Title LM01 Code of Ethics and Standards of Professional Conduct IFT Notes.pdf ✅

LM01 Code of Ethics and Professional Standards 2023 Level II Notes © IFT. All rights reserved 1 LM01 Code of Ethics and Professional Standards 1. Introduction ................................................................................................................................................... 2 2. CFA Institute Professional Conduct Program ................................................................................... 2 3. Code of Ethics ................................................................................................................................................ 3 4. Standards of Professional Conduct ....................................................................................................... 3 Summary .............................................................................................................................................................. 7 This document should be read in conjunction with the corresponding reading in the 2023 Level II CFA® Program curriculum. Some of the graphs, charts, tables, examples, and figures are copyright 2022, CFA Institute. Reproduced and republished with permission from CFA Institute. All rights reserved. Required disclaimer: CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by IFT. CFA Institute, CFA®, and Chartered Financial Analyst® are trademarks owned by CFA Institute. Version 1.0
LM01 Code of Ethics and Professional Standards 2023 Level II Notes © IFT. All rights reserved 2 1. Introduction The Code of Ethics and Standards of Professional Conduct (Code and Standards) stipulate rules and guidelines for CFA Institute members and candidates on how to conduct themselves in a professional and ethical manner, with integrity, under all circumstances for the benefit of society. 2. CFA Institute Professional Conduct Program All CFA Institute members and candidates enrolled in the CFA program are required to comply with the Code and Standards. The Professional Conduct Program (PCP), in conjunction with the Disciplinary Review Committee (DRC), is responsible for the enforcement of the Code and Standards.  The DRC is a volunteer committee of CFA charterholders who serve on panels to review conduct and partner with professional conduct staff to establish and review professional conduct policies.  The CFA Institute Bylaws and Rules of Procedure for Professional Conduct (Rules of Procedure) form the basic structure for enforcing the Code and Standards. Professional Conduct inquiries can be prompted by several reasons:  Self-disclosure: On the annual Professional Conduct Statement, members have to disclose if they have been a subject of civil litigation or criminal investigation.  Written complaints: The PCP staff may receive written complaints against a member.  Evidence of misconduct: Through media or any public source.  Report by a CFA exam proctor: If a candidate violates any rules on exam day he can be reported by a proctor.  CFA Institute may conduct analyses of scores and exam materials after the exam, as well as monitor online and social media to detect disclosure of confidential exam information. For instance, if a friend sits for the exam in Australia and discusses specific questions online after the exam while you are in the United States where the exam hasn’t started, it can be considered a violation of the Code and Standards. After an inquiry is initiated, the Professional Conduct team conducts an investigation. If the professional conduct staff believes a violation of the Code and Standards has occurred, they propose sanctions which can include: public censure, suspension of membership and use of the CFA designation, and revocation of the CFA charter. Candidates may be suspended or prohibited from further participation in the CFA program. The member or candidate has the opportunity to accept or reject any charges and the proposed sanctions. If the member/candidate accepts the violation, then the sanctions will be imposed. If the member/candidate does not accept the charges or the proposed sanctions, the matter is referred to the DRC, which reviews materials and presentations from professional conduct staff and from the member or candidate. The panel’s task is to
LM01 Code of Ethics and Professional Standards 2023 Level II Notes © IFT. All rights reserved 3 determine whether a violation of the Code and Standards or testing policies has occurred and, if so, what sanction should be imposed. 3. Code of Ethics Members of the CFA Institute (including CFA charter holders) and candidates for the CFA designation (“Members and candidates”) must: 1. Act with integrity, competence, diligence, and 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. 2. Place the integrity of the investment profession and interests of clients above their own personal interests. 3. Use reasonable care and exercise independent professional judgment when conducting investment analysis, making investment recommendations, taking investment actions, and engaging in other professional activities. 4. Practice and encourage others to practice in a professional and ethical manner that will reflect credit on themselves and the profession. 5. Promote the integrity and viability of the global capital markets for the ultimate benefit of society. 6. Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals. Instructor’s Note: The six components of Code of Ethics, outlined above, are important and should be memorized. 4. Standards of Professional Conduct There are seven Standards of Professional Conduct. Each standard has sub-sections. The standards are explained in detail in the next reading. 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 Instructor’s Note: All the rules stated below are applicable to members and candidates. The phrase “members and candidates must follow this....” is not repeated, instead “You” is used generically to refer to members and candidates. I. Professionalism A. Knowledge of the Law  Understand and comply with all laws, rules, and regulations of government,
LM01 Code of Ethics and Professional Standards 2023 Level II Notes © IFT. All rights reserved 4 regulatory organizations, and licensing agencies, governing their professional activities.  If there is a conflict of interest, adhere to the strict law, rule or regulation.  Do not knowingly participate or assist in activities that violate these laws, rules or regulations. If you are part of a group where such violations are taking place, either make an attempt to stop it, and if you can’t, then dissociate yourself from the activity. B. Independence and Objectivity  Use reasonable care and judgment to achieve and maintain independence and objectivity in all professional activities.  Do not offer, solicit, or accept any gift or compensation that could compromise your independence and objectivity. C. Misrepresentation  Do not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities. D. Misconduct  Do not engage in any professional conduct involving dishonesty, fraud, or deceit that affects your professional reputation, integrity, or competence. II. Integrity of Capital Markets A. Material Nonpublic Information  If you possess material nonpublic information, ensure that you do not act or cause others to act that could affect the value of an investment. B. Market Manipulation  Do not engage in practices that distort prices or artificially inflate trading volume with the intent to mislead market participants. III. Duties to Clients A. Loyalty, prudence, and care  You have a duty to your clients and must act for the benefit of the clients. Interest of clients should always take precedence before your own or your firm’s interests. Act with reasonable care and exercise prudent judgment. B. Fair Dealing  Deal fairly and objectively with all clients during all investment related and professional activities such as analysis, recommendations, etc. C. Suitability  If you are providing investment advice to a client then: o Before making investment recommendations and taking investment action, ensure you understand the client’s investment experience, return and risk