CFA Program Level I

CFA Code of Ethics and the seven Standards: CFA Level I overview

The Code of Ethics is six high-level, aspirational principles. The Standards of Professional Conduct are the practical rules members and candidates must follow, grouped into seven Standards with 23 sub-standards. In 2023 the Board of Governors added Standard I(E) Competence and revised V(B) and VI(A), effective 1 January 2024.

The Code: six principles

Members and candidates must: act with integrity, competence, diligence and respect, and in an ethical manner, with the public, clients, employers, colleagues and other market participants; place the integrity of the profession and the interests of clients above their own; use reasonable care and independent professional judgment; practise and encourage others to practise in a professional and ethical manner; promote the integrity and viability of global capital markets; and maintain and improve their own competence and that of other investment professionals.

The Standards of Practice Handbook describes the Code as high-level aspirational principles and the Standards as practical principles of conduct that members and candidates must follow. The two are read together.

The seven Standards

I Professionalism: (A) Knowledge of the Law, (B) Independence and Objectivity, (C) Misrepresentation, (D) Misconduct, (E) Competence.

II Integrity of Capital Markets: (A) Material Nonpublic Information, (B) Market Manipulation.

III Duties to Clients: (A) Loyalty, Prudence, and Care, (B) Fair Dealing, (C) Suitability, (D) Performance Presentation, (E) Preservation of Confidentiality.

IV Duties to Employers: (A) Loyalty, (B) Additional Compensation Arrangements, (C) Responsibilities of Supervisors.

V Investment Analysis, Recommendations, and Actions: (A) Diligence and Reasonable Basis, (B) Communication with Clients and Prospective Clients, (C) Record Retention.

VI Conflicts of Interest: (A) Avoid or Disclose Conflicts, (B) Priority of Transactions, (C) Referral Fees.

VII Responsibilities as a CFA Institute Member or CFA Candidate: (A) Conduct as Participants in CFA Institute Programs, (B) Reference to CFA Institute, the CFA Designation, and the CFA Program.

That is 5 + 2 + 5 + 3 + 3 + 3 + 2 = 23 sub-standards. Standard I(A) also says that where laws and the Code and Standards differ, members follow the stricter.

What changed in 2023

The Handbook's 12th edition lists three changes approved by the Board of Governors in 2023. First, a new Standard I(E) Competence: act with and maintain the competence needed for your professional responsibilities. Second, V(B) now requires disclosure of the nature of the services provided and their cost to the client. Third, VI(A) was renamed Avoid or Disclose Conflicts and now requires members to avoid conflicts or disclose them. Before, it did not mention avoiding them.

CFA Institute's code page says the updates took effect on 1 January 2024.

Who must comply and how it is enforced

The Preamble says every CFA Institute member, including charterholders, and every CFA candidate has a personal responsibility to uphold the Code and Standards. Sanctions can include revoking membership, candidacy and the right to use the CFA designation.

Professional Conduct (PC) staff investigate. Cases start from the annual Professional Conduct Statement, written complaints, public sources such as the media, or exam monitoring. After investigating, staff may close the matter, issue a cautionary letter or propose charges and a sanction.

If the member or candidate rejects the charges and sanction, the matter goes to a hearing panel of the Disciplinary Review Committee (DRC), a volunteer committee of CFA charterholders. The panel decides whether a violation occurred and what sanction applies. DRC panels also review agreed settlements to check the findings are reasonable. The Board of Governors oversees the PC group.

Where the exam catches people

Believing the Code of Ethics is optional guidance: members and candidates must follow both the Code and the Standards, and the Code is described as aspirational, not voluntary.
Believing Competence has always been a Standard: I(E) Competence was added in the 2023 revision, effective 1 January 2024.
Believing only charterholders are bound: every member and every CFA candidate has the personal responsibility to uphold the Code and Standards.
Believing PC staff impose a sanction the member rejects: a rejected proposal goes to a DRC hearing panel, which decides.
Believing VI(A) only requires disclosure: since the 2023 revision it requires members to avoid conflicts or disclose them.

Written from CFA Institute's documentation

Try 3 questions on this

Pick an answer to see why each option is right or wrong.

In the CFA Institute framework, the Standards of Professional Conduct set out practical rules that members and candidates must follow, whereas the Code of Ethics sets out principles that are best described as:
Right. In the game that’s Renown for your Ethical and Professional Standards building.
Not that one: C is right. In the game your Ethical and Professional Standards building would lose a little Renown, and this question would come back later.
Your answerA.Optional and advisoryAspirational does not mean optional. Members and candidates are required to abide by the Code as well as the Standards, and violations can bring sanctions.Your answerB.Specific to each countryThe Code and Standards serve as a global model for the investment profession, applying whatever their job function, culture or local laws.The answerC.High-level and aspirationalThe Handbook's preface describes the Code as high-level, aspirational ethical principles that push members and candidates toward a reputable profession, and the Standards as practical principles of conduct they must follow.
Show the full explanation and doc quotes
The two are to be read and interpreted together as interwoven ethical requirements.
Written from www.cfainstitute.org/sites/default/files/-/media/documents/code/code-ethics-standards/standards-practice-handbook-12th-edition.pdf
Which Standard did the CFA Institute Board of Governors add to the Standards of Professional Conduct in its 2023 revision?
Right. In the game that’s Renown for your Ethical and Professional Standards building.
Not that one: B is right. In the game your Ethical and Professional Standards building would lose a little Renown, and this question would come back later.
Your answerA.Standard V(C) Record RetentionStandard V(C) Record Retention was already in place. Within Standard V, the 2023 revision changed V(B) Communication with Clients and Prospective Clients.The answerB.Standard I(E) CompetenceThe Handbook's summary of the 2023 changes says the Board added one new standard, Standard I(E) Competence, under which members and candidates must have, and keep up, the competence their professional duties call for. It also revised V(B) and VI(A).Your answerC.Standard I(D) MisconductStandard I(D) Misconduct predates the 2023 revision. The only standard added was I(E) Competence, placed after it within Standard I.
Written from www.cfainstitute.org/sites/default/files/-/media/documents/code/code-ethics-standards/standards-practice-handbook-12th-edition.pdf
After an investigation, CFA Institute Professional Conduct staff conclude that a member violated the Code and Standards and propose charges and a sanction. The member rejects both. Under the CFA Institute enforcement process, the matter is most likely next:
Right. In the game that’s Renown for your Ethical and Professional Standards building.
Not that one: C is right. In the game your Ethical and Professional Standards building would lose a little Renown, and this question would come back later.
Your answerA.Closed by staff with a cautionary letterStaff can close an inquiry with a cautionary letter after reviewing what the investigation found, but here staff have already concluded there was a violation and proposed a sanction. A rejection sends the case to a DRC hearing panel.Your answerB.Decided by Professional Conduct staff, who impose the sanctionProfessional Conduct staff investigate and propose charges and a sanction, but they do not settle a contested case. Once the member rejects them, a panel of DRC members hears both sides and decides the violation and sanction.The answerC.Referred to a Disciplinary Review Committee hearing panelWhen a member or candidate rejects the proposed charges and sanction, the Handbook says the matter is referred to a panel of Disciplinary Review Committee (DRC) members.
Show the full explanation and doc quotes
In a contested matter the panel decides whether the Code and Standards were violated and, if so, what sanction applies.
Written from www.cfainstitute.org/sites/default/files/-/media/documents/code/code-ethics-standards/standards-practice-handbook-12th-edition.pdf