Week 1: Ethics and Standards

Question 1

Businesses and financial markets thrive on…

Answer 1

TRUST: knowing that a person or institution will act a certain way.

if a consumer doesn’t trust the market/a business, they won’t engage (invest money and time) with it. this makes the lifespan of the business/market extremely short and inevitably nonexistent.

Question 2

Ethics are…

Answer 2

a set of:

• principals
• rules

that provide guidance for a person’s behavior.

Question 3

Why are ethics important?

Answer 3

professional follows code of ethics → their behavior is consistent, reliable, and trustworthy → individuals (managers and clients) see the professional as good and credible → individuals TRUST the professional → more interactions with the managers and clients, they are willing to invest into the business/market, and reputation of professional is built

Question 4

“Code of Ethics” is…

Answer 4

communities or societal groups codify their beliefs in a written set of principles. it’s essentially a guide for how members of the community should act

Question 5

Standards of conduct serve as…

Answer 5

benchmarks for the minimally acceptable behavior of community members

Question 6

Values are…

Answer 6

building blocks of what is acceptable and unacceptable

Question 7

Is the law synonymous with ethics?

Answer 7

not always — laws can be out of date, so they need to often catch up and move towards ethical standards that reflect the values of society at that time

Question 8

Ethics, values, and regulations (laws, rules) are mutually interdependent. How?

Answer 8

values influence ethics which influences the law

Question 9

Is regulation enough?

Answer 9

regulation by itself is not enough. we need good ethics, or else there are always gonna be smart people that can look past regulations and create loopholes around them.

more ethical behaviour → there will be less need for regulation because people will correct themselves.

Question 10

Largest body for investment management professionals is

Answer 10

CFA Institute

Question 11

Mission of CFA Institute is

Answer 11

to lead the investment profession GLOBALLY by promoting the HIGHEST standards of:

• ethics
• education
• professional excellence

for the ultimate benefit of society

Question 12

Practice analysis

Answer 12

involves interacting with investment management professionals.

through these interactions, we want to determine:

• what’s currently happening within the industry
• if our knowledge is up-to-date and relevant to global financial markets (if not, what should we change or implement?)

a good example is the emergence of AI. what rules and regulations do we have to put in place regarding this new technology?

Question 13

Investment professionals have a special responsibility to act ethically because

Answer 13

they are entrusted to protect clients’ assets

Question 14

A profession’s code of ethics

Answer 14

PUBLICLY communicates the shared principles and expected behaviors of a profession’s members

Question 15

The challenges

Answer 15

2 primary challenges:

• overconfidence in one’s morality and ethics, people think they’re more ethical than they really are
• underestimating situational influences (social pressure to conform to unethical behaviour)

Question 16

Recognizing situational influences is crucial

Answer 16

understanding these influences helps individuals make more informed and ethical decisions by considering the external factors that may affect their choices

Question 17

Common situational influences that influence those in the investment industry

Answer 17

• money
• prestige
• loyalty to co-workers and/or supervisor

Question 18

What fundamental question does the passage encourage employees to ask when making ethical decisions, especially in a compliance-focused culture?

Answer 18

“What should I do?” rather than “What can I do?”

Question 19

What will most likely determine whether an individual will behave unethically?

Answer 19

Situational influences, which are external factors (e.g., environmental or cultural elements), can shape our thinking, decision making, and behavior and are more likely to lead to unethical behavior than internal traits or character.

Question 21

The optimal business decision Involves:

Answer 21

• sound technical competence
• sound ethical judgement – ethical decision making framework

Question 22

CFA institute survey of their analysts, they found that:

Answer 22

1/4 of respondents witnessed their colleague doing something unethical:

• failing to use due diligence in making stock recommendation
• preparing reports with a pre-determined recommendation in mind
• insider trading (using non-public info)

Question 23

Ethical Decision Making Framework

Answer 23

Identify: Relevant facts, stakeholders and duties owed, ethical principles, conflicts of interest

Consider: Situational influences, additional guidance, alternative actions

Decide and act

Reflect: Was the outcome as anticipated? Why or why not?

Question 24

Sleep-At-Night factor

Answer 24

can we sleep PEACEFULLY every night knowing we’ve made this decision?

Question 25

Disciplinary Review Committee of CFA Institute Board of Governors has responsibility for

Answer 25

the Professional Conduct Program and enforcement of the Code and Standards

Question 26

CFA Institute Designated Officer, through Professional Conduct staff, conducts

Answer 26

inquiries related to professional conduct

Question 27

Inquiry can be prompted by

Answer 27

• Self-disclosure by members or candidates (if you’ve had any civil or criminal case against you)
• Written complaints about a member or candidate’s professional conduct
• Evidence of misconduct by a member or candidate
• Report by a CFA exam proctor

Question 28

The Designated Officer may decide

Answer 28

• That no disciplinary sanctions are appropriate
• To issue a cautionary letter
• To discipline the member or candidate

Question 29

Sanctions may include

Answer 29

condemnation by member’s peers or suspension of CFA designation

Question 30

Hierarchy of Interests

Answer 30

1. Integrity of Capital Markets
2. Client Interests
3. Employer Interests
4. Own Self-Interests