Reading 2-IV: Standards of Professional Conduct & Guidan 2010, center, research, department

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Session 1: Ethical and Professional Standards
Reading 2-IV: Standards of Professional Conduct & Guidance: Duties to Employers

LOS C.: Responsibilities of Supervisors.

 

 

 

Dixie Miller, CAIA, and Level II CFA candidate, heads the research department of a large brokerage firm. The firm has many analysts, some of whom are subjected to the CFA Institute Code of Ethics and Standards of Professional Conduct. If Miller delegates some of her supervisory duties, which statement best describes her responsibilities under the CFA Institute Code and Standards?

A) CFA Institute Standards prevent Miller from delegating supervisory duties to subordinates.

B) Miller retains supervisory responsibilities for those duties delegated to her subordinates.

C) Miller's supervisory responsibilities do not apply to those subordinates who are not subjected to the CFA Institute Code and Standards.

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Even though members may delegate supervisory duties, such delegation does not relieve members of the supervisory responsibility.

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According to Standard IV(C), a CFA Institute member who is in a supervisory role must have which of the following?

A) An in-depth knowledge of the Code and Standards.

B) Both of these.

C) A graduate degree.

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The only requirement for a supervisor is an in-depth knowledge of the Code and Standards. Neither of the other choices are required.

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A firm recently hired Hal Crane, CFA, to be a supervisor in the firm. Crane has reviewed the procedures for complying with the Code and Standards in the company. It is Crane’s belief that the procedures need revision in order to be effective. Crane must:

A) refuse supervisory responsibilities in writing until the company adopts an adequate system.

B) only send out a petition to fellow workers asking for a change in the procedures.

C) both submit a petition to fellow workers and inform the SEC.

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If Crane believes the current procedures are not adequate, Crane must refuse the supervisory responsibilities in writing until an adequate system is adopted. There is nothing in the Standards about circulating a petition.

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Jess Green, CFA is the research director for Castle Investment, Inc., and has supervisory responsibility over eight analysts, including three CFA charterholders. Castle has a compliance program in place. According to CFA Institute Standards of Professional Conduct, which of the following is NOT an action that Green should take to adhere to the compliance procedures involving responsibilities of supervisors? Green should:

A) incorporate a professional conduct evaluation as part of the performance review only for the three CFA charterholders.

B) issue periodic reminders of the procedures to all analysts under his supervision.

C) disseminate the contents of the compliance program to the eight analysts.

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Green should incorporate a professional conduct evaluation as part of his review of all eight analysts under his supervision, not just the three CFA charterholders.

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A firm recently hired Jill Taylor to be a managing supervisor in the firm. Taylor knows that all of her subordinate supervisors are members of CFA Institute and that they have a compliance system in place with respect to the Code and Standards. Under these conditions Taylor needs to:

A) neither of these choices.

B) review the compliance system for its adequacy.

C) rely on the current compliance system since the subordinate supervisors are subject to the Code and Standards.

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According to Standard IV(C), Responsibilities of Supervisors, Taylor must make reasonable efforts to detect violations of law, rules, regulations, and Code and Standards. This responsibility is not eliminated because the Taylor’s subordinates are CFA Charterholders. Taylor should review the compliance system and report any inadequacies to senior management.

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According to the CFA Institute Standards of Professional Conduct, which of the following statements about members with supervisory responsibility is FALSE? Members with supervisory responsibility:

A) must make reasonable efforts to detect violation of laws, rules, regulations, and the Code and Standards.

B) are relieved of their supervisory responsibility if they delegate their supervisory duties to other members of CFA Institute.

C) are expected to have in-depth knowledge of the Code and Standards and to apply this knowledge in discharging their supervisory responsibilities.

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Although members who supervise large numbers of employees may delegate supervisory duties, such delegation does not relieve them of their supervisory responsibility.

