Chartered Financial Analyst (CFA) Level 1: Ethical
and Professional Standards Study Notes
1. Introduction to Ethics and Professional Standards
Ethics is the foundation of the CFA program and the investment
profession. The ethical principles outlined in the CFA Institute Code of
Ethics and Standards of Professional Conduct are designed to ensure trust,
integrity, and transparency in the financial markets.
1.1 Importance of Ethics in the Investment Profession
The investment industry is built on trust; ethical misconduct can
lead to a loss of credibility and financial instability.
Ethical decision-making ensures fair treatment of clients, proper
market function, and compliance with legal frameworks.
Regulators impose strict laws and guidelines, but ethical principles
go beyond just following the law.
1.2 Ethical Decision-Making Framework
To approach ethical dilemmas, the CFA Institute provides a framework:
1. Identify – Recognize the ethical issue.
2. Consider – Evaluate the situation from multiple perspectives.
3. Decide – Choose an action that aligns with ethical principles.
4. Act – Implement the decision with integrity.
5. Reflect – Review the decision and its impact.
2. CFA Institute Code of Ethics
The Code of Ethics establishes the fundamental principles that CFA charter
holders and candidates must follow:
1. Act with integrity, competence, diligence, and respect.
2. Place the interests of clients above their own.
3. Use reasonable care and independent judgment in
professional activities.
, 4. Practice and encourage others to act ethically.
5. Promote the integrity of capital markets.
6. Maintain and improve professional competence.
3. Standards of Professional Conduct
The CFA Institute Standards of Professional Conduct provide specific
guidelines for ethical behavior in the investment profession.
3.1 Professionalism
Knowledge of the Law: Understand and comply with applicable
laws, rules, and regulations. If faced with conflicting laws, always
adhere to the strictest applicable requirement.
o Example: An analyst working in a country with lax insider
trading laws should still follow stricter CFA ethical standards.
Independence and Objectivity: Avoid conflicts of interest and
maintain impartiality.
o Example: Refusing gifts from clients or companies being
analysed.
Misrepresentation: Do not misrepresent investment performance,
qualifications, or credentials.
o Example: A portfolio manager should not exaggerate past
returns to attract investors.
Misconduct: Do not engage in fraudulent, dishonest, or unethical
behavior.
o Example: A trader engaging in front-running (executing
personal trades before client trades) violates ethical
principles.
3.2 Integrity of Capital Markets
Material Non-public Information: Avoid trading on or sharing
material non-public information.
and Professional Standards Study Notes
1. Introduction to Ethics and Professional Standards
Ethics is the foundation of the CFA program and the investment
profession. The ethical principles outlined in the CFA Institute Code of
Ethics and Standards of Professional Conduct are designed to ensure trust,
integrity, and transparency in the financial markets.
1.1 Importance of Ethics in the Investment Profession
The investment industry is built on trust; ethical misconduct can
lead to a loss of credibility and financial instability.
Ethical decision-making ensures fair treatment of clients, proper
market function, and compliance with legal frameworks.
Regulators impose strict laws and guidelines, but ethical principles
go beyond just following the law.
1.2 Ethical Decision-Making Framework
To approach ethical dilemmas, the CFA Institute provides a framework:
1. Identify – Recognize the ethical issue.
2. Consider – Evaluate the situation from multiple perspectives.
3. Decide – Choose an action that aligns with ethical principles.
4. Act – Implement the decision with integrity.
5. Reflect – Review the decision and its impact.
2. CFA Institute Code of Ethics
The Code of Ethics establishes the fundamental principles that CFA charter
holders and candidates must follow:
1. Act with integrity, competence, diligence, and respect.
2. Place the interests of clients above their own.
3. Use reasonable care and independent judgment in
professional activities.
, 4. Practice and encourage others to act ethically.
5. Promote the integrity of capital markets.
6. Maintain and improve professional competence.
3. Standards of Professional Conduct
The CFA Institute Standards of Professional Conduct provide specific
guidelines for ethical behavior in the investment profession.
3.1 Professionalism
Knowledge of the Law: Understand and comply with applicable
laws, rules, and regulations. If faced with conflicting laws, always
adhere to the strictest applicable requirement.
o Example: An analyst working in a country with lax insider
trading laws should still follow stricter CFA ethical standards.
Independence and Objectivity: Avoid conflicts of interest and
maintain impartiality.
o Example: Refusing gifts from clients or companies being
analysed.
Misrepresentation: Do not misrepresent investment performance,
qualifications, or credentials.
o Example: A portfolio manager should not exaggerate past
returns to attract investors.
Misconduct: Do not engage in fraudulent, dishonest, or unethical
behavior.
o Example: A trader engaging in front-running (executing
personal trades before client trades) violates ethical
principles.
3.2 Integrity of Capital Markets
Material Non-public Information: Avoid trading on or sharing
material non-public information.
