CFA- Level 1 Ethical & Professional Standards
CFA Ethics Standards of Professional Conduct &
Code of Ethics - Exam Elaboration Q&A
This document provides detailed elaborations on the CFA Institute's Code of
Ethics and Standards of Professional Conduct, crucial for exam preparation
and understanding ethical responsibilities in the investment profession.
1. Question (LOS 1.b): What are the seven Standards of Professional
Conduct? Briefly describe each.
Answer: The seven Standards of Professional Conduct are the cornerstone of
ethical behavior in the investment profession. They provide a framework for the
ethical responsibilities of CFA Institute members and candidates.
I: Professionalism: This standard emphasizes maintaining high levels of
knowledge, adhering to the law, acting independently and objectively,
avoiding misrepresentation, and refraining from misconduct.
II: Integrity of Capital Markets: This standard focuses on preserving the
integrity of capital markets by prohibiting the use of material nonpublic
information and market manipulation.
III: Duties to Clients: This standard outlines the responsibilities to clients,
including loyalty, prudence, care, fair dealing, suitability of
recommendations, performance presentation, and preservation of
confidentiality.
IV: Duties to Employers: This standard addresses the ethical obligations to
employers, emphasizing loyalty, avoiding conflicts related to additional
compensation arrangements, and the responsibilities of supervisors.
V: Investment Analysis, Recommendations, and Actions: This standard
governs the process of investment analysis, requiring diligence, a reasonable
basis for conclusions, clear communication with clients, and proper record
retention.
VI: Conflicts of Interest: This standard mandates the full and fair
disclosure of all conflicts of interest, prioritizing client transactions, and
disclosing referral fees.
, VII: Responsibilities as a CFA Institute Member or CFA Candidate:
This standard outlines the ethical conduct expected of members and
candidates, including maintaining the integrity of the CFA designation and
program, and making accurate references to CFA Institute.
2. Question (LOS 1.b): What are the six components of the CFA Institute's
Code of Ethics? Explain the core principle of each component.
Answer: The Code of Ethics establishes the ethical principles that CFA Institute
members, candidates, and member firms must uphold. The six components are:
Act with integrity, competence, diligence, respect, and in an ethical
manner...: This principle underscores the fundamental obligation to act
professionally and ethically in all interactions within the investment
profession and capital markets. It sets a high bar for conduct and emphasizes
the importance of integrity as the foundation.
Place the integrity of the investment profession and the interests of
clients above their own personal interests: This client-centric principle
emphasizes fiduciary responsibility. It requires investment professionals to
prioritize the reputation of the profession and the well-being of their clients
over any personal gain or advantage.
Use reasonable care and exercise independent professional judgment...:
This principle focuses on the quality of professional activities. It mandates
that investment professionals conduct thorough analysis, make well-
reasoned recommendations, and act with objectivity, free from undue
influence.
Practice and encourage others to practice... in a professional and ethical
manner...: This principle highlights the responsibility to promote ethical
conduct within the profession. It encourages individuals to not only act
ethically themselves but also to foster an ethical environment for colleagues.
Promote the integrity of, and uphold the rules governing, capital
markets: This principle emphasizes the broader societal role of investment
professionals in maintaining fair and efficient capital markets. It requires
adherence to market regulations and a commitment to preventing activities
that undermine market integrity.
Maintain and improve professional competence... and strive to maintain
and improve the competence of other investment professionals: This
principle focuses on continuous learning and development. It obligates
, investment professionals to stay current with industry knowledge and to
support the professional growth of their peers.
3. Question: Briefly list the seven Standards of Professional Conduct.
Answer: The seven Standards of Professional Conduct are:
1. Professionalism
2. Integrity of Capital Markets
3. Duties to Clients
4. Duties to Employers
5. Investment Analysis, Recommendations, and Actions
6. Conflicts of Interest
7. Responsibilities as a CFA Institute Member or CFA Candidate
4. Question: Standard I: Professionalism is comprised of four sub-sections.
List and briefly describe each.
Answer: Standard I: Professionalism includes the following four sub-sections:
I(A) Knowledge of the Law: Requires members and candidates to
understand and comply with all applicable laws, rules, and regulations,
including the Code and Standards. In case of conflict, the more strict rule
must be followed.
I(B) Independence and Objectivity: Mandates that members and
candidates use reasonable care and judgment to maintain independence and
objectivity, and avoid any gifts or considerations that could compromise
their or others' objectivity.
I(C) Misrepresentation: Prohibits members and candidates from knowingly
making any misrepresentations related to investment analysis,
recommendations, actions, or other professional activities, including
guarantees on risky investments.
I(D) Misconduct: States that members and candidates must not engage in
any professional conduct involving dishonesty, fraud, or deceit, or any act
that negatively reflects on their professional reputation, integrity, or
competence.
