CFA Ethical and Professional Standards Syllabus

Ethical and Professional Standards syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Ethical and Professional Standards in CFA, not a summary of it.

1. 1

   Code of Ethics and Standards of Professional Conduct

   2 topics

   • Code of Ethics
   • Standards of Professional Conduct
2. 2

   Guidance for Standards I–VII

   7 topics

   • Standard I: Professionalism
   • Standard II: Integrity of Capital Markets
   • Standard III: Duties to Clients
   • Standard IV: Duties to Employers
   • Standard V: Investment Analysis, Recommendations, and Actions
   • Standard VI: Conflicts of Interest
   • Standard VII: Responsibilities as a CFA Institute Member or CFA Candidate

Ethical and Professional Standards flashcards for CFA

22 of 60 cards from the Ethical and Professional Standards deck — real questions with worked answers.

1. What is the CFA Institute Code of Ethics, in essence?

   A set of six high-level ethical principles that all CFA Institute members and candidates must abide by, requiring them to act with integrity, competence, diligence, respect, and in an ethical manner with the public, clients, employers, employees, and fellow professionals, while placing the integrity of the profession and clients' interests above their own.

2. List the six components of the CFA Institute Code of Ethics.

   Members and candidates must: (1) Act with integrity, competence, diligence, and respect; (2) Place integrity of the profession and clients' interests above their own; (3) Use reasonable care and exercise independent professional judgment; (4) Practice and encourage others to practice in a professional and ethical manner; (5) Promote the integrity and viability of global capital markets for the ultimate benefit of society; (6) Maintain and improve their professional competence.

3. Name the seven Standards of Professional Conduct in order (I through VII).

   I. Professionalism; II. Integrity of Capital Markets; III. Duties to Clients; IV. Duties to Employers; V. Investment Analysis, Recommendations, and Actions; VI. Conflicts of Interest; VII. Responsibilities as a CFA Institute Member or CFA Candidate.

4. What are the four sub-sections (A–D) of Standard I: Professionalism?

   I(A) Knowledge of the Law; I(B) Independence and Objectivity; I(C) Misrepresentation; I(D) Misconduct.

5. Under Standard I(A) Knowledge of the Law, which law governs when local law, the Code and Standards, and another country's law conflict?

   Members must follow the most strict (stringent) applicable law, rule, or regulation. When in doubt, follow the standard that imposes the highest ethical or legal requirement; you must always comply with the more strict of the applicable law or the Code and Standards.

6. Under Standard I(A), what must a member do upon discovering ongoing illegal or unethical activity by an employer or colleague?

   Dissociate from the activity. This may include attempting to stop it through supervisors or compliance, and if that fails, resigning. Members are not required to report violations to authorities unless law requires it, but inaction that helps conceal the violation is itself a breach.

7. What does Standard I(B) Independence and Objectivity require?

   Members must use reasonable care and judgment to maintain independence and objectivity in their professional activities, and must not offer, solicit, or accept any gift, benefit, compensation, or consideration that could compromise their own or another's independence and objectivity.

8. Under Standard I(B), how should modest gifts from clients be treated versus gifts from entities seeking influence (e.g., investment-banking issuers)?

   Gifts from clients (received after services are rendered, for good performance) are generally less problematic but should still be disclosed to the employer. Gifts, benefits, or lavish travel from third parties seeking to influence research or recommendations (e.g., issuers) should be declined to preserve independence.

9. What is the best practice under Standard I(B) for analysts paying for research-related travel?

   Analysts should pay for their own commercial transportation and lodging when visiting company facilities, and limit use of company aircraft to situations where commercial alternatives are unavailable, to avoid impairing independence.

10. What does Standard I(C) Misrepresentation prohibit?

    Members must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities. This includes guarantees of performance, omission of material facts, and plagiarism.

11. Under Standard I(C), what constitutes plagiarism and how is it avoided?

    Plagiarism is copying or using another's work (reports, charts, models, ideas) without attribution. It is avoided by citing sources for all quoted material, data, and ideas. Acknowledged exception: information from recognized statistical reporting services need not be cited.

12. What does Standard I(D) Misconduct cover?

    Members must not engage in any professional conduct involving dishonesty, fraud, or deceit, or commit any act that reflects adversely on their professional reputation, integrity, or competence. It applies to personal conduct (e.g., fraud, lying) that bears on professional fitness, not mere personal behavior unrelated to professionalism.

13. What are the two sub-sections (A–B) of Standard II: Integrity of Capital Markets?

    II(A) Material Nonpublic Information; II(B) Market Manipulation.

14. Under Standard II(A), define 'material' and 'nonpublic' information.

    Information is material if its disclosure would likely affect the price of a security or if reasonable investors would want it before making a decision. Information is nonpublic until it has been disseminated or is available to the marketplace in general.

15. Under Standard II(A), what must a member do who possesses material nonpublic information?

    They must not act or cause others to act on it. They should make reasonable efforts to achieve public dissemination; if that is not possible, they must maintain its confidentiality and not trade or recommend trading on it.

16. What is the 'mosaic theory' under Standard II(A)?

    An analyst may reach an investment conclusion by combining material public information with nonmaterial nonpublic information. A conclusion built from this mosaic does not violate the standard even though, individually, no single nonpublic item was material.

17. What information-barrier control helps comply with Standard II(A)?

    A 'firewall' (information barrier): restricting the flow of material nonpublic information between departments (e.g., between investment banking and brokerage/research), reviewing employee trades, and using a restricted (watch) list of securities.

18. What does Standard II(B) Market Manipulation prohibit?

    Members must not engage in practices that distort prices or artificially inflate trading volume with the intent to mislead market participants. This covers both information-based manipulation (spreading false rumors) and transaction-based manipulation (e.g., wash trades, securing a controlling position to manipulate price).

19. What are the three sub-sections (A–C) of Standard III: Duties to Clients?

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

20. Correction: How many sub-sections does Standard III have, and what are they?

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

21. What does Standard III(A) Loyalty, Prudence, and Care require regarding clients' interests?

    Members have a duty of loyalty to clients and must act for their benefit, placing clients' interests before their employer's or their own. They must act with the care and prudence of a careful, skilled person and determine and comply with applicable fiduciary duty to clients.

22. Under Standard III(A), to whom is loyalty owed when managing a pension or trust?

    To the ultimate beneficiaries of the trust or plan, not to the person who hired the manager (e.g., plan sponsor or trustee). Investment decisions must serve the beneficiaries' interests.

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