Walex

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

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

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.

Walex

A government committee has concluded that investment company fees should be disclosed to clients each quarter and has proposed new legislation to require this. Currently, the legal requirement is to report such data annually. In compliance with current legal requirements, Dolphin Investments discloses its fees annually. Eugene Shin, CFA, Dolphin's compliance officer, learns of the proposed changes but does not convert Dolphin's reporting to a quarterly basis. Shin's decision not to act:

A) constitutes professional misconduct as defined in the Code and Standards.

B) is not a violation of the Code and Standards.

C) is a violation of his duty to employer as defined in the Code and Standards.

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The potential change in the law is only a proposal at this stage. There is no violation as long as Dolphin is following the regulations currently in force.

Walex

Allen Parsons, a CFA candidate, suspects a colleague at his firm of engaging in an illegal activity. Which of the following statements about procedures for compliance involving Standard I(A), Knowledge of the law is NOT correct? Parsons:

A) should urge his firm to attempt to persuade the perpetrator to cease such conduct.

B) is required to report this legal violation to the appropriate governmental or regulatory organizations.

C) should consult counsel to determine whether the conduct is, in fact, illegal.

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Standard I(A), Knowledge of the law, does not require that Parsons report legal violations to the appropriate governmental or regulatory organizations, but such disclosures may be appropriate under certain circumstances.

Walex

Mary Kim practices in the economically advanced country of Oldasia as well as in the emerging market country of Newasia. By regulation, Oldasia prohibits licensed investment advisors from trading in securities ahead of their clients. Newasia has no laws or regulations in this area. According to the CFA Institute Standards of Professional Conduct, Kim may:

A) trade ahead of her clients in Newasia only.

B) not trade ahead of her clients in either country.

C) trade simultaneously with her clients in Newasia only, as long as she has made full disclosure to her clients that she reserves the right to do this.

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Under Standard I(A) Knowledge of the Law must apply the CFA Institute Code and Standards or the controlling law, whichever is stricter. Because Standard VI(B) Priority of Transactions requires members to put client trades ahead of their own transactions, Kim must follow the standard in the absence of governing law or where the law is less strict than the Standard.

Walex

The CFA Institute Standards of Practice Handbook requires CFA Institute members to do all the following EXCEPT:

A) receive written permission from both their employer and outside clients to engage in investment consulting outside the firm.

B) to disclose in writing to the proper regulatory authority all observed violations of the securities laws and regulations.

C) to inform employer, clients, and potential clients of benefits received for recommending products or services.

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Members are not required to report violations of others to regulatory authorities, either verbally or in writing, but such reporting may be prudent.

Walex

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.

Walex

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

A) require employees to write personal ethics statements.

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

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

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

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Walex

Bob Blanford, CFA, is an investment analyst for a large global brokerage firm. He recently moved to Ragatan, a developing country with few securities laws and regulations. As part of conducting a company analysis, Blanford interviews Ravi Shanti, vice-president of finance at Starr Industries. Starr is a major industrial firm in Ragatan and a client at Blanford’s firm. Based on his analysis, Blanford suspects that Shanti may have deliberately overstated Starr’s current earnings and its earnings for the past several quarters. If this information becomes public, Blanford believes that Starr’s stock price will drop substantially. Blanford suspects that Shanti may have violated Ragatan’s securities laws. Which of the following statements is least likely to comply with Standard I, Professionalism? Blanford should:

A) determine the legality of the activity, possibly by consulting counsel.

B) disassociate himself from the client, if the activity is illegal or unethical.

C) take no action.

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Because Blanford suspects Shanti of engaging in ongoing illegal activities, Blanford should take action by determining the legality of the suspected action, disassociating from any illegal activity, and urging his firm to attempt to persuade Shanti to cease such conduct if such an activity is illegal or unethical.

Walex

Jane Dawson, CFA, an analyst at a New York brokerage firm, suspects that Bob Boatman, CFA, another analyst at the same firm, has violated a state securities law. According to the CFA Institute Standards of Professional Conduct, Dawson is:

A) required to report the suspected violation to CFA Institute.

B) required to report the suspected violation to the appropriate state regulatory agency.

C) NOT required to report the violation to the appropriate governmental or regulatory organizations.

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The Code and Standards do not require that members report legal violations to the appropriate governmental or regulatory organizations, but such disclosure may be prudent in certain circumstances. Dawson should consult legal counsel and disassociate from the activity.

Walex

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) disassociate herself from the activity.

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

C) both of these choices are correct.

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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.