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Subject 5. Ethical vs. Legal Standards PDF Download
Laws often codify ethical actions that lead to better outcomes for society or specific groups of stakeholders. Legal and ethical conduct often coincide, but they are not always the same.

  • Some legal behaviors are not considered ethical.
  • Some ethical behaviors may not be legal in certain countries.

Laws and regulations are not always the best mechanism to reduce unethical behavior. They often lag behind current circumstances; legal standards are often created to address past ethical failings and do not provide guidance for an evolving and increasingly complex world. In addition, new laws designed to reduce or eliminate conduct that adversely affects the markets can create opportunities for different but similarly problematic conduct.

Investment professionals should act beyond legal standards, making good judgments and responsible choices even in the absence of clear laws or rules.

Learning Outcome Statements

e. distinguish between ethical and legal standards;

CFA® 2020 Level I Curriculum, 2020, Volume 1, Reading 1

User Contributed Comments 3

User Comment
rodwsi Some ethical behaviours may not be legal - i.e. a peaceful protest about a law which is unethical.

Another area where ethics and laws my conflict: Whistleblowing refers to the disclosure by an individual of dishonest, corrupt, or illegal activity by an organization or government. Depending on the circumstances, a whistleblower may violate organizational policies and even local laws with the disclosure; thus, a whistleblower’s actions may be deemed illegal and yet considered by some to be ethical.
gyee2012 General rule of thumb - When dealing in a financial service side, you stick to who has the higher rules/ regulation laws. Either the country your in or the CFA standard and code.

Ex. If you go to a 3rd world country where the government system is not as stable; therefore, laws are less strict, by CFA standards, you are mandated to follow the stricter rules.
yesitan @rodswi : Believe a peaceful protest is considered ethical?
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I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
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