Promoting Ethics in Investment: CFA Institute Updates “Code & Standards”

Every four to five years CFA Institute undertakes a review of the Code of Ethics and Standards of Professional Conduct, the ethical benchmark for investment professionals around the globe. A primary objective of the regular reviews is to ensure the principles of the Code and Standards remain relevant and applicable to the ever-evolving investment industry.

In executing the review, CFA Institute has turned to a geographically diverse group of member volunteers with a wide range of industry experience, including compliance oversight, institutional sales, and individual and fund-level investment management.

The updated Code and Standards were published in the 11^th edition of the Standards of Practice Handbook. Along with new guidance and examples to assist with the understanding and application of the principles, two major changes became effective 1 July.

1.  Responsibilities of Supervisors
   Supervisors must take positive steps to promote compliance actions rather than just prevent violations. New guidance addresses:

• Education and training to support the ethical and compliance culture of the organization
• Importance of developing incentive structures that reward ethical conduct in achieving goals

2. Client Communications
   Members and candidates must disclose to clients and prospective clients significant limitations and risks associated with the investment process. New guidance addresses:

• Disclosure of both positive and negative influences on the recommendation because risks and limitations will differ by firm and client strategy
• Some common risks and limitations, while acknowledging that proper disclosures do not guarantee the investment recommendation will not be negatively impacted by a future change in market conditions

Based on their professional experiences, the members who volunteered their input believed that supervisory actions and risk disclosures were two areas that warranted further examination.

Despite rampant market abuses in the broader investment industry in recent years, the longstanding principles of the Code and Standards remain applicable today in establishing and demonstrating a commitment to ethics. The challenge for all CFA Institute members is to seek out opportunities to encourage colleagues not affiliated with the organization to embrace and operate under these principles.

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