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01 July 2014

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

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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 11th 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
  1. 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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About the Author(s)
Glenn Doggett, CFA

Glenn Doggett, CFA, was a director of professional standards for CFA Institute. His responsibilities included providing member guidance in applying the ethics and standards of practice policies, supporting related educational and public awareness activities, and working with the Standards of Practice Council of CFA Institute on its initiatives. He was a co-host of the free, live, interactive webinars used by CFA Institute to promote ethical decision making and global best practices. Previously, Mr. Doggett, as a member of the CFA Institute Financial Reporting Policy Group, represented membership interests regarding reporting and disclosures initiatives, including XBRL. Prior to joining CFA Institute, he worked in the financial information sector with SNL Financial, where he focused on the real estate and energy industries, directing the development and maintenance of a financial data storage system. Mr. Doggett holds a BA in economics from the University of Virginia. He was awarded the CFA charter in 2006 and is a member of CFA Society Virginia.

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

  1. The challenge was , is and will always remain to encourage colleagues/broader community to embrace the best interest of clients, integrity and ethical behavior and that’s where we have a opportunity to create and set examples as charterholders.

  2. These changes deal with two important issues.

    Regulation begins at home and reinforcing the importance of self regulation at the company level by making supervisors responsible for compliance actions. A tough but necessary call.

    Secondly, the investment universe is wide and occupied by both firms and clients, each with their own different positions in that universe. Communicating the realities of an investment style, discipline or construct is key to making sure that the identities are correctly joined. Allowing for diversity is important but more important is making sure that each participant is clear as to where the other stands. Ultimately market efficiency and the correct disposition of the market portfolio depend on proper communication.

  3. Shaheryar Hashim says:

    Promoting ethical procedure always requires strong corporate governance system to enforce compliance at all levels of employees.

  4. Carraud Julie says:

    Will these changes be applied in the December exam?

    1. Glenn Doggett, CFA says:

      The answer is no, the December exam will be based upon the information included in the curriculum sent to candidates. The updates that became effective 1 July 2014 will first appear in the curriculum to be tested in June 2015.

  5. Addressing the aspect of people risk is the only way an organisation can improve the way their people respond to a situation of risk and the effectiveness of their risk management function.

    Risk Culture Building is the process of growth and continuous improvement in the way each and every person in an organisation will respond to a given situation of risk as to mitigate, control and optimize that risk to the benefit of the organisation.

    For current thought leadership on Risk Culture Building, see my blog:

    Risk Culture Builders Group:

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