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Ethical and Professional Standards > Ethics in Practice - Reading 3 > Flashcards

Ethics in Practice - Reading 3 Flashcards

1
Q

Code of ethics

A
  1. Act with Integrity, competence, diligence, respect and in an ethical manner in their professional dealing
  2. Place integrity and interest of the clients above their own personal interests.
  3. Use reasonable care and independent professional judgement in professional practice.
  4. Practice and encourage others to practice in a professional and ethical manner that will reflect credit on themselves and the profession.
  5. Promote the integrity of, and uphold the rules governing, global capital markets.
  6. Maintain and improve their competence and strive to maintain and improve the competence of other investment professionals.
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2
Q

Code 1

A

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

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3
Q

Code 3

A

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.

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4
Q

Code 5

A
  • comply with laws and foster and justify investor’s trust in equitability of the markets.
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5
Q

Standard of Professional Conduct

A
  1. Professionalism
  2. Integrity of Capital Markets
  3. Duties to Client
  4. Duties to Employers
  5. Investment Analysis, Recommendation and Actions
  6. Conflict of Interest
  7. Responsibilities as a CFA Member of CFA Candidate
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6
Q

Standard 1 - Professionalism

A
  1. Knowledge of Law
  2. Independence and objectivity
  3. Misrepresentation
  4. Misconduct
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7
Q

Standard 1(A) - Knowledge of Law

A
  1. Comply with applicable laws, rules & regulation including the code themselves - have sufficient familiarity with those law which affect them directly.
  2. Conflict b/w requirements of different law making bodies, comply with the more strict law.
  3. Must not knowingly participate or assist in and must disassociate themselves from any violation of the laws, rules or regulations governing the professional activities.
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8
Q

Standard 1(B) - Independence and Objectivity

A
  1. Use reasonable care and judgement to achieve and maintain the objectivity and independence in their professional activities
  2. Must not offer or accept any consideration that could reasonably expected to impair their own or another’s independence and objectivity
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9
Q

Standard 1(C) - Misrepresentation

A
  1. 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
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10
Q

Standard 1(D) - Misconduct

A
  • 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.
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11
Q

Standard 2 - Integrity of Capital Markets

A
  1. Material Non-public Information

2. Market Manipulation

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12
Q

Standard 2(A) - Material Non-public Information

A
  • 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.
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13
Q

Standard 2(B) - Market Manipulation

A
  • Prohibits actions that distorts prices or artificially inflate trading volume with the intent to mislead market participants.
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14
Q

Standard 3 - Duties to Clients

A
  1. Loyalty, prudence and care
  2. Fair dealing
  3. Suitability of Investment
  4. Performance presentation
  5. Preservation of Confidentiality
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15
Q

Standard 3(A) - Loyalty, Prudence and Care

A
  • 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
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16
Q

Standard 3(B)- Fair Dealing

A
  • fair treatment of all clients and prospective clients in conduct of professional activities.
  • Premium services should be disclosed or discussed with all clients.
17
Q

Standard 3(C) - Suitability

A
  • 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
18
Q

Standard 3(D) - Performance Presentation

A
  • Fair, accurate and complete

- If prepared by some other department, must cross check and verify.

19
Q

Standard 3(E) - Preservation of Confidentiality

A
  • Current,former and prospective clients - Confidential

- Only disclose when required by law

20
Q

Standard 4 - Duties to Employees

A
  1. Loyalty
  2. Additional Compensation Arrangements
  3. Responsibilities of Supervisors.
21
Q

Standard 4(A) - Loyalty

A
  • 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.
22
Q

Standard 4(B) - Additional Compensation Arrangements

A
  • No inducements or any compensation that would result in conflict of interest unless a written consent is obtained.
23
Q

Standard 4(C) - Responsibilities of Supervisors

A
  • 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
24
Q

Standard 5 - Investment Analysis, Recommendation and Actions

A
  1. Diligence and Reasonable basis
  2. Norms for clear and informative client communications
  3. Need to retain supporting documents
25
Q

Standard 5(A) - Diligence and Reasonable Basis

A
  • 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
26
Q

Standard 5(B) - Communication with cleints and prospective clients

A
  • 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

27
Q

Standard 5(C) - Retaining records

A
  • This will help in subsequent review
28
Q

Standard 6 - Conflict of Interest

A
  1. Full and fair disclosure
  2. Priority of Transaction
  3. Referral Fees
29
Q

Standard 6(A) - Full and Fair disclosure

A
  • 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
30
Q

Standard 6(B) - Priority of Transactions

A
  • Clients and employer have priority
31
Q

Standard 6(C) - Referral Fees

A
  • Disclosure of any compensation received

- Disclose if they have paid any compensation for any person for recommending their firms services

32
Q

Standard 7 - Responsibilities as a CFA Member/Candidate

A
  1. Conduct

2. Accuracy in reference to CFA institute, Designation and Program

33
Q

Standard 7(A) - Conduct

A
  • not conduct that compromises the reputation or integrity of
34
Q

Standard 7(B) - Accuracy in reference to CFA institute, Designation and Program

A
  • prohibits the covered person from misrepresenting or exaggerating the meaning or implication of CFA program, designation, or candidacy

Ethical and Professional Standards (3 decks)

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