Ethics in Practice - Reading 3 Flashcards
Code of ethics
- Act with Integrity, competence, diligence, respect and in an ethical manner in their professional dealing
- Place integrity and interest of the clients above their own personal interests.
- Use reasonable care and independent professional judgement in professional practice.
- Practice and encourage others to practice in a professional and ethical manner that will reflect credit on themselves and the profession.
- Promote the integrity of, and uphold the rules governing, global capital markets.
- Maintain and improve their competence and strive to maintain and improve the competence of other investment professionals.
Code 1
INTEGRITY:
-Honesty, wholeness, consistency or being uncompromised and unflawed.
COMPETENCE:
-expertise in certain area
-mastered the body of knowledge
DILIGENCE AND RESPECT:
-Diligence: Conscientious attn to task at hand
-Respect for one’s employer
ETHICAL
-high moral principles in all the situations even when not dealing with the clients/coworkers
Code 3
Exercising Reasonable care
- Taking in account all the factors that materially affect the investment characteristics and strategy.
Independent Professional Judgement
- Thinking for oneself and evaluating investment alternatives dispassionately.
Code 5
- comply with laws and foster and justify investor’s trust in equitability of the markets.
Standard of Professional Conduct
- Professionalism
- Integrity of Capital Markets
- Duties to Client
- Duties to Employers
- Investment Analysis, Recommendation and Actions
- Conflict of Interest
- Responsibilities as a CFA Member of CFA Candidate
Standard 1 - Professionalism
- Knowledge of Law
- Independence and objectivity
- Misrepresentation
- Misconduct
Standard 1(A) - Knowledge of Law
- Comply with applicable laws, rules & regulation including the code themselves - have sufficient familiarity with those law which affect them directly.
- Conflict b/w requirements of different law making bodies, comply with the more strict law.
- Must not knowingly participate or assist in and must disassociate themselves from any violation of the laws, rules or regulations governing the professional activities.
Standard 1(B) - Independence and Objectivity
- Use reasonable care and judgement to achieve and maintain the objectivity and independence in their professional activities
- Must not offer or accept any consideration that could reasonably expected to impair their own or another’s independence and objectivity
Standard 1(C) - Misrepresentation
- Must not knowingly misstate facts relating to investment analysis, recommendation and actions or other professional activities
-No misleading a client/decision maker.
Knowingly means under the duties of competence and diligence
Types of Misrepresentation:
- No guarantees or assurance of the investments
- Plagiarism
- One’s own (or organisation) experience, credentials, qualifications
Standard 1(D) - Misconduct
- Must not engage in any professional conduct involving dishonesty, fraud or deceit
- Not to conduct any act that reflects adversely on professional reputation, integrity or competence.
Standard 2 - Integrity of Capital Markets
- Material Non-public Information
2. Market Manipulation
Standard 2(A) - Material Non-public Information
- Possession of material non-public info (info that could affect the value of an investment) must not act or cause others to act on it. Mosiac theory is not precluded.
Take steps to rectify a situation in which material non-public information is held.
Standard 2(B) - Market Manipulation
- Prohibits actions that distorts prices or artificially inflate trading volume with the intent to mislead market participants.
Standard 3 - Duties to Clients
- Loyalty, prudence and care
- Fair dealing
- Suitability of Investment
- Performance presentation
- Preservation of Confidentiality
Standard 3(A) - Loyalty, Prudence and Care
- Act in the best interest of the client and not themselves or their firm.
- Investment actions are sounds
- Loyalty- Reasonable care and prudent judgement
- Fiduciary role
- Ethical responsibility for the assets entrusted
Standard 3(B)- Fair Dealing
- fair treatment of all clients and prospective clients in conduct of professional activities.
- Premium services should be disclosed or discussed with all clients.
Standard 3(C) - Suitability
- Investment recommendations and decisions should be fitting (even when there is no direct contact with the clients. Eg: Mutual Funds)
- Inquire about the client, risk and return tolerance
- Written Investment Policy Statement
- Determine the appropriateness of the recommendation
Standard 3(D) - Performance Presentation
- Fair, accurate and complete
- If prepared by some other department, must cross check and verify.
Standard 3(E) - Preservation of Confidentiality
- Current,former and prospective clients - Confidential
- Only disclose when required by law
Standard 4 - Duties to Employees
- Loyalty
- Additional Compensation Arrangements
- Responsibilities of Supervisors.
Standard 4(A) - Loyalty
- Act for the benefit for the employer
- Not deprive the employer of their skills, divulge any confidential information or cause harm to the employer.
- Employees are not required to consent with the firms policies which are unethical
- Not take any information of the firm when leaving it.
Standard 4(B) - Additional Compensation Arrangements
- No inducements or any compensation that would result in conflict of interest unless a written consent is obtained.
Standard 4(C) - Responsibilities of Supervisors
- Make efforts to detect and prevent violation of rules, laws etc by the person under their supervision or authority.
Measures:- Documenting policies, training staff members, designing and implementing controls and monitoring the unit’s activities
Standard 5 - Investment Analysis, Recommendation and Actions
- Diligence and Reasonable basis
- Norms for clear and informative client communications
- Need to retain supporting documents
Standard 5(A) - Diligence and Reasonable Basis
- Diligence, thoroughness and independence in their professional work.
- Reasonable and adequate basis - supported by appropriate research and investigation
- Factual research
- Secondary data - reliable sources
- Analysts disagree with the decision on grounds of unreasonable facts etc - can have their names removed from the report
Standard 5(B) - Communication with cleints and prospective clients
- Communicate - proceeds of investment analysis to the results
5(B)(i) - Describe the investment decision making process
5(B)(ii) - Use reasonable judgement in identifying factors that are important to analysis.
5(B)(iii) - Distinguish between facts and opinions
Standard 5(C) - Retaining records
- This will help in subsequent review
Standard 6 - Conflict of Interest
- Full and fair disclosure
- Priority of Transaction
- Referral Fees
Standard 6(A) - Full and Fair disclosure
- Full and fair disclosure of all matters that could reasonably expect to impair their independence and objectivity or interfere with their respective duties to clients, employers and prospective clients
- Prominent and delivered in plain language
- Communicate relevant information effectively
Standard 6(B) - Priority of Transactions
- Clients and employer have priority
Standard 6(C) - Referral Fees
- Disclosure of any compensation received
- Disclose if they have paid any compensation for any person for recommending their firms services
Standard 7 - Responsibilities as a CFA Member/Candidate
- Conduct
2. Accuracy in reference to CFA institute, Designation and Program
Standard 7(A) - Conduct
- not conduct that compromises the reputation or integrity of
Standard 7(B) - Accuracy in reference to CFA institute, Designation and Program
- prohibits the covered person from misrepresenting or exaggerating the meaning or implication of CFA program, designation, or candidacy
