Course Content
ETHICS AND TRUST IN THE INVESTMENT PROFESSION
This chapter is covered in Reading 1 of the Study Session 1, of the study material prescribed by the institute. After reading this chapter a student should be able to: a explain ethics; b describe the role of a code of ethics in defining a profession; c describe professions and how they establish trust; d describe the need for high ethical standards in investment management; e explain professionalism in investment management; f identify challenges to ethical behavior; g distinguish between ethical and legal standards; h describe a framework for ethical decision making.
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LOS A: Explain Ethics
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LOS B: Ethics and Professionalism
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LOS C: How Professions Establish Trust
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LOS D and E: Professionalism in Investment Management
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LOS F: Challenges to Ethical Conduct
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LOS G: Ethical and Legal Standards
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LOS H: Framework for Ethical Decision Making
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CODE OF ETHICS AND STANDARDS OF PROFESSIONAL CONDUCT
This chapter is covered in Reading 2 of the Study Session 1, of the study material prescribed by the institute. After reading this chapter a student should be able to: a. describe the structure of the CFA Institute Professional Conduct Program and the process for the enforcement of the Code and Standards; b. state the six components of the Code of Ethics and the seven Standards of Professional Conduct; c. explain the ethical responsibilities required by the Code and Standards, including the sub-sections of each Standard.
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LOS A: Professional Conduct Program
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LOS B: Code of Ethics
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LOS C: Code and Standards
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GUIDANCE FOR STANDARDS I–VII
This chapter is covered in Reading 3 of the Study Session 1, of the study material prescribed by the institute. After reading this chapter a student should be able to: 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.
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Professionalism – First standard of Professional Conduct
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Integrity of Capital Markets – Second Standard of Professional Conduct
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Duties to Clients – Third Standard of Professional Conduct
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Duties to Employer – Fourth Standard of Professional Conduct
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Investment Analysis, Recommendations, & Actions
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Conflict of Interest
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Responsibility as a CFA Institute Member or CFA Candidate
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INTRODUCTION TO THE GLOBAL INVESTMENT PERFORMANCE STANDARDS (GIPS)
This chapter is covered in Reading 4 of the Study Session 1, of the study material prescribed by the institute. After reading this chapter a student should be able to: a. a explain why the GIPS standards were created, what parties the GIPS standards apply to, and who is served by the standards; b. explain the construction and purpose of composites in performance reporting; c. explain the requirements for verification.
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Why Were GIPS Standards Created?
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Who Can Claim Compliance?
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Who Benefits from Compliance?
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Composites
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Verification
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GLOBAL INVESTMENT PERFORMANCE STANDARDS (GIPS)
This chapter is covered in Reading 5 of the Study Session 1, of the study material prescribed by the institute. After reading this chapter a student should be able to: a. describe the key features of the GIPS standards and the fundamentals of compliance; b. describe the scope of the GIPS standards with respect to an investment firm’s definition and historical performance record; c. explain how the GIPS standards are implemented in countries with existing standards for performance reporting and describe the appropriate response when the GIPS standards and local regulations conflict; d. describe the nine major sections of the GIPS standards.
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Objectives of GIPS
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Overview of GIPS Standards
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Compliance with GIPS
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Recommendations
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Scope of GIPS Standards
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Implementation
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Major Section of GIPS Standards
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Ethical and Professional Standards
About Lesson

a.  The CFA Institute has a special committee that overlooks the implementation and formation of ethical standards for the people associated.

b.  This team comprises the CFA Board of Governors, which oversights the Professional Conduct Program (PCP).

c.  The PCP is conducted in conjunction with the Disciplinary Review Committee (DRC), which is a group of volunteers, CFA charter holders.

d.  The main responsibility of this committee is the enforcement of the ‘code’ and ‘standards’.

e.  All members and candidates of the CFA Institute are required to comply with the code and standards.

f.  The CFA institute makes inquiries for the conduct of PCP. These inquiries may originate from:

     i.  The member’s and candidate’s self-disclosure made on the annual professional conduct statement. These people are required to make the disclosures regarding the civil litigations, criminal investigations, and the subject of a written complaint made during the year.

    ii.  The written complaints received by the professional conduct staff.

   iii.  The CFA staff through media and regulatory notices.

   iv.  The exam proctors.

    v.  The post-exam behavior, such as online disclosure of exam materials, etc.

g.  When the inquiry is initiated, the staff of the board may investigate by:

     i.  requesting for a written explanation from the members or candidates;

    ii.  conducting interviews with the members, candidates, complaining parties, and the other relevant third parties; and

   iii.  collecting documents and records.

h.  The investigation/inquiry may result in:

     i.  no action,

    ii.  issuance of the cautionary letter, and

   iii.  continuation of disciplinary action.

i.  If the members of the candidates are not satisfied with the result of the investigation, they may reject the result. In such a situation, the case goes to the DRC.

j.  If the violations are determined, then the institute may impose sanctions on the parties found guilty. Some of the sanctions that can be imposed are:

     i.  public censure,

    ii.  suspension of membership and use of the CFA designation,

   iii.  revocation of CFA charter,

   iv.  candidate’s suspension or prohibition from further participation.

k.  Adoption of the CFA institute’s codes and standards: The codes and standards issued by the CFA Institute:

     i.  applies to the members and candidates of the institutes;

    ii.  firms (including the non-members) are encouraged to adopt these codes and standards.

If a non-member adopts these standards, they can make the following statement while claiming compliance:

“[Insert name of party] claims compliance with the CFA Institute Code of Ethics and Standards of Professional Conduct. This claim has not been verified by CFA Institute.”

l.  These codes and standards are prepared for individuals and professionals. For the asset management firms, the asset manager code of professional conduct is drafted.

m.  Ethics are a set of moral principles or rules of conduct that guides our behavior when it affects others. Thus it helps in making an important decision between self-interest versus the direct and indirect consequences to others.
The ethics are important because it protects the integrity of:

    i.  members,

    ii.  firms,

   iii.  profession, and

   iv.  market.

 

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