Part 1 - Ethics Regulations An ESG Flashcards
Six Components of the AMC
- Loyalty to clients
- Investment Process and Actions
- Trading
- Risk Management, Compliance and Support
- Performance and valuation
- Disclosures
Six General Principles of Conduct
- Always act ethically and professionally
- Act in the best interests of the client
- Act in an objective and independent manner
- Perform actions using skill, competence and diligence
- Communicate accurately with clients on a regular basis
- Comply with legal and regulatory requirements regarding capital markets
Professional Code A: Loyalty to Clients
- Client Interests ahead of firm’s interests
- Maintain client confidentiality
- Refuse relationships / gifts that compromise independence, objectivity and loyalty
Professional Code B: Investment Process and actions
- Reasonable care and judgement
- No market manipulation
- Deal fairly and objectively with info, advice and actions
- Reasonable and adequate basis for recommendations
- Appropriate disclosures for client evaluations
- Notify in advance of material changes
- Understand objectives constraints and other info
- Only suitable investments for each client
Professional Code C: Trading
- Do not act or cause others to act on MNPI
- Give clients priority over the firm
- Use client commissions only to pay for benefits to the client
- Seek best execution
- have policies for fair and equitable trade allocation
Professional Code D: Risk Management, Compliance and Support
- Policies and procedures to comply with AMC
- CCO
- Independent third party to verify info
- Maintain records on investment actions
- Employ sufficient and qualified staff
- BCP
- Firmwide risk management plan
Professional code E: Performance and valuation
- Present performance data that is fair, accurate, relevant timely and complete
- Use fair market prices when available and commonly used valuation techniques
Professional Code F: Disclosures
- ongoing timely comms with clients
- truthful, accurate, complete and understandable
- Include all material facts regarding firm, personnel, investments and processes
- Disclose conflicts, regulatory actions, fees, soft dollars etc
Recommendations and Guidance
Professional Code A: Loyalty to Clients
- Align manager compensation
- Create privacy policy
- Refuse gifts and entertainment of more than a nominal value
AMC Recommendations and Guidance
Professional Code B: Investment Process and Actions
- Disclose deviations from intent
- Allow redemptions without penalties for style changes
- Establish a written IPS for each client
- Each decision made in context of the client’s total situation
AMC: Recommendations and Guidance
Professional Code C: Trading
- Use firewalls and have procedures to evaluate MNPI
- Develop procedures to limit and monitor personal trading
- Discourage soft dollars
- Client directed trading requires written confirmation
- Group suitable accounts and do block trading
AMC: Recommendations and Guidance
Professional Code D: Risk Management, Compliance and Support
- CCO should be independent of investment
- Retain compliance records and documentation of violations and actions
- Consider outsourcing of a firmwide risk management plan
AMC: Recommendations and Guidance
Professional Code E: Performance and Valuation
- Adopt GIPS
- Use independent third parties for valuations
AMC: Recommendations and Guidance
Code F: Disclosures
- Minimum quarterly investment performance reporting within 30 days of quarter end
- Regular disclosure of client specific risk information
Main US Regulators
SEC - safeguard investor interests, promotes capital investment and ensures smooth market functioning
FINRA - Oversees broker dealers
CFTC - Oversees commodity derivatives market
NFA - Oversees Futures
