1215

A CFA Institute member conscientiously maintains records of changes in security regulations. The member notices that his colleagues do not, and does NOT say anything. Is this a violation of Standard I(A)?

A) Yes, and the member should disassociate from these colleagues.

B) Yes, because the member is bound by the Code of Ethics.

C) No, as long as the colleagues do not violate the new rules.

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The last bullet point of the Code says that a member shall “Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals.” Ignoring the neglect of rule changes of others would clearly be incongruent with this component. As long as the colleagues do not violate the laws, the member does not have to disassociate himself from the colleagues.

1215

Maria Valdes, CFA, is an analyst for Venture Investments in the country of Newamerica, which has laws prohibiting the acceptance of any gift from a vendor if the gift exceeds US $250. Valdes has evidence that her Venture Investments colleague, Ernesto Martinez, CFA, has been receiving gifts from vendors in excess of US $250.

Valdes is obligated to:

A) disassociate herself from the activity, and urge Venture to persuade Martinez to cease the activity.

B) disassociate herself from the activity, urge Venture to persuade Martinez to cease the activity, and inform CFA Institute of the violation.

C) disassociate herself from the activity, urge Venture to persuade Martinez to cease the activity, and inform CFA Institute and regulatory authorities of the violation.

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Standard I(A), Knowledge of the Law requires members who have knowledge of colleagues engaging in illegal activities to disassociate from the activity and urge their firms to persuade the individual to cease such activity. Reporting to regulatory authorities may be prudent in certain circumstances, but is not required. Reporting to CFA Institute is not required.

1215

A CFA Institute member works for Secure Securities, Inc., and plays rugby on the firm’s rugby team. Secure Securities’ team recently played the team of a rival firm. During the game, a fight broke out and the CFA Institute member was the instigator, but no one was seriously hurt. Is this a violation of I(A) concerning maintaining knowledge and complying with laws, rules, and regulations?

A) Yes, because the member is bound by the Code of Ethics.

B) No, because a fight at a rugby game is not a professional activity.

C) Yes, because the member could have hurt someone in the fight.

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Standard I(A) covers members' professional activity only. Violations outside professional activity that involve fraud, theft or deceit would potentially be violations.

1215

What is the rule of thumb for members, CFA charterholders and candidates in the CFA program when weighing the requirements of the CFA Institute Code and Standards and the requirements of local laws? If the applicable laws are:

A) less strict, they should make a judgment call on which to follow, the Code and Standards or the local laws and requirements.

B) more strict, they must adhere to the applicable laws.

C) more strict, they must still follow the Code and Standards.

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The rule of thumb for members, CFA charterholders and candidates in the CFA program requires that they adhere to the applicable laws if the applicable laws are more strict than the requirements of the Code and Standards. If there are no laws or the laws are less strict, they must adhere to the Code and Standards.

1215

CFA Institute members should encourage their employers to do all of the following EXCEPT:

A) make clear that dishonest personal behavior reflects poorly on the profession.

B) conduct background checks on potential employees to ensure that they are of good character and eligible to work in the investment industry.

C) require employees to write personal ethics statements.

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There is no reason to have employees write personal ethics statements. CFA Institute encourages all of the other actions.

1215

CFA Institute believes:

A) that a minimum level of professional responsibility and conduct dictates that members be aware of and comply with laws, rules, and regulations governing their conduct.

B) that a maximum level of professional responsibility and conduct dictates that members be aware of and comply with laws, rules, and regulations governing their conduct.

C) that firms should comply with all domestic laws and regulations and that these laws also govern behavior in foreign markets, regardless of foreign laws and requirements.

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CFA Institute’s Code and Standards dictate a minimum level of conduct. Standards should not be based on ethics of upper management and the board of directors of a company. Firms must comply with the strictest applicable standards, whether they be foreign or domestic laws and regulations.

1215

Kenny Barrett, CFA, is working in the Australian office of American Investments Co. From an informal conversation, Barrett learns that the company’s most recent investment report was based on misappropriated information. No one at the Australian office expresses concern, however, because there has been no breach of Australian law. Barrett should:

A) do nothing because the branch is outside of U.S. jurisdiction.

B) seek advice from company counsel to determine appropriate action.

C) disassociate himself from the case with a written report to his supervisor.

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Kenny’s best choice is to seek the company counsel’s advice. If Kenny does nothing, he is breaching Standard I(A) Knowledge of the Law. Disassociation is not enough.

1215

For an employee with the CFA designation who works for a firm, which of the following is NOT necessary to meet the requirements of the Code and Standards?

A) It is recommended that their employer is aware of the Code and Standards.

B) Deliver a copy of the Code and Standards to their employer.

C) Recommend notifying their employer of their responsibility to follow the Code and Standards.

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It is no longer required but recommended that CFA members and candidates notify their employer that they are required to follow the Code and Standards.

1215

The Standards of Professional Conduct explicitly outlines responsibilities to four groups. Which of the following is NOT a group mentioned in that list?

A) The investing public.

B) The Federal Reserve.

C) The profession.

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The Standards explicitly mention responsibilities to the profession, employers, clients, prospects, and the investing public. The Federal Reserve is not mentioned.

1215

Mary White, CFA, sits on the board of directors of XYZ Manufacturing, Inc. She discovers that management has knowingly participated in an activity she knows is illegal. According to the CFA Institute Standards of Professional Conduct, White is required to:

A) both of these choices are correct.

B) disassociate herself from the activity.

C) seek legal advice to determine what actions should be taken.

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Standard I(A), Knowledge of the Law. Prohibition against knowingly practicing or assisting in violation of laws, rules, and regulations. If White knows that someone has engaged in a possible illegal activity, she should: (1) report the finding to the appropriate supervisory person at her firm, (2) if the situation is not remedied, disassociate herself from the situation, and (3) seek legal advice to see what other actions, such as notifying the proper regulatory agency, should be taken.