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Financial Markets And institutions > Ethics And Investment Professionalism > Flashcards

Ethics And Investment Professionalism Flashcards

0
Q

What does the free market model theorise?

A

People will act to maximise their own utility

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1
Q

What are Ethics?

A 
Social responsibility and business practices
Personal ethics
Professional ethics e.g. Code of ethics
Corporate culture 
Organisation systems
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2
Q

What is the basic economic model?

A

People act in self interest with full info

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3
Q

What is switching?

A

Changing of client investment unnecessarily to gain commission

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4
Q

What are the two approaches to ethics?

A

Protect buyers or buyer beware

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5
Q

What guidelines does the FCA give on ethics? What questions dose it pose?

A

Do incentives encourage misselling
Are governance and controls adequate
Address inadequacies
If risks cannot be mitigated, change schemes
For persistent problems; investigate, change and pay redress to consumers

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6
Q

What are the two approaches to ethics?

A

Compliance and Integrity

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7
Q

What are the features of compliance based approach to ethics?

A

Procedures detecting misconduct
Audit contracts
Systems for employers to report misconduct without retribution
Procedures to deal with transgressions

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8
Q

What are the features of integrity based approach to ethics?

A

Combines law with an emphasis on managerial responsibility
Ethics should be ingrained with the company culture
Compliance suggests bureaucratic control is necessary whereas integrity or principles base approach relies on cultural control

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9
Q

What is the first Principle for Business and what does it mean?

A

Integrity

This includes, honesty, reliability, impartiality, openness

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10
Q

How can professional integrity and ethical issues be demonstrated in financial services?

A

Workings of financial markets e.g. Is insider dealing occurring or any other illegal activity
Personal conduct of finance professionals and representatives
Professionals working as agents should act with integrity to encourage consumer confidence

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11
Q

What are the benefits gained for the stakeholder of a firm having high ethical standards?

A

Market confidence - this will help absorb shocks
Consumer protection
Reduction in financial crime
Public awareness and confidence

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12
Q

What is the CFA code of ethics?

A

Act with integrity, competence, diligence and respect and all interactions should be in an ethical manner
Integrity of investment profession and interests of clients above personal interest
Use care and independent professional judgement when conducting investment analysis etc
Practice and encourage other to act ethically
Promote integrity and viability of capital markets
Maintain and improve professional competence for themselves and others

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13
Q

What is Standards of Professional Conduct 1?

A
  1. Professionalism
    A. Knowledge of the law- if in doubt compliance officer should be consulted
    B. Independence and objectivity - accept only modest gifts
    C. Misrepresentation - knowingly, this both known and should have known items. Plagiarism is also bared
    D. Misconduct
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14
Q

What is Standards of Professional Conduct 2?

A
  1. Integrity of Capital Markets
    A. Material non public info- mosaic theory allows analysts to use non public info to confirm predictions made using public info. Firewalls or Chinese Firewalls also exist.
    B. Market Manipulation
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15
Q

What is Standards of Professional Conduct 3?

A
  1. Duties to Clients
    A. Loyalty, prudence and care - a fiduciary duty exists. Clients best interest applies. Dealer/soft commission used for info must benefit the client.
    B. Fair dealing
    C. Suitability - kyc through fact find
    D. Performance Presentation - CFA has developed GIPS
    E. Preservation of confidentiality - unless illegal, legally required or permitted
16
Q

What is Standards of Professional Conduct 4?

A
  1. Duties to Employers
    A. Loyalty
    B. Additional compensation arrangements - can’t accept gift which could cause conflict of interests with employers interests unless written permission is given by all parties
    C. Responsibilities of Supervisor - role as supervisor
17
Q

What is Standards of Professional Conduct 5?

A
  1. Investment Analysis, recommendation and action
    A. Diligence and Reasonable Basis
    B. Communication with current and prospective clients - clear comes
    C. Record retention - records are property of the firm not the advisor
18
Q

What is Standards of Professional Conduct 6?

A
  1. Conflicts of Interest
    A. Disclosure of conflicts
    B. Priority of transactions - no front running
    C. Referral fees - disclose these
19
Q

What are Standards of Professional Conduct 7?

A
  1. Responsibility as CFA candidate or Member
    A. Conduct as members or candidates in the CFA program - act accordingly
    B. Reference to the CFA institute, designation and program

Financial Markets And institutions (14 decks)

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