Ethics: Guidance for Standards I - VII Flashcards
define ethics ?
a set of moral principles or rule of conduct that provide guidance for our behavior.
The _____ is a set of principles that define the overarching conduct CFA Institute expects from its members and CFA Program candidates. The ______ works in tandem with the ________, which outline professional conduct that constitutes fair and ethical business practices.
The Code is a set of principles that define the overarching conduct CFA Institute expects from its members. The Code works in tandem with the Standards, which outline professional conduct that constitutes fair and ethical business practices.
What are the 6 Code of Ethics ?
1) Act with integrity, competence, diligence, respect and in an ethical manner
2) Place the integrity of the investment profession and that of clients above personal interests. Client interests always come first !
3) Use reasonable care and exercise independent judgement
4) Practice and encourage others to practice in a professional and ethical manner. Be a credit to the investment profession
5) Uphold global capital markets rules and regulations for the ultimate benefit of society
6) Maintain and improve professional competence
Standard I(A). PROFESSIONALISM Candidates must understand and comply with what?
Candidates 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 government, regulatory organization, licensing agency, or professional association governing their professional activities.
Standard I(A). PROFESSIONALISM When applicable law and the Code and Standards require different conduct, which should the candidate follow?
Members and candidates must follow the more strict of the applicable law or the Code and Standards.
Standard I(A). PROFESSIONALISM If a candidate has reasonable grounds to believe that imminent or ongoing client or employer activities are illegal or unethical, the member should do what?
The candidate must dissociate from the activity. In extreme cases, dissociation may require a candidate to leave his or her employment.
Standard I(A). PROFESSIONALISM Does the Code and Standards require that candidates report violations to governmental authorities?
Code and Standards do not require candidates to report violations to their governmental or regulatory organizations unless such disclosure is mandatory under applicable law.
Standard I(A). PROFESSIONALISM What should be the first step when a candidate has reasonable ground to believe that imminent or ongoing client or employer activities are illegal or unethical?
The first step should be to attempt to stop the behavior by bringing it to the attention of the employer through a supervisor or the firm’s compliance department. If this attempt is unsuccessful, then candidates have a responsibility to step away and dissociate from the activity.
Standard I(A). PROFESSIONALISM Michael Allen works for a brokerage and is responsible for an underwriting of securities. A company official gives Allen information indicating that the financial statements Allen filed with the regulator overstate the issuer’s earnings. Allen seeks the advice of the brokerage firm’s general counsel, who states that it would be difficult for the regulator to prove that Allen has been involved in any wrongdoing. What should Allen do?
Although it is recommended that candidates seek the advice of legal counsel, the reliance on such advice does not absolve a member or candidate from the requirement to comply with the law or regulation. Allen should report this situation to his supervisor, seek an independent legal opinion, and determine whether the regulator should be notified of the error.
Standard I(A). PROFESSIONALISM Lawrence Brown’s employer, an investment banking firm, is the principal underwriter for an issue of convertible debentures by the Courtney Company. Brown discovers that the Courtney Company has concealed severe third-quarter losses in its foreign operations. The preliminary prospectus has already been distributed. What should Brown do?
Knowing that the preliminary prospectus is misleading, Brown should report his findings to the appropriate supervisory persons in his firm. If the matter is not remedied and Brown’s employer does not dissociate from the underwriting, Brown should sever all his connections with the underwriting. Brown should also seek legal advice to determine whether additional reporting or other action should be taken.
Standard I(A). PROFESSIONALISM Krista Blume is a portfolio manager for high-net-worth portfolios at a large global investment manager. She observes a number of new portfolios and relationships coming from a country in Europe where the firm did not have previous business and is told that a broker in that country is responsible for this new business. She believes that what may be going on is that the broker is being paid for new business through the inappropriate research payments, and she wishes to dissociate from the misconduct. What should Krista do?
Blume should follow the firm’s policies and procedures for reporting potential unethical activity, which may include discussions with her supervisor or someone in a designated compliance department. She should communicate her concerns appropriately while advocating for disclosure between the new broker relationship and the research payments.
Standard I(A). PROFESSIONALISM Colleen White recently began posting investment information, including performance reports and investment opinions and recommendations, to her Facebook page. Prior to White’s use of these social media platforms, the local regulator had issued new requirements and guidance governing online electronic communication. Is White in violation of Standard I(A)?
Yes. White is in violation of Standard I(A) because her communications do not comply with the existing guidance and regulation governing use of social media. White must be aware of the evolving legal requirements pertaining to new and dynamic areas of the financial services industry that are applicable to her. She should seek guidance from appropriate, knowledgeable, and reliable sources, such as her firm’s compliance department, external service providers, or outside counsel, unless she diligently follows legal and regulatory trends affecting her professional responsibilities.
Standard I(B). INDEPENDENCE & OBJECTIVITY Candidates must not offer, solicit, or accept any gift, benefit, compensation, or consideration that reasonably could be expected to do what?
That could be expected to compromise their own or another’s independence and objectivity.
According to Standard I(B), are candidates allowed to receive allocations of shares in oversubscribed IPO’s for their personal accounts?
No such a practice is prohibited under Standard I(B)
According to Standard I(B), are modest gifts and entertainment acceptable?
Yes, modest gifts and entertainment are acceptable, but special care must be taken by members and candidates to resist subtle and not-so-subtle pressures to act in conflict with the interests of their clients.
