1215

Which of the following is least likely a recommended procedure for supervisors and compliance officers to comply with Standard IV(C), Responsibilities of Supervisors?

A) Disseminate the firm's compliance procedures to employees.

B) Hold hearings when violations have occurred to determine the severity of the violations.

C) Incorporate a