CFA Ethics Standards of Professional Conduct &
Code of Ethics - Exam Elaboration Q&A
This document provides detailed elaborations on the CFA Institute's Code of
Ethics and Standards of Professional Conduct, crucial for exam preparation
and understanding ethical responsibilities in the investment profession.
1. Question (LOS 1.b): What are the seven Standards of Professional
Conduct? Briefly describe each.
Answer: The seven Standards of Professional Conduct are the cornerstone of
ethical behavior in the investment profession. They provide a framework for the
ethical responsibilities of CFA Institute members and candidates.
I: Professionalism: This standard emphasizes maintaining high levels of
knowledge, adhering to the law, acting independently and objectively,
avoiding misrepresentation, and refraining from misconduct.
II: Integrity of Capital Markets: This standard focuses on preserving the
integrity of capital markets by prohibiting the use of material nonpublic
information and market manipulation.
III: Duties to Clients: This standard outlines the responsibilities to clients,
including loyalty, prudence, care, fair dealing, suitability of
recommendations, performance presentation, and preservation of
confidentiality.
IV: Duties to Employers: This standard addresses the ethical obligations to
employers, emphasizing loyalty, avoiding conflicts related to additional
compensation arrangements, and the responsibilities of supervisors.
V: Investment Analysis, Recommendations, and Actions: This standard
governs the process of investment analysis, requiring diligence, a reasonable
basis for conclusions, clear communication with clients, and proper record
retention.
VI: Conflicts of Interest: This standard mandates the full and fair
disclosure of all conflicts of interest, prioritizing client transactions, and
disclosing referral fees.
, VII: Responsibilities as a CFA Institute Member or CFA Candidate:
This standard outlines the ethical conduct expected of members and
candidates, including maintaining the integrity of the CFA designation and
program, and making accurate references to CFA Institute.
2. Question (LOS 1.b): What are the six components of the CFA Institute's
Code of Ethics? Explain the core principle of each component.
Answer: The Code of Ethics establishes the ethical principles that CFA Institute
members, candidates, and member firms must uphold. The six components are:
Act with integrity, competence, diligence, respect, and in an ethical
manner...: This principle underscores the fundamental obligation to act
professionally and ethically in all interactions within the investment
profession and capital markets. It sets a high bar for conduct and emphasizes
the importance of integrity as the foundation.
Place the integrity of the investment profession and the interests of
clients above their own personal interests: This client-centric principle
emphasizes fiduciary responsibility. It requires investment professionals to
prioritize the reputation of the profession and the well-being of their clients
over any personal gain or advantage.
Use reasonable care and exercise independent professional judgment...:
This principle focuses on the quality of professional activities. It mandates
that investment professionals conduct thorough analysis, make well-
reasoned recommendations, and act with objectivity, free from undue
influence.
Practice and encourage others to practice... in a professional and ethical
manner...: This principle highlights the responsibility to promote ethical
conduct within the profession. It encourages individuals to not only act
ethically themselves but also to foster an ethical environment for colleagues.
Promote the integrity of, and uphold the rules governing, capital
markets: This principle emphasizes the broader societal role of investment
professionals in maintaining fair and efficient capital markets. It requires
adherence to market regulations and a commitment to preventing activities
that undermine market integrity.
Maintain and improve professional competence... and strive to maintain
and improve the competence of other investment professionals: This
principle focuses on continuous learning and development. It obligates
, investment professionals to stay current with industry knowledge and to
support the professional growth of their peers.
3. Question: Briefly list the seven Standards of Professional Conduct.
Answer: The seven Standards of Professional Conduct are:
1. Professionalism
2. Integrity of Capital Markets
3. Duties to Clients
4. Duties to Employers
5. Investment Analysis, Recommendations, and Actions
6. Conflicts of Interest
7. Responsibilities as a CFA Institute Member or CFA Candidate
4. Question: Standard I: Professionalism is comprised of four sub-sections.
List and briefly describe each.
Answer: Standard I: Professionalism includes the following four sub-sections:
I(A) Knowledge of the Law: Requires members and candidates to
understand and comply with all applicable laws, rules, and regulations,
including the Code and Standards. In case of conflict, the more strict rule
must be followed.
I(B) Independence and Objectivity: Mandates that members and
candidates use reasonable care and judgment to maintain independence and
objectivity, and avoid any gifts or considerations that could compromise
their or others' objectivity.
I(C) Misrepresentation: Prohibits members and candidates from knowingly
making any misrepresentations related to investment analysis,
recommendations, actions, or other professional activities, including
guarantees on risky investments.
I(D) Misconduct: States that members and candidates must not engage in
any professional conduct involving dishonesty, fraud, or deceit, or any act
that negatively reflects on their professional reputation, integrity, or
competence.
