CAIA - Ethics - Standards I, II, and III Flashcards Preview

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Flashcards in CAIA - Ethics - Standards I, II, and III Deck (90)
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1

What is standard 1 of the CFA Standards of Practice Handbook?

Professionalism

2

What 4 areas does Standard 1 of the CFA Standards of Practice Handbook cover?

Knowledge of the Law

Independence and Objectivity

Misrepresentation

Misconduct

3

What is the purpose and scope of Standard 1 "Knowledge of the Law"?

1. To understand and comply with the laws and rules of all applicable organizations

2. In the event of conflict, Members and Canidates must comply with more strict rule

3. Members and Candidates must not participate or assist in and must dissociate from any violations

4

Can members and candidates take action that exceed laws and regulations?

Yes - members are encouraged to exceed minimal requirements.

5

Are members and candidates expected to become legal experts?

No, but Standard 1 requires that members/candidates not intentionally violate laws and regulations.

6

If illegal or unethical conduct is perceived by an employee, what should the employee do?

1. Separate from the conduct

2. Confront the violator directly

3. Inform a supervisor or compliance officer

4. If all of the above fails, dissociate completely.

7

Do the code of standards require violations to be reported to a regulatory agency?

No, but members are urged to report violations and seek guidance from legal/compliance officers.

8

When selling investment products to another country, should supervisors be aware of applicable laws?

Yes

9

If another firm is distributing products made by a member's firm in different countries, does the member need to know laws and regulations of foreign country?

Members should attempt to assess whether or not 3rd party firms are adhering to applicable laws

10

What are the member procedures for Standard I(A), knowledge of the law?

1. Acquire and maintain understanding of laws

2.  Know laws in distribution areas

3. Seek legal advice

4. Dissociate from violations

11

What are the firm procedures for Standard I(A), knowledge of the law?

1. Establish a code of ethics, which may be based on "Asset Manager Code of Professional Conduct" from the CFA

2. Provide employees with materials on applicable laws/regulations

3. Provide written procedures for reporting violations

12

What are the 2 purposes of Standard I(B) Independence and Objectivity?

1. Members and candidates must use reasonable care and judgment to achieve and maintain independence and objectivity.

 

2. Members and Candidates must not offer, solicit or accept any gift, benefit or compensation that could be expected to compromise their own or another's independence and objectivity.

13

Under Standard I(B), can recommendations can be made implicitely?

No, recommendations should be made explicitly without the use of nebulous language.

14

Are modest gifts and entertainment acceptable under the Code and Standards of Conduct?

Yes, but members are encouraged to decline any gift that may influence them to act in a manner contrary to the best interests of their clients.

15

Can an investment manager accept shares of an oversubscribed IPO for their personal accounts?

No. Since the IPO is oversubscribed, the investment is not available to their clients and is prohibited.

16

Can members and candidates accept gifts from clients?

Yes, but members/candidates must inform their employers so that potential conflicts of interest can be evaluated.

17

How can conflicts of interest between the research team of a sell-side firm and the investment banking branch be avoided?

A firewall should be established. Examples include: compensation not being tied to invstment banking projects, separate reporting and no changing of recommendations. Sometimes all communication is prohibited.

18

Regarding compensation, what is the best practice for issuer-paid research?

A flat fee should be charged and should not be based on the report's recommendations.

19

Can members and candidates accept paid travel arrangements from outside companies?

Yes, but only if the travel arrangements are modest and other means of transportation are unavailable. Transportation should be limited to information-gathering.

20

What are the procedures for complying with Standard I(B), Independence and Objectivity?

 

1. Protect the ___ of ___ ___

2. Create ___ ___

3. Restrict ___ ___

4. Limit ___ and ___

5. Restrict ___

6. Establish ___ ___ for ___ ___

7. Develop ___ ___

8. Appoint ___ ___ for ___ ___

What are the procedures for complying with Standard I(B), Independence and Objectivity?

1. Protect the integrity of analyst opinions

2. Create restricted list

3. Restrict cost arrangements

4. Limit gifts and gratuities

5. Restrict investments

6. Establish review procedures for personal investments

7. Develop formal policy

8. Appoint senior officer for ethical compliance

21

What is the purpose and scope of Standard I(C), MISREPRESENTATION?

Members and candidates must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions or other professional activities.

22

Do members and candidates need to ensure they don't misrepresent 3rd party information?

Yes

23

Does the use of outside managers need to be disclosed?

Yes

24

Is incorrectly using benchmarks a form of misrepresentation covered by Standard 1(C)?

Yes

25

Should a benchmark always be provided?

No - some investments do not have a suitable benchmark.

26

When using outsourced research reports, must members assume responsibility from any misreprentations in the report?

Yes - members are encouraged to only use research reports that contain proper documentation.

27

Members/candidates must cite the original author of research, unless:

The original author is a present or past employee of the firm since the work is the property of the employer. 

28

What are the procedures for complying with Standard I(C), MISREPRESENTATIONS?

1. Make ___ ___

2. Provide ___ ___

3. Verify ___ ___

4. Maintain ___

5. Establish ___ ___

 

What are the procedures for complying with Standard I(C), MISREPRESENTATIONS?

1. Make accurate presentations

2. Provide qualification summary

3. Verify outside information

4. Maintain webpages

5. Establish plagiarism policy

29

Does standard I(D), MISCONDUCT only cover illegal activities?

No - Standard I(D), MISCONDUCT mandates that members and candidates must avoid engaging in any activities that may reflect badly on their professional conduct.

30

What are the 3 procedures for complying with Standard I(D), MISCONDUCT?

 

 

What are 3 the procedures for complying with Standard I(D), MISCONDUCT?

1. Establish and/or implement a code of ethics

2. Provide employees with a list of potential breaches

3. Check references of prospective employees

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