Ethical and Professional Standards
Reading 3. Guidance for Standards I-VII
Learning Outcome Statements
a. demonstrate the application of the Code of Ethics and Standards of Professional Conduct to situations involving issues of professional integrity;
b. distinguish between conduct that conforms to the Code and Standards and conduct that violates the Code and Standards;
c. recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct.
CFA Curriculum, 2020, Volume 1
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Subject 1. Standard I (A) Knowledge of the Law
A. Knowledge of the Law.
Members and Candidates must understand and comply with all applicable laws, rules, and regulations (including CFA Institute's Code of Ethics and Standards of Professional Conduct) of any government, regulatory organization, licensing agency, or professional association governing their professional activities. In the event of conflict, Members and Candidates must comply with the more strict law, rule, or regulation. Members and candidates must not knowingly participate or assist in and must dissociate from any violation of such laws, rules, or regulations.
This standard adopts principles that apply to the general activities of members and candidates. As with any service there are certain rules and regulations that members and candidates need to abide by, although they are not required to have detailed knowledge of all laws.
A. Relationship between the Code and Standards and local law.
Members and candidates should always aspire to the highest level of ethical conduct. This statement assists members in avoiding legal and ethical traps and violations of the Code of Ethics.
In general, members in all countries should comply at all times with the Code and Standards. Since laws in different countries may establish different standards, the rule of thumb is to choose the stricter regulations.
- If the laws are tougher than the Code and Standards, adhere to the laws.
- If there are no laws, or if the Code and Standards are tougher, adhere to the Code and Standards.
- If a member or candidate lives or works in a foreign country, or works for foreign firms outside of his or her own country, he or she should comply with the strictest of his/her country's laws, the foreign country's laws, and the Code and Standards.
You are working in the foreign office of a U.S.-based firm. Analysts in this foreign country routinely solicit insider information and use it as the basis for trading decisions. You are told that this is not illegal in this country. In this case, the Code and Standards are stricter. They prohibit use of material nonpublic information. You should refrain from trading on the basis of insider information.
B. Don't participate or assist in violations.
Don't knowingly break or help others break laws. If a member:
- Feels that a standard or law has been violated (e.g., receiving information contradictory to a registration statement), he or she should seek the advice of the firm's counsel. If the member believes that the counsel is both competent and unbiased and he or she follows the counsel's advice, there is no violation.
- Knows that a standard or law has been violated (e.g., discovering that a client has knowingly misstated information on a prospectus), he or she should report the incident to the appropriate supervisory person in the firm. If the situation is not remedied, the member should disassociate from the situation. He or she may also seek legal advice to see if other actions should be taken.
- Members are not required by the Code and Standards to report violations to the appropriate governmental or regulatory organizations. However, if the law requires an individual to report, he or she must do so.
- Members are encouraged, but not required, to report violations to CFA Institute.
An associate of yours is engaging in illegal trading practices and he tells you to refrain from disclosing this because it will make the firm look bad and it is highly profitable. You should choose one of the three actions above. If you seek legal counsel and are told that the activity is actually not illegal, you have met your obligation. This assumes that you believe the legal counsel to be competent. If you report your associate's activity to your supervisor and are told to ignore it, you should take steps to disassociate yourself from the practice.
C. Procedures for compliance.
Members and candidates can acquire and maintain knowledge about applicable laws, rules, and regulations by:
- Maintaining current files of applicable statutes, rules, regulations and important cases in a readily accessible manner and encouraging the employer to distribute such information to members for this purpose.
- Keeping informed about any changes of laws. Counsel can provide assistance in this regard.
- Reviewing procedures. Compliance procedures should be reviewed on a regular basis to ensure that they reflect current laws.
User Contributed Comments 17You need to log in first to add your comment.
A. Know and comply with ...
B. Not Knowingly participate or assist...
what does it really mean to disassociate? does it mean that after you let the supervisor know and could not get any feedback, do not actively participate in that particular trade, and act like nothing happened? or does it mean to quit the firm?
the prime responsibility is have high ethical standards in the job we do
Comply with the laws and Code of standards . If the case is not within the governing laws/code & standards .Obtain legal opinion asssuming that the legal counsel is an independent competent authority. But still if the analyst is suspicious he can pullout from servicing such clients
Know, comply with and dissociate from unethical firms
If in case, a report to the supervisor is made, and he/she informs to ignore. I think there may be 3 situations:
1. There's only one supervisor of that level: If he/she says this then disassosiate may mean to quit the firm.
2. There may be more than one supervisor: If that's the case, then the analyst may disassociates him/herself from that specific trade and also that specific team while staying in the same firm.
rule of thumb: act ethically, always use the more stringent of rule and regulations, disassociate form unethical firms and practices, understand and comply maintain knowledge of applicable laws and regulations.
Knowing of the Law
-follow more stronger than
-Do not participate or assist in violation
-Know the procedure for compliance
following the rules is the key of winning
analyst must have:
knowledge of the law..
must obide always with the highest ethical standard...
must have knowledge of all laws (own country,foreign country & Code of Standards)
dissociate himself from unethical firms & practices and inform the supervisor/legal counsellor...
1- rule of thumb
2- Don't participate, assist -> violation
3- understand and follow procedures of compliance: update laws, regulations, maintain files, review procedures
Obey the law and the code of ethics and standard of professional conducts
3 rules of thumb:
Obey the stricter laws or rules
Dissociate oneself from a violation of the law or rules
Keep current with all laws and conducts
Well summarized ,.... be a good person :)
Counsel can provide u advice but ultimate responsiblity rest on you!!!
The best way is combine the laws or rules operation of firm and the code of ethics and standard of professional conducts.
basically, don't be an arse?
"Encouraged, but NOT REQUIRED to report violations."
I would say, REPORT ANYWAY, because in this cat-eat-dog, dog-eat-cat world, somebody will report YOU if you didn't report it. So instead of someone else being wrong, now you're in violation too.
geez this is quite a mouthful but very well written!