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For years John Berger, a CFA charterholder and CEO of a company, relied upon a set of reasonable procedures for preventing violations of the Code and Standards of Professional Conduct in the firm. To not be liable for a violation of the Standards, Berger must:

A) do nothing more than have the set of procedures in place as stated.

B) both periodically review the procedures and ensure the procedures are monitored and enforced.

C) ensure the procedures are monitored and enforced.

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As a CEO, Berger is responsible for implementing and maintaining appropriate compliance procedures. He must also ensure the procedures are monitored and enforced.

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Martin Tripp, CFA, is vice-president of the equity department at Walker Financial, a large money management firm. Of the twenty analysts in his department for whom he has supervisory responsibility, eight are subject to CFA Institute Standards of Professional Conduct. Tripp believes that he cannot personally evaluate the conduct of the twenty analysts on a continuing basis. Therefore, he plans to delegate some of his supervisory duties to Sarah Green, who is subject to the Standards, and some to Bob Brown, who is not subject to the Standards. According to CFA Institute Standards of Professional Conduct, which of the following statements about Tripp's ability to delegate supervisory duties is most correct?

A) Tripp cannot delegate any of his supervisory duties to either Green or Brown.

B) Tripp can delegate some or all of his supervisory duties only to Green because she is subject to the Standards.

C) Tripp can delegate some or all of his supervisory duties to Brown, even though Brown is not subject to the Standards.

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Standard IV(C), Responsibilities of Supervisors, permits Tripp to delegate supervisory duties to Green, Brown, or both, but such delegation does not relieve Tripp of his supervisory responsibility.

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For many years, John Berger, CFA, has been a mentor of Bob Chennings, a family friend, who just earned the CFA designation. Berger is the CEO of a firm that just hired Chennings, but the hiring was done at a lower level so Berger and Chennings have no direct contact in the daily operation of the firm. With respect to Standard IV(C), Responsibilities of Supervisors, Berger:

A) assumes no extra responsibility with the hiring of Chennings.

B) must both develop written procedures concerning Chennings and routinely evaluate his performance.

C) must develop a set of written procedures to prevent violations derived from his mentoring Chennings.

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As a CEO, Berger is responsible for reasonable procedures being in place for the entire firm. Since Berger is not the supervisor of Chennings, however, Berger assumes no extra responsibility upon his hiring.

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The following scenarios describe two members of CFA Institute who have supervisory responsibility.

• The president of Hawthorne Investments, a newly founded money management firm with five investment professionals, asked Rebecca Long, CFA, to be the company's compliance officer and to develop the company's compliance procedures. Long has an in-depth knowledge of the Code and Standards, but she was too busy to develop a compliance manual herself. Therefore, she copied, with written permission, the compliance manual of a large money management firm. This manual was comprehensive and covered many areas not part of Hawthorne's operations. Long gave the manual to Hawthorne's president, but did not distribute the contents of the program to other appropriate personnel.
• A co-worker at Barksdale Capital mentions to Stephen Luck, CFA, that George Trout, a candidate in the CFA Program, may have violated the CFA Institute standard involving priority of transactions. As Trout's supervisor, Luck decided to investigate this allegation but did not begin the investigation until a month after the alleged incident. Luck continued to maintain the same amount of supervision on Trout during the month before he began his investigation of Trout.

According to the CFA Institute Standards of Professional Conduct, which of the following statements about whether Long and Luck followed appropriate compliance procedures involving their responsibilities as supervisors is TRUE?

A) Luck violated the procedures for compliance, but Long did not.

B) Both Luck and Long violated the procedures for compliance.

C) Neither Luck nor Long violated the procedures for compliance.

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Long violated the procedures for compliance involving her supervisory responsibility by not tailoring the compliance manual to Hawthorne's operations and by not distributing the contents of the program to appropriate personnel. Luck also violated the procedures for compliance by not responding promptly to the allegation that Trout violated the CFA Institute standard involving priority of transactions and by not increasing supervision on Trout pending the outcome of the investigation.