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CFA Level II 2018 > Ethics > Flashcards

Flashcards in Ethics Deck (30):
1

 Describe the six components of the Code of Ethics and the seven Standards of Professional Conduct. 

  • 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.
  • 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.
  • 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.

2

Standards of Professional Conduct

Professionalism

  • Knowledge of the Law
  • Independence and Objectivity
  • Misrepresentation
  • Misconduct

Integrity of Capital Markets

  • Material Nonpublic Information
  • Market Manipulation

Duties to Clients

Loyalty, Prudence and Care

  • Fair Dealing
  • Suitability
  • Performance Presentation
  • Preservation of Confidentiality

Duties to Employers

  • Loyalty
  • Additional Compensation Arrangements
  • Responsibilities of Supervisors

Investment Analysis, Recommendations and Actions

  • Diligence and Reasonable Basis
  • Communication with Clients and Prospective Clients
  • Record Retention

Conflicts of Interest

  • Disclosure of Conflicts
  • Priority of Transactions
  • Referral Fees

Responsibilities as a CFA Institute Member or CFA Candidate

  • Conduct as members and candidates in the CFA program
  • Reference to CFA Institute, the CFA Designation, and the CFA Program

3

Standard I(A): Knowledge of the Law

  • Knowledge of the Law
  • Independence and Objectivity
  • Misrepresentation
  • Misconduct

4

Standard I(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.

5

Standard I(C) Misrepresentation

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

6

Standard I(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.

7

Standard II Integrity of Capital Makerts

  • Standard II (A): Materail Nonpublic Information
  • Standard II (B): Market Manipulation 

8

Standard II(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.

9

Standard II(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.

10

Standard III: Duties to Clients

Standard III (A): Loyalty, Prudence, and Care

Standard III (B): Fair Dealing

Standard III (C): Suitability

Standard III (D): Performance Presentation

Preservation of Confidentiality

11

Standard III(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.

12

Standard III(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.

13

Standard III(C) Suitabilit

Investements must fit within investement polcies 

14

Standard III(D) Performance Presentation

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

15

Standard III(E) Preservation of Confidentiality

Members and candidates must keep information about current, former, and prospective clients confidential unless:

  1. The information concerns illegal activities on the part of the client;
  2. Disclosure is required by law; or
  3. The client or prospective client permits disclosure of the information.

16

Standard IV: Duties to Employers

  • Loyalty
  • Additional Compensation Arrangements
  • Responsibilities of Supervisors

17

Standard IV(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.

18

Standard IV(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 interest unless they obtain written consent from all parties involved.

19

Standard IV(C) Responsibilities of Supervisors

Members and candidates must make reasonable efforts to ensure that anyone subject to their supervision or authority complies with applicable laws, rules, regulations, and the Code and Standards.

20

Standard V: Investment Analysis, Recommendations and Actions

Standard V(A): Diligence and Reasonable Basis

Standard V(B):Communication with Clients & Prospective Clients

Standard V(C): Record Retention

21

Standard V(A) Diligence and Reasonable Basis

Members and candidates must:

  1. Exercise diligence, independence, and thoroughness in analyzing investments, making investment recommendations, and taking investment actions.
  2. Have a reasonable and adequate basis, supported by appropriate research and investigation, for any investment analysis, recommendation, or action.

22

Standard V(B) Communication with Clients and Prospective Clients

  1. Disclose to clients and prospective clients the basic format and general principles of the investment processes they use to analyze investments, select securities, and construct portfolios, and must promptly disclose any changes that might materially affect those processes.
  2. Disclose to clients and prospective clients significant limitations and risks associated with the investment process.
  3. 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.
  4. Distinguish between fact and opinion in the presentation of investment analyses and recommendations.

23

Standard V(C) Record Retention

Members and candidates must develop and maintain appropriate records to support their investment analyses, recommendations, actions, and other investment-related communications with clients and prospective clients.

24

Standard VI: Conflicts of Interest

Standard VI (A): Disclosure of Conflicts

Standard VI (B): Priority of Transactions

Standard VI (C): Referral Fees

25

Standard VI(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.

26

Standard VI(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.

27

Standard VI(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.

28

Standard VII: Responsibilities as a CFA Institute Member or CFA Candidate

Standard VII(A) Conduct as Participants in CFA Institute Programs

Standard VII(B) Reference to CFA Institute, the CFA Designation, and the CFA Program

 

29

Standard VII(A) Conduct as Participants in CFA Institute Programs

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 CFA Institute programs.

30

Standard VII(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.