Reading 1: Code of Ethics and Standards of Professional Co

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Q1. Lin Liu, a Level III candidate, sat for the CFA examination in June in Hong Kong. Liu was very nervous before and during the exam because she did not study the material as well as she had planned. She feels particularly weak in the use of complex derivatives to modify portfolio risk and return and hopes the exam will not have many questions on that topic.

Liu arrived at the exam center very early and planned to do some last minute studying in the exam room. She had a large backpack with her that contained all of her study notes. When she arrived at the exam center, the proctor who was checking candidates in at the door told Liu that she could not bring her backpack or study notes into the exam room but would need to leave them somewhere outside the exam center. Liu left the exam room and continued to study until the very last minute. She didn’t know where to leave her backpack. She remembered that there was a small closet in the Ladies Lavatory, which was just outside the exam room. She decided to leave her backpack and notes hidden there.

Liu showed her current passport and approved calculator to the proctor and was sent to her assigned seat. She was seated at the end of a row with another candidate to her right. Wang Chou, lead proctor, read the opening statement to candidates as the exam booklets were distributed. Wang cautioned candidates not to open the exam booklet until he instructed them to do so.

When Masako Yamasaki, the section proctor, distributed the exam booklets, Liu quickly opened hers and began to read the first question. Yamasaki rushed over and told Liu to close her exam booklet until Wang instructed candidates to open the booklets. Liu closed her book and waited patiently for Wang to make his announcement. When instructed to open her booklet, Liu quickly began taking the exam. Liu’s actions at the start of the exam cause Yamasaki to pay close attention to her during the exam.

About 50 percent of the morning session consisted of questions about derivatives. Liu became increasingly nervous about her ability to answer these questions correctly. She remembered that she had left her notes in the Ladies Lavatory and decided she had nothing to lose by going to the lavatory and looking at her notes. She raised her hand and received permission from Yamasaki to go to the lavatory. She retrieved her notes from the closet where she had hidden them when Yamasaki entered the lavatory and found her with her notes. Yamasaki informed Liu that she would confiscate the notes and inform the CFA Institute of Liu’s actions in a proctor report. Liu then gathered her belongings and left the exam center.

Are CFA candidates subject to the same disciplinary action for violations of the CFA Institute Code of Ethics and Standards of Professional Conduct (Code and Standards) for their actions during the CFA examination as other members of the CFA Institute?

A) Yes, CFA candidates are subject to the same disciplinary action for violations of the CFA Institute Code and Standards for their actions during the CFA examination.

B) No, CFA candidates are not subject to the same disciplinary action for violations of the CFA Institute Code and Standards during the exam since they are not members of the CFA Institute.

C) No, CFA candidates are not subject to the same disciplinary action for violations of the CFA Institute Code and Standards during the exam but other sanctions may still be imposed upon them.

Q2. Several weeks after the exam, Liu received a letter from the Designated Officer of the CFA Institute’s Professional Conduct Program concerning Liu’s use of notes during the exam. When a proctor (complaining party) informs the CFA Institute Professional Conduct Program of a potential violation of the Code and Standards during the examination, the CFA Institute’s Rules of Procedure permit the Designated Officer to do all of the following EXCEPT:

A) provide the candidate with a notice of inquiry explaining the nature of the investigation.

B) disclose the name, address and phone number of the proctor (complaining party) to the candidate regardless of the complaining party’s wishes.

C) designate another person to act on his or her behalf.

Q3. After conducting an investigation into Liu’s actions, including reviewing proctor reports, speaking with proctors, and reviewing Liu’s notes, the Designated Officer notified Liu that she was proposing the following sanction: voiding of exam results and a permanent expulsion from participation in the CFA program. Liu is devastated and determines to appeal the proposed sanction.

Which of the following best describes the option open to Liu to appeal the Designated Officer’s proposed sanction?

A) Liu may admit wrongdoing and enter into a stipulation agreement with the Designated Officer for a lesser sanction.

B) Liu may request a Review Panel.

C) Liu may request a Hearing Panel.