This module outlines the governance structure of the CFA Institute Professional Conduct Program, the 2023 revisions to the standards, and the fundamental principles of the Code of Ethics and Standards of Professional Conduct.
The PCP, in conjunction with the Disciplinary Review Committee (DRC), enforces the Code and Standards. * Oversight: CFA Institute Board of Governors. * DRC: Volunteer committee of CFA charterholders.
Disciplinary investigations can be triggered by: * Self-disclosure: On the annual Professional Conduct Statement (e.g., civil litigation, criminal investigation). * Written complaints: Received by Professional Conduct staff. * Public sources: Media reports, regulatory notices. * Exam conduct: Proctor reports of suspected violations. * Post-exam analysis: Monitoring social media or analyzing scores for compromised integrity.
Three key changes were made to modernize the standards: 1. Standard I(E) Competence (New): Explicitly requires members to act with and maintain the competence necessary to fulfill professional responsibilities. 2. Standard V(B) Communication with Clients (Revised): Now requires disclosure of the nature of services provided and the costs associated with those services. 3. Standard VI(A) Avoid or Disclose Conflicts (Revised): Updated to require members to avoid conflicts of interest (best practice) or make full and fair disclosure if avoidance is not reasonable.
Members and Candidates must: 1. Act with integrity, competence, diligence, respect, and in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues, and market participants. 2. Place the integrity of the investment profession and the interests of clients above their own personal interests. 3. Use reasonable care and exercise independent professional judgment when conducting analysis, making recommendations, or taking investment action. 4. Practice and encourage others to practice in a professional and ethical manner that reflects 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.
I. PROFESSIONALISM * A. Knowledge of the Law: Understand and comply with all applicable laws/rules. In conflict, follow the stricter law. Do not knowingly assist in violations; dissociate from them. * B. Independence and Objectivity: Use reasonable care to maintain independence. Do not offer/accept gifts or compensation that compromise objectivity. * C. Misrepresentation: Do not knowingly make misrepresentations regarding investment analysis, recommendations, or actions. * D. Misconduct: Do not engage in dishonesty, fraud, or deceit that reflects adversely on professional reputation/integrity. * E. Competence: Act with and maintain the competence necessary to fulfill professional responsibilities.
II. INTEGRITY OF CAPITAL MARKETS * A. Material Nonpublic Information: Do not act or cause others to act on material nonpublic information. * B. Market Manipulation: Do not engage in practices that distort prices or artificially inflate trading volume to mislead.
III. DUTIES TO CLIENTS * A. Loyalty, Prudence, and Care: Duty of loyalty; act with reasonable care; place client interests before employer’s or own. * B. Fair Dealing: Deal fairly and objectively with all clients when providing analysis, recommendations, or taking action. * C. Suitability: * Make reasonable inquiry into client’s experience/objectives. * Determine suitability of investments relative to client’s financial situation. * Judge suitability in the context of the total portfolio. * D. Performance Presentation: Ensure investment performance information is fair, accurate, and complete. * E. Preservation of Confidentiality: Keep current/former/prospective client information confidential unless: * Illegal activities involved. * Disclosure required by law. * Client permits disclosure.
IV. DUTIES TO EMPLOYERS * A. Loyalty: Act for the benefit of the employer; do not deprive them of skills/abilities or cause harm. * B. Additional Compensation Arrangements: Do not accept gifts/compensation competing with employer’s interest without written consent from all parties. * C. Responsibilities of Supervisors: Make reasonable efforts to ensure subordinates comply with laws, rules, regulations, and the Code/Standards.
V. INVESTMENT ANALYSIS, RECOMMENDATIONS, AND ACTIONS * A. Diligence and Reasonable Basis: Exercise diligence/independence; have a reasonable basis supported by research. * B. Communication with Clients: * Disclose basic format/principles of investment processes. * Disclose limitations/risks. * Distinguish fact from opinion. * New: Disclose nature of services and associated costs. * C. Record Retention: Maintain appropriate records to support analysis, recommendations, and actions.
VI. CONFLICTS OF INTEREST * A. Avoid or Disclose Conflicts: Avoid or make full/fair disclosure of matters impairing independence/objectivity. Disclosures must be prominent and in plain language. * B. Priority of Transactions: Client and employer transactions take priority over member’s beneficial ownership transactions. * C. Referral Fees: Disclose to employer, clients, and prospective clients any compensation received/paid for referrals.
VII. RESPONSIBILITIES AS A CFA INSTITUTE MEMBER OR CFA CANDIDATE * A. Conduct as Participants in CFA Institute Programs: Do not compromise the reputation/integrity of CFA Institute or the designation/integrity of programs (e.g., cheating, discussing exam questions). * B. Reference to CFA Institute, the CFA Designation, and the CFA Program: Do not misrepresent or exaggerate the meaning/implications of membership, designation, or candidacy.