CFA Practice Question

There are 356 practice questions for this topic.

CFA Practice Question

Which of the following is (are) correct regarding a member's duty under the Code and Standards?

I. In the absence of specific applicable law or other regulatory requirements, the Code and Standards govern the member's actions.
II. A member is required to comply with applicable local laws, rules, regulations, or customs, even though CFA Institute's Code and Standards may impose a higher degree of responsibility or a higher duty on the member.
III. A member who trades securities in a foreign securities market where no applicable local laws or stock exchange rules regulate the use of material nonpublic information may take investment action based on material nonpublic information.
Correct Answer: I and II

User Contributed Comments 27

User Comment
andrewsutton Surely II is true too. Quoting from Standard 1A: "Members shall maintain knowledge of and comply with all applicable laws, rules, and regulations of any government, government agency, regulatory organization, licensing agency, or processional association governing the members' professional activities"
I am considering subscribing.
ragingrazz The implication is that he should follow both local laws and CFA Institute standards.
cfamaker II is not straightforward. It may imply complying with lower local standards!
Mendel I agree, the principle states that the stricter standard should be followed and by following the CFA Institute standards in this case, the member will be complying with both the law and the standards.
weez I agree also, II is definitely not a clear cut answer. Its like saying you should always comply with local laws and, just to cover yourself, the CFA Institute standards also...
Picasso You must always comply with local laws, if CFA Institute more strict even when adhering to CFA Institute you will still be complying with local laws(and than some)
calvininthecity I disagree with Picasso, The question also says local customs ... now it may be customary in the local country to engage in insider trading - surely, the code of ethics does not allow this. This question is hokey :)
Swetha I agree. Stmt. II is tricky.
sokima II does not spell it clearly. so should the rule of thumb be that all laws are applicable and only in the event of need of comparison the stricter law applies??
blemba i agree, ot sdefintiely not clear. the "cutoms" part was tripping me up
krisscfa In Statement II the key is 'Higher Degree of reposibility' which according to me is an extension of local laws and not against...wt say??
crystal1106 why 1 is correct??
MattyBo 1 is correct because questions states "in absence of" so COS governs. Rule of thumb: If COS highest standard and in this case only standard (no laws) then COS governs actions.
sanyukta for answer 2, (calvininthecity)
there might be no case law or code law regulating insider trading for e.g. in a dveloping country, people do it but no1 get convicted or the securities authorities are just not mature yet.
however the idea is that it is highly inethical in any country and is frowned upon. therefore as a CFA holder u r expected to be behaving with integrity and ethically..
else why be a CFA holder in a foreign land other than the US or other developed country..

hope it made sense
TammTamm I'm glad I'm re-reviewing this question. I said II was not true because I didn't read the whole question. I have to slow down and read.
hdavid57 When I read the question a second time, I had a different take on it. I originally thought that II was false because the Code and Standards are more strict. But I think what is really being said is that members and candidates need to comply with all the applicable local laws, etc. etc., but there might be occasions in which no local law is broken, but the Standards are violated. It's a very confusing question, but it might help to think of the laws as restrictions. All the local restrictions need to be observed, but that doesn't mean that the Standards aren't going to impose even stricter restrictions (or limitations).
yanlun answer 2 is tricky
epiziL2 I think it is just the way you reason it.The choice of a strict law is when two laws makes provision for thesame issue and you have to choose the tricter one.But without focusing on a particular issue,it is normal to comply to both the local law and the CFA code since they may overlap on some issues that the one law may be stricter on, or one law makes provision for and the the other doesn't. Remember that laws can never provide for everything and you use one law to clearly interprete the strength of the other.
Shalva Well, I think answer II implies, that in no case, in no occasion could the law be broken! The laws represent the absolute minimum standard of compliance
peteSP As per text books, ii is correct.
bantoo compliance with the laws is obligation. If you do not comply with laws and regulations of particular place you are guilty under the law. However if CFA institute law is stricter then try to stick to it as it has superior ethics and stricter codes. Bot are not mutually exclusive as if insider trading is not illegal in a particular country even then you should not engage in this activity as you know this is bad.

Is it possible residing in India or anywhereelse you do not obey the law!

Hope it will make some clarity.
JakeZ I did the chapter end questions which were 40 multiple choices and they are MUCH more simpler and straight forward than the questions here... (I got 95% right without re-reading any part of the readings)
Stop trying to over scare people...
michlam14 Standard 1-A Members and Candidates must understand and comply with all applicable laws, rules, and regulations (including the CFA Institute 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 not knowingly participate or assist in and must disassociate from any violation of such laws, rules, or regulations.
business I seems to comply with local laws unless there isnt one. Which means if the local law allows trading in material infor. then one should follow that. i have seen a question similar to this ...which says I is wrong. Any takers?
johntan1979 II is correct. Read it again. It did not say follow local law that is less strict than CFA code. It just say comply at all times to the local law. And by following a stricter CFA code, you are automatically complying to the less strict local law. Hope this makes sense.
raffrobb II seems correct only in hindsight and reading others viewpoints. At first glance, sounds like II is stating local laws are minimum requirement in light of CFA code.
ascruggs92 for II the words "even though" give the implication that he must default to the less strict local rules rather than simply abide by them too. It's self explanatory that if you abide by more strict laws, you are automatically complying with anything less strict, so I guess that's what threw me off.
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