Chapter 2 - Ethics and Professionalism

Question 1

What are ethics?

Answer 1

Set of basic principles that ensure people behave for the benefit of all?

Question 2

Why are ethics important?

Answer 2

Builds trust:

a) in markets
b) amongst professionals
c) amongst shareholders
d) amongst regulators

Question 3

What is the THREAT, if practitioners in the industry don’t act ethically?

Answer 3

The industry becomes vulnerable to “government intervention”

Question 4

What are the risks of a firm behaving unethically?

Answer 4

Prosecution and payment to clients

Reputational risk

Question 5

What are the risks of a professional behaving unethically?

Answer 5

risk of investigation and prosecution, disciplinary action from professional body, disapproval from clients, colleagues, and peer group, negative publicity and loss of job

Question 6

Where are the CFA ethics laid out? How many elements are there?

Answer 6

In the CFA Code of Ethics - there are 6 elements

Question 7

There are 7 broad categories in the Code of Ethics - what are they?

Answer 7

i) Professionalism
ii) integrity of capital markets
iii) duties to clients
iv) duties to employers
v) investment analysis, recommendations and actions
vi) conflicts of interest
vii) responsibilities as a CFA institute member or candidate