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LM02 Code of Ethics and Standards of Professional Conduct 2025 Level I Notes © IFT. All rights reserved 1 LM02 Code of Ethics and Standards of Professional Conduct Introduction ............................................................................................................................................................... 2 CFA Institute Professional Conduct Program ................................................................................................ 2 Code of Ethics ............................................................................................................................................................. 3 Standards of Professional Conduct ................................................................................................................... 3 Summary ...................................................................................................................................................................... 8 Required disclaimer: IFT is a CFA Institute Prep Provider. Only CFA Institute Prep Providers are permitted to make use of CFA Institute copyrighted materials which are the building blocks of the exam. We are also required to create / use updated materials every year and this is validated by CFA Institute. Our products and services substantially cover the relevant curriculum and exam and this is validated by CFA Institute. In our advertising, any statement about the numbers of questions in our products and services relates to unique, original, proprietary questions. CFA Institute Prep Providers are forbidden from including CFA Institute official mock exam questions or any questions other than the end of reading questions within their products and services. CFA Institute does not endorse, promote, review or warrant the accuracy or quality of the product and services offered by IFT. CFA Institute®, CFA® and “Chartered Financial Analyst®” are trademarks owned by CFA Institute. © Copyright CFA Institute Version 1.0
LM02 Code of Ethics and Standards of Professional Conduct 2025 Level I Notes © IFT. All rights reserved 2
LM02 Code of Ethics and Standards of Professional Conduct 2025 Level I Notes © IFT. All rights reserved 3 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. 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 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 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 disclose if they have been a subject of civil litigation or criminal investigation.  Written complaints: The PCP staff may receive written complaints.  Evidence of misconduct: The PCP staff may come across violations through media or any public source.  Report by a CFA exam proctor: If a candidate violated any rules on exam day and is reported by the proctor.  CFA Institute may conduct analysis 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
LM02 Code of Ethics and Standards of Professional Conduct 2025 Level I Notes © IFT. All rights reserved 4 determine whether a violation of the Code and Standards or testing policies has occurred and, if so, what sanction should be imposed. Code of Ethics Members of the CFA Institute (including CFA charterholders) 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. Standards of Professional Conduct There are seven Standards of Professional Conduct. Each standard has sub-sections. The standards are covered 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 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