Views on improving the integrity of global capital markets
28 July 2014

Can CFA Charterholders Work for Investment Firms with Records of Illicit Activity?

Posted In: Asset Manager Code

Enforcement actions are leading to large fines for financial services firms. Citibank recently agreed to pay $7 billion to resolve a mortgage investigation. Other firms, including Barclays, Royal Bank of Scotland, and Lloyds Banking Group, were fined for manipulating LIBOR. Meanwhile, Credit Suisse Group AG was fined $196 million and admitted wrongdoing for providing services in the United States without proper registration.

While fines are certainly not a new phenomenon in the regulation of the investment industry, many of these settlements also required admissions of involvement or guilt. This raises an important question for CFA Institute members: Would working for a firm that has admitted or been found guilty of legal or regulatory violations conflict with a CFA charterholder’s duties under the CFA Institute Code of Ethics and Standards of Professional Conduct to protect the integrity of capital markets. In short, the answer is no. However, there are certain key responsibilities you must uphold.

Let’s start with the Code and Standards, which provide the framework for members and candidates as well as other investment professionals to gauge their actions in promoting market integrity. The Code represents high-level aspirational ethical principles that drive individuals to create a positive and reputable investment profession for the benefit of investors. The Standards present practical ethical principles of conduct for these individuals to follow in fulfilling the broader industry expectations.

Neither the Code nor Standards create direct requirements for firms but rather for the individual. Employment by a firm that enters into a multi-billion-dollar settlement with regulators does not automatically mean you are associated with that misconduct, or that you aren’t in compliance with the Code and Standards. The conduct could have happened in another office, in a different part of the firm, or even in another country.

From a CFA charterholder’s perspective, one cannot knowingly participate or assist in, and must dissociate from, any violation of laws, rules, or regulations. In determining if any action is needed after an employer is sanctioned, the individual should make reasonable efforts to ensure any improper activities are stopped and that policies and procedures are put in place to protect against a recurrence. This tangible way of fulfilling the Code and Standards requirement of dissociating from known violations of others may be all that is needed. Further guidance on meeting one’s obligations are available in the 11th edition of the Standards of Practice Handbook.

Ultimately, specific circumstances — including how close you were to the offending action, your seniority at the firm, and whether the firm is truly intent on correcting the wrongdoing — will influence the actions you take to ensure you effectively achieve dissociation.

Not surprisingly, the actions a member or candidate may take vary based on their role at the firm:

  • Junior employee: If you have not already done so, make a supervisor aware of your obligations under the Code and Standards. This will provide a foundation for discussion, should you lack confidence in the steps taken by the firm to prevent reoccurrence of the offending activities.
  • Supervisors: With an understanding of the nature of the violations committed by the firm, determine whether your team could commit similar infractions. Your assessment should ensure current practices minimize the potential for misconduct. If necessary, recommend policy changes.
  • Any CFA charterholder: It will remain important to hold your fellow charterholders and CFA Program candidates accountable for their actions. Consider submitting complaints to the CFA Institute Professional Conduct Program for an appropriate investigation of those directly associated with the misconduct.

While leaving the firm may be the individual’s ultimate decision, remaining and working to improve the culture of the firm may be as beneficial to clients. The CFA Institute member or program candidate can add an ethical voice to any discussions about cultural change by stressing ethical principles and best practices, and by encouraging adoption of the Asset Manager Code of Professional Conduct. The Asset Manager Code, which is based upon the Code and Standard principles to which members must abide, provides the firm a benchmark for evaluating its ethical commitment to clients.

Unfortunately, legal and regulatory lapses likely will always be part of any industry. However, as investment firms work to develop strong ethical cultures, such violations should remain confined to the actions of the individual and not develop into firm-wide activities. Proper behavior on the part of individuals will lead to the enhanced ethical behavior of the whole firm.

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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.

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