Standard I (A) Professionalism - Knowledge of the Law
The first standard, professionalism, has four sub-parts:
- Knowledge of the Law
- Independence and objectivity
Knowledge of the Law
The members and candidates must know, understand, and comply with any law, or regulation governing their professional activities. In case of a conflict the member/candidate must comply with the stricter law. They should not knowingly participate in any activity that is in violation of the law.
The questions related to standard I-A will generally revolve around whether there has been any violation of law, and how the CFA member/candidate proceeded in the situation.
- One rule of thumb is the “stricter law”. This rule says that the CFA candidate/member must always follow the stricter law. For example, if the person lives in a country where the security laws are weak compared to CFA code and standards, then he must adhere to the Code and Standards. Otherwise, if the applicable law is stricter, then the law applies. The CFA Level I exam, does not expect you to have thorough knowledge of the laws. So, in a given situation, which law is applicable will be indicated.
- The member should not knowingly assist in violation. They should otherwise dissociate themselves from any activity that is illegal or unethical.
- When the member comes to know of any such activity, he should notify supervisor or compliance or may directly confront the wrongdoer. If the member doesn’t dissociate himself and also takes no action, it will be construed as participation.
- Under the standards, there is no requirement to report violations to governmental authorities. However, in some cases this may be appropriate.
- If a member feels that there may be a violation, he should consult a general counsel who is competent and unbiased.
The questions relate to how the CFA member or candidate proceeded in case of a violation. The general cue to look for is whether the candidate/member did the right thing. For example, did he consulted a counsel and followed his advice. Alternatively, if someone else was involved in violation, did the candidate/member report to his supervisor or compliance officer, which is the right thing to do?
John is a U.S. citizen and works for a US-based investment bank in a country where the investment managers are not allowed to take referral fees. In an investment deal, John is offered a referral fee. In this situation, John must follow the stricter of the two laws. The stricter law is of the country where he is working and he should decline the referral fee.
- Seven Standards of Professional Conduct
- Standard I (A) Professionalism - Knowledge of the Law
- Standard I (B) Professionalism - Independence and Objectivity
- Standard I (C) Professionalism - Misrepresentation
- Standard I (D) Professionalism - Misconduct
- Standard II (A) - Material Non-public Information
- Standard II (B) - Market Manipulation
- Standard III (A) - Loyalty, Prudence, and Care
- Standard III (B) - Fair Dealing
- Standard III (C) - Suitability
- Standard III (D) - Performance Presentation
- Standard III (E) - Preservation of Confidentiality
- Standard IV (A) - Loyalty
- Standard IV (B) - Additional Compensation Arrangements
- Standard IV (C) - Responsibilities of Supervisors
- Standard V (A) - Diligence and Reasonable Basis
- Standard V (B) - Communication with Clients and Prospective Clients
- Standard V (C) - Record Retention
- Standard VI (A) - Disclosure of Conflicts
- Standard VI (B) - Priority of Transactions
- Standard VI (C) - Referral Fees
- Guidance for Standard VII – Responsibilities of a CFA Institute Member or CFA Candidate