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Ethics Reading 70

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25 views26 pages

Ethics Reading 70

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© © All Rights Reserved
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Reading 70

Ethical & professional standards

Préparation CFA Niveau 1


Master 1 Finance Université Paris I Panthéon Sorbonne
Ecole de Management de la Sorbonne

Enseignant : Eric Bayle, CFA


Mail. [email protected]

This course relies on material produced and copyrighted by CFA Institute ©


CFA © is a trademark owned by CFA Institute
Learning Outcome Statements

1. CFA Institute Professional Conduct Program


a. describe the structure of the CFA Institute Professional
Conduct Program and the process for the enforcement of the
Code and Standards
2. The Six Components of the Code of Ethics
b. state the six components of the Code of Ethics and the
seven Standards of Professional Conduct
3. The Seven Standards of Professional Conduct
c. explain the ethical responsibilities required by the Code and
Standards, including the sub-sections of each Standard.

13
1. CFA Institute Professional Conduct Program

Under the supervision of the governing body of the CFA Institute, a Disciplinary Review
Committee enforces the standards.
Cases are prepared by a Professional Conduct staff that monitors compliance and are
then processed like in a Justice system.
Steps are the following:
An overview follows:
Grounds for Discipline  Any act which violates the Code and Standards.
Investigation by Designated Officer (DO)  3 possibilities - no disciplinary sanction, issue a
cautionary letter, or continue proceedings to discipline the member or candidate. If the investigation determines
that a violation occurred, a disciplinary sanction is recommended. The member or candidate may accept the
recommended sanction or proceed to a hearing panel.
Hearing If the member rejects the proposed sanction, a case against the member will be prepared
and take place in front of a hearing panel of three or more members.
Authorized sanctions include suspension or revocation of membership/designation,
private/public censure, and private reprimand.

14
2. The 6 components of the Code of Ethics (1/4)

Members and Candidates must:

 Act with Integrity, Competence, Diligence, Respect, and in an ethical manner with
the public, clients, prospective clients, employers, employees, colleagues in the
investment profession, and other participants in the 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

15
2. The 6 components of the Code of Ethics (2/4)

Members and Candidates must:

 Practice and encourage others to practice in a professional and ethical manner that will
reflect credit on themselves and the profession

 Promote the 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

16
2. The 6 components of the Code of Ethics (3/4)

The Code of Ethics establishes the framework for ethical decision-making in the investment
profession.

It applies to CFA Institute's members, CFA charterholders and CFA candidates.

17
2. The 6 components of the Code of Ethics (4/4)

1. ICDR + Ethical manner (ICDR stands for Integrity, Competence, Diligence & Respect)

2. Clients Interest>Personal Interest; + integrity

3. Independence, Professionalism, Reasonable Care

4. Act ethically; encourage others

5. Promote Integrity in capital markets for the benefit of the society

6. Strive to be more competent and develop your expertise

18
3. The 7 standards of Professional Conduct (1/7)
I. PROFESSIONALISM
A. Knowledge of the Law
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 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.
B. Independence and Objectivity
Members and candidates must use reasonable care and judgment to achieve and maintain independence
and objectivity in their professional activities. Members and candidates must not offer, solicit, or accept
any gift, benefit, compensation, or consideration that reasonably could be expected to compromise their
own or another's independence and objectivity.
C. Misrepresentation
Members and candidates must not knowingly make any misrepresentations relating to investment
analysis, recommendations, actions, or other professional activities.
D. Misconduct
Members and candidates must not engage in any professional conduct involving dishonesty, fraud, or
deceit or commit any act that reflects adversely on their professional reputation, integrity, or competence.

19
3. The 7 standards of Professional Conduct (2/7)

II. INTEGRITY OF CAPITAL MARKETS


A. Material Nonpublic Information
Members and candidates who possess material nonpublic information that could affect the
value of an investment must not act or cause others to act on the information
B. Market Manipulation
Members and candidates must not engage in practices that distort prices or artificially
inflate trading volume with the intent to mislead market participants.

20
3. The 7 standards of Professional Conduct (3/7)
III. DUTIES TO CLIENTS
A. Loyalty, Prudence, and Care
Members and candidates have a duty of loyalty to their clients and must act with reasonable care and exercise prudent judgment. Members and
candidates must act for the benefit of their clients and place their clients' interests before their employer's or their own interests.
B. Fair Dealing
Members and 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
When members and candidates are in an advisory relationship with a client, they must:
a. Make a reasonable inquiry into a client's or prospective client's investment experience, risk and return objectives, and financial constraints prior to
making any investment recommendation or taking investment action and must reassess and update this information regularly.
b. Determine that an investment is suitable to the client's financial situation and consistent with the client's written objectives, mandates, and
constraints before making an investment recommendation or taking investment action.
c. Judge the suitability of investments in the context of the client's total portfolio.
When members and candidates are responsible for managing a portfolio to a specific mandate, strategy, or style, they must only make investment
recommendations or take investment actions that are consistent with the stated objectives and constraints of that portfolio.
D. Performance Presentation
When communicating investment performance information, members or candidates must make reasonable efforts to ensure that it is fair, accurate,
and complete.
E. Preservation of Confidentiality
Members and candidates must keep information about current, former, and prospective clients confidential unless the information concerns illegal
activities on the part of the client or prospective client, disclosure is required by law, or the client or prospective client permits disclosure of the
information.

