Part 2: Code of Ethics and Standards of Professional Conduct Flashcards
What is the CFA Institute Professional Conduct Program?
A program based on the principles of fairness of the process to members and candidates, and maintaining the confidentiality of the proceedings.
What is the CFA Institute Board of Governor’s responsibilities?
For the Professional Conduct Program and it’s Discipinary Review Committee to enforce the Code of Standards.
Name examples of CFA Professional Conduct staff inquiries related to professional conduct.
- Self-disclosure by members/candidates on their annual Professional Conduct Statements of involvement in civil litigation or criminal investigation, or member/candidate is subject of a written complaint.
- Written complaints about a member/candidate’s professional conduct that are received by the Professional Conduct staff.
- Evidence of misconduct by member/candidate that the staff received through public resources, such as media, article or broadcast.
- A report by CFA exam proctor of a possible violation during the examination.
- Analysis of exam materials and monitoring of social media by CFA Institute.
How will the Professional Conduct staff act once an inquiry has begun?
- Request (in writing) an explanation from the subject member/candidate.
- Interview the subject member/candidate.
- Interview the complainant or other third parties.
- Collect documents and records relevant to the investigation.
What actions may the Professional Conduct staff decide to?
- That no disciplinary sanctions are appropriate.
- To issue a cautionary letter.
- To discipline the member/candidate.
What happens if a member/candidate accepts or rejects sanction?
Reject - the matter is referred to a disciplinary review panel of CFA Institute members for hearing.
Accept - includes condemnation by the members peers or suspension of candidates continued participation in CFA program.
What are the expectations of members/candidates of the CFA Institute?
- Act with integrity, competence, diligence, respect, and ethics with the public, clients, employers colleagues in the investment profession, and other participants in global capital markets.
- Place the integrity of the investment profession and the interests of clients above their own personal interests.
- Use reasonable care and exercise independent professional judgment when conducting investment analysis, making investment recommendations, taking investment actions, and engaging in other professional activities.
- Practice and encourage others to practice in a professional and ethical manner that will reflect credit on themselves and the profession.
- Promote integrity and viability of the global capital markets for the ultimate benefit of society.
- Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals.
The 7 Standards of Professional Conduct (1):
- Professionalism
a. Knowledge of the Law
- Members/candidates comply with all applicable laws, rules, and regulations (CFA Institute Code of Ethics, and Standards of Professional Conduct) of any gov, regulatory organisation, licensing agency, or professional association governing their professional activities.
- Members/candidates comply with more strict laws, rules, or regulations, and must not knowingly participate or assist in any violation of laws, rules or regulation and dissociate themselves from any such violation.
b. Independence and objectivity
- Members/candidates use reasonable care and judgment to achieve and maintain independence and objectivity in their professional activities.
- Members/candidates must not offer, solicit, or accept any gift, benefit, compensation, or consideration that reasonably could be expected to compromise their own or another independence and objectivity.
c. Misrepresentation
- Members/candidates must not knowingly make any misrepresentation relating to investment analysis, recommendations, actions or other professional activities.
d. Misconduct
- Members/candidates not engage in any professional conduct involving dishonesty, fraud, deceit or commit any act that reflects adversely on professional reputation, integrity or competence.
The 7 Standards of Professional Conduct (2):
- Integrity of capital markets
a. Material nonpublic information
- Members/candidates possessing material nonpublic info that could affect the value of an investment must not act or cause others to act on the information.
b. Market manipulation
- Members/candidates must not engage in practices that distort prices or artificially inflate trading volume intending to mislead market participants.
The 7 Standards of Professional Conduct (3):
- Duties to clients
a. Loyalty, prudence, and care
- Members/candidates must have a duty of loyalty to their clients and act with reasonable care and exercise prudent judgment.
- Members/candidates must act for the benefit of their clients and place clients’ interests before their employers or own interests.
b. Fair dealing
- Members/candidates must deal fairly and objectively with all clients when providing investment analysis, making investment recommendations, taking investment action, or engaging in other professional activities.
c. Suitability
Members and candidates are in an advisory relationship with client they must:
- Make reasonable inquiry into clients or perspectives clients investment experience, risk and return objectives and financial constraints prior to making any investment recommendation or taking action and must reassess/update information regularly.
- Determine an investment is suitable to clients financial situation and consistent with clients written objectives, mandates and constraints before making an investment recommendation or taking investment action.
- Judge suitability of investments in context of clients total portfolio.
d. Performance presentation - Communicating investment performance info, members must ensure that it is fair, accurate and complete.
e. Preservation of confidentiality - Members must keep info about current, former and prospective clients confidential unless:
1. Info concerns illegal activities on part of client/prospective client.
2. Disclosure is required by law.
3. Client/prospective permits disclosure of the information.
The 7 Standards of Professional Conduct (4):
- Duties to employers
a. Loyalty
- Matters related to employment, members must act for the benefit of employer, not deprive employer of their advantageous skills, divulge confidential information or cause harm.
b. Additional compensation arrangements
- Members must not accept gifts, benefits, compensation or consideration that competes with or create conflict of interest with employer interest unless they obtain written consent from all parties involved.
c. Responsibilities of supervisors
- Members must take reasonable efforts to ensure anyone subject to their supervision or authority complies with applicable laws, rules, regulation and Code and Standards.
The 7 Standards of Professional Conduct (5):
- Investment analysis, recommendations and actions
a. Diligence and Reasonable Basis
- Exercise diligence, independence, and thoroughness in analysing investments, making investment recommendation, and taking investment actions.
- Have a reasonable and adequate basis, supported by appropriate research and investigation for any investment analysis, recommendation or action.
b. Communication with clients and prospective
- disclose to clients basic format and principles of investment processes used and analyse investments, select securities and construct portfolios, promptly disclosing any changes materially affecting those processes.
- Disclose the significant limitation ad risks associated with investment process.
- Use reasonable judgement in identifying which factors are important to their investment analyses, recommendations/actions, and include factors in communications with clients/prospectives.
- Distinguish between fact and opinion in presentation of investment analysis and recommendations.
c. Record retention
- Must develop and maintain appropriate records to support investment analysis, recommendations/actions, and other investment-related communications.
The 7 Standards of Professional Conduct (6):
- Conflicts of interest
a. Disclosure of conflicts
- Must make full and fair disclosure of all matters reasonable be expected to impair their independence, and objectivity, or interfere with respective duties to clients/employer.
- Must ensure such disclosures are prominent, delivered in plain language and communicate relevant info correctly.
b. Priority of transactions
- Investment transactions for clients and employers prioritised over investment transactions in which Member of Candidate is the beneficial owner.
c. Referral fees
- Must disclose to employer, clients as appropriate, any compensation, consideration or benefit received by or paid to other for recommendation of products/services.
The 7 Standards of Professional Conduct (7):
- Responsibilities as CFA Member/Candidate
a. Conduct as participants in CFA Institute Program
- Must not engage in any conduct that compromises the reputation or integrity of CFA Institute or integrity, validity or security of CFA Institute program.
b. Reference to CFA Institute, Designation and Program
- Must not misrepresent/exaggerate the meaning/implications of membership in CFA Institute, designation or candidacy in CFA program.
