The Standards of Practice Handbook is a vital resource to our members to ensure their actions continue to meet the principles of the Code of Ethics and Standards of Professional Conduct. The Standards of Practice Council (SPC), a volunteer committee, is charged by the CFA Institute Board of Governors with providing continuous oversight of CFA Institute standards and fostering the integrity of the capital markets by developing and maintaining the Code and Standards. To meet this responsibility, the SPC periodically reviews the Code and Standards as well as the Handbook.
The review being carried out for the eleventh edition of the Handbook focuses on market practices that have gained in prominence since the tenth edition. Along with updates to the guidance and examples, the eleventh edition also includes an update to the Code of Ethics that embraces the role the members have with maintaining the social contract between the industry and investors. Additionally there are two changes to the Standards of Professional Conduct that recognize the importance of proper supervision and clear communications with clients.
Inclusion of Updated CFA Institute Mission: Serving the Greater Good
The CFA Institute Board of Governors approved an updated mission for the organization that is included in the preamble to the Code and Standards. The new mission conveys the organization’s conviction of the investment industry’s role in the betterment of the society at large.
The fifth bullet in the Code of Ethics was updated to reflect the role the capital markets have on the greater society. As members work to promote and maintain the integrity of the markets, through their actions they should also work to maintain the social contract with investors.
New language reads as follows:
Promote the integrity and viability of the global capital markets for the ultimate benefit of society.
Updated Standard IV(C): Responsibilities of Supervisors
The Standard for members and candidates with supervision or authority over others within their firm was updated to bring about improved actions in stopping illegal and unethical actions from occurring. The prior version of Standard IV(C) focused on the detection and prevention of violations. The updated version stresses broader compliance expectations, which include the detection and prevention aspects of the original.
New language reads as follows:
Members and Candidates must make reasonable efforts to ensure that anyone subject to their supervision or authority complies with applicable laws, rules, regulations, and the Code and Standards.
Additional Requirement within Standard V(B): Communication with Clients and Prospective Clients
Given the constant development of new and exotic financial instruments and strategies, the Standard regarding communicating with clients now includes an implicit requirement to discuss the risks and limitations of recommendations being made to clients. The new principle and related guidance understands that levels of disclosure will differ between products and services. Members and candidates, along with their firms, must determine the specific disclosures their clients should receive while ensuring appropriate transparency of the individual firm’s investment process.
Additional language reads as follows:
Disclose to clients and prospective clients significant limitations and risks associated with the investment process.
General Guidance and Example Revisions
The guidance and examples were updated to reflect practices and scenarios applicable to today’s investment industry. Two concepts that appear frequently in the updates of this edition relate to the increased use of social media for business communications and the use and reliance upon the output of quantitative models. Social media platforms have increased significantly in use since the publication of the tenth edition. And while financial modeling is not new to the industry, this update reflects upon actions that are viewed as possible contributing factors of the financial crises of the past decade.
The SPC welcomes your comments on this draft update during the public comment period that will run until 30 September. The draft files, both a clean version of the consolidated recommendations and redline versions of the major changes for each standard, are available online. Please send all feedback and comments to ethics@CFAInstitute.org.
The updated Code and Standards are anticipated to become effective for members on 1 July 2014.