21
3. The 7 standards of Professional Conduct (4/7))

IV. DUTIES TO EMPLOYERS


A. Loyalty
In matters related to their employment, members and candidates must act for the benefit
of their employer and not deprive their employer of the advantage of their skills and
abilities, divulge confidential information, or otherwise cause harm to their employer.=
B. Additional Compensation Arrangements
Members and candidates must not accept gifts, benefits, compensation, or consideration
that competes with, or might reasonably be expected to create a conflict of interest with,
their employer's interests unless they obtain written consent from all parties involved
C. Responsibilities of Supervisors
Members and candidates must make reasonable efforts to detect and prevent violations of
applicable laws, rules, regulations, and the Code and Standards by anyone subject to
their supervision or authority

22
3. The 7 standards of Professional Conduct (5/7)
V. INVESTMENT ANALYSIS, RECOMMENDATIONS, AND ACTIONS
A. Diligence and Reasonable Basis
Members and candidates must :
- exercise diligence, independence, and thoroughness in analyzing investments, making investment
recommendations, 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 Clients
Members and candidates must:
- disclose to clients and prospective clients the basic format and general principles of the investment processes
used to analyze investments, select securities, and construct portfolios, and must promptly disclose any changes
that might materially affect those processes
- use reasonable judgment in identifying which factors are important to their investment analyses,
recommendations, or actions and include those factors in communications with clients and prospective clients
- distinguish between fact and opinion in the presentation of investment analysis and recommendations
C. Record Retention
Members and candidates must develop and maintain appropriate records to support their investment analysis,
recommendations, actions, and other investment-related communications with clients and prospective clients

23
3. The 7 standards of Professional Conduct (6/7)

VI. CONFLICTS OF INTEREST


A. Disclosure of Conflicts
Members and candidates must make full and fair disclosure of all matters that could
reasonably be expected to impair their independence and objectivity or interfere with
respective duties to their clients, prospective clients, and employer. Members and
candidates must ensure that such disclosures are prominent, are delivered in plain
language, and communicate the relevant information effectively
B. Priority of Transactions
Investment transactions for clients and employers must have priority over investment
transactions in which a member or candidate is the beneficial owner
C. Referral Fees
Members and candidates must disclose to their employer, clients, and prospective clients,
as appropriate, any compensation, consideration, or benefit received from or paid to
others for the recommendation of products or services

24
3. The 7 standards of Professional Conduct (7/7)

VII. RESPONSIBILITIES AS A CFA INSTITUTE MEMBER OR CFA CANDIDATE


A. Conduct as Members and Candidates in the CFA Program
Members and candidates must not engage in any conduct that compromises the
reputation or integrity of CFA Institute or the CFA designation or the integrity, validity, or
security of the CFA examinations
B. Reference to CFA Institute, the CFA Designation, and the CFA Program
When referring to CFA Institute, CFA Institute membership, the CFA designation, or
candidacy in the CFA Program, members and candidates must not misrepresent or
exaggerate the meaning or implications of membership in CFA Institute, holding the CFA
designation, or candidacy in the CFA program

25
The standards in details
I. PROFESSIONALISM
II. INTEGRITY OF CAPITAL MARKETS
III. DUTIES TO CLIENTS
IV. DUTIES TO EMPLOYERS
V. INVESTMENT ANALYSIS, RECOMMENDATIONS, AND ACTIONS
VI. CONFLICTS OF INTEREST
VII. RESPONSIBILITIES AS A CFA INSTITUTE MEMBER OR CFA
CANDIDATE

26
The 7 standards of Professional Conduct (1/7)

I. PROFESSIONALISM
A. Knowledge of the Law
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 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.
B. Independence and Objectivity
Members and candidates must use reasonable care and judgment to achieve and
maintain independence and objectivity in their professional activities. Members and
candidates must not offer, solicit, or accept any gift, benefit, compensation, or
consideration that reasonably could be expected to compromise their own or another's
independence and objectivity.
27
3. The 7 standards of Professional Conduct (1/7)

I. PROFESSIONALISM
C. Misrepresentation
Members and candidates must not knowingly make any misrepresentations relating to
investment analysis, recommendations, actions, or other professional activities.
D. Misconduct
Members and candidates must not engage in any professional conduct involving
dishonesty, fraud, or deceit or commit any act that reflects adversely on their professional
reputation, integrity, or competence.

28
3. The 7 standards of Professional Conduct (2/7)

II. INTEGRITY OF CAPITAL MARKETS

A. Material Nonpublic Information


Members and candidates who possess material nonpublic information that could affect the
value of an investment must not act or cause others to act on the information

B. Market Manipulation
Members and candidates must not engage in practices that distort prices or artificially
inflate trading volume with the intent to mislead market participants.

