for the shares himself, but the brokerage costs are effectively carried by the company’s clients. Clarke has been Charters’ supervisor for the past three years, but is unaware of his activities. Are Charters or Clarke in violation of the Standards of Professional Conduct?

Answer 6

Solution: It is highly likely that Clarke is in breach of Standard IV(C). Charters is in breach of Standard III(A) Loyalty, prudence and care because clients are ultimately paying the brokerage, which is charged against their asset portfolios.