Ethics Flashcards
CFA Institute Professional Conduct Program
- Overseen by Disciplinary Review Committee
- Professional Conducts Staff conducts inquires
Describe the Six Components of the Code of Ethics
i. Act in an ethical manner
ii. Integrity is paramount and clients always come first
iii. Use reasonable care; be independent
iv. Be a credit to the investment profession
v. Uphold capital market rules and regulations
vi. Be competent
The 7 Standard of Professional Conduct
- Professionalism
- Integrity of Capital Markets
- Duties to Clients
- Duties to employers
- Investment Analysis, Recommendations
- Conflicts of interests
- Responsibility as a CFA member
Conduct Program
Inquiry can be prompted by:
- Self disclosure
- Written complaints
- Evidence of misconduct
- Report by a CFA exam proctor
Discipline
- Cautionary letter
- Sanctions; public sanction of suspension of CFA program
Knowledge of the Law
Requirements
Comply with more strict law
Knowledge of the Law
Guidance
- First, notify supervisor or compliance
- May confront wrongdoer directly
- Dissociate if needed
- No requirement to report to government
Knowledge of the Law
Recommended Procedures
- Seek compliance/legal advice
- Distribute laws and regs internally
- No requirement to report wrongdoers
Independence and Objectivity
Guidance
- Gifts from clients ok, must disclose
- No gifts from vendors (modest gifts OK)
- For issuer-paid research, flat fee is preferred; must disclose
- Users must be aware of credit ratings conflict
Independence and Objectivity
Recommended Prodecures
- Research is unbiased
- Restricted list
- Recommend but do not require travel expenses paid by employer
Misrepresentation
Guidance
- Do not guarantee a return
- No plagiarism
Misrepresentation
Recommended Procedures
- Must maintain record used for research
- Except for recognized places (e.g. bloomberg)
Midconduct
Recommended Procedures
- Adopt a code of ethics
- Provide a list of potential violations and punishments
Professionalism
Recommendations for Firms
- Have a code of ethics
- Provide employees info on laws, rules, and regs
- Have procedures for reporting suspected violations
Independence and Objectivity
Recommendations for Firms
- Research compensation aligns with unbiased opinions
- Restricted securities list (no opinions only facts)
- Limit and require prior approval for employee IPOs
- Establish supervisory procedures for review of actions
- Appoint a senior officer to oversee compliance and ethics
Integrity of Capital Markets
Guidance
- cannot act or cause someone else to act
- If an analyst knows information but the public doesn’t, still can’t act