29
3. The 7 standards of Professional Conduct (3/7)

III. DUTIES TO CLIENTS


A. Loyalty, Prudence, and Care
Members and candidates have a duty of loyalty to their clients and must act with
reasonable care and exercise prudent judgment. Members and candidates must act for
the benefit of their clients and place their clients' interests before their employer's or their
own interests.

B. Fair Dealing
Members and 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.

30
3. The 7 standards of Professional Conduct (3/7)

III. DUTIES TO CLIENTS


C. Suitability
When members and candidates are in an advisory relationship with a client, they must:
a. Make a reasonable inquiry into a client's or prospective client's investment experience,
risk and return objectives, and financial constraints prior to making any investment
recommendation or taking investment action and must reassess and update this
information regularly.
b. Determine that an investment is suitable to the client's financial situation and consistent
with the client's written objectives, mandates, and constraints before making an
investment recommendation or taking investment action.
c. Judge the suitability of investments in the context of the client's total portfolio.
When members and candidates are responsible for managing a portfolio to a specific
mandate, strategy, or style, they must only make investment recommendations or take
investment actions that are consistent with the stated objectives and constraints of that
portfolio.

31
3. The 7 standards of Professional Conduct (3/7)

III. DUTIES TO CLIENTS


D. Performance Presentation
When communicating investment performance information, members or candidates must
make reasonable efforts to ensure that it is fair, accurate, and complete.

E. Preservation of Confidentiality
Members and candidates must keep information about current, former, and prospective
clients confidential unless the information concerns illegal activities on the part of the
client or prospective client, disclosure is required by law, or the client or prospective client
permits disclosure of the information.

32
3. The 7 standards of Professional Conduct (4/7))

IV. DUTIES TO EMPLOYERS


A. Loyalty
In matters related to their employment, members and candidates must act for the benefit
of their employer and not deprive their employer of the advantage of their skills and
abilities, divulge confidential information, or otherwise cause harm to their employer.=
B. Additional Compensation Arrangements
Members and candidates must not accept gifts, benefits, compensation, or consideration
that competes with, or might reasonably be expected to create a conflict of interest with,
their employer's interests unless they obtain written consent from all parties involved
C. Responsibilities of Supervisors
Members and candidates must make reasonable efforts to detect and prevent violations of
applicable laws, rules, regulations, and the Code and Standards by anyone subject to
their supervision or authority

33
3. The 7 standards of Professional Conduct (5/7)

V. INVESTMENT ANALYSIS, RECOMMENDATIONS, AND


ACTIONS
A. Diligence and Reasonable Basis
Members and candidates must :
- exercise diligence, independence, and thoroughness in analyzing investments, making
investment recommendations, and taking investment actions
- have a reasonable and adequate basis, supported by appropriate research and
investigation, for any investment analysis, recommendation, or action

34
3. The 7 standards of Professional Conduct (5/7)

V. INVESTMENT ANALYSIS, RECOMMENDATIONS, AND ACTIONS


B. Communication with Clients and Prospective Clients
Members and candidates must:
- disclose to clients and prospective clients the basic format and general principles of the
investment processes used to analyze investments, select securities, and construct portfolios,
and must promptly disclose any changes that might materially affect those processes
- use reasonable judgment in identifying which factors are important to their investment
analyses, recommendations, or actions and include those factors in communications with
clients and prospective clients
- distinguish between fact and opinion in the presentation of investment analysis and
recommendations
C. Record Retention
Members and candidates must develop and maintain appropriate records to support their
investment analysis, recommendations, actions, and other investment-related communications
with clients and prospective clients
35
3. The 7 standards of Professional Conduct (6/7)

VI. CONFLICTS OF INTEREST


A. Disclosure of Conflicts
Members and candidates must make full and fair disclosure of all matters that could
reasonably be expected to impair their independence and objectivity or interfere with
respective duties to their clients, prospective clients, and employer. Members and
candidates must ensure that such disclosures are prominent, are delivered in plain
language, and communicate the relevant information effectively
B. Priority of Transactions
Investment transactions for clients and employers must have priority over investment
transactions in which a member or candidate is the beneficial owner
C. Referral Fees
Members and candidates must disclose to their employer, clients, and prospective clients,
as appropriate, any compensation, consideration, or benefit received from or paid to
others for the recommendation of products or services

36
3. The 7 standards of Professional Conduct (7/7)

VII. RESPONSIBILITIES AS A CFA INSTITUTE MEMBER OR CFA CANDIDATE


A. Conduct as Members and Candidates in the CFA Program
Members and candidates must not engage in any conduct that compromises the
reputation or integrity of CFA Institute or the CFA designation or the integrity, validity, or
security of the CFA examinations
B. Reference to CFA Institute, the CFA Designation, and the CFA Program
When referring to CFA Institute, CFA Institute membership, the CFA designation, or
candidacy in the CFA Program, members and candidates must not misrepresent or
exaggerate the meaning or implications of membership in CFA Institute, holding the CFA
designation, or candidacy in the CFA program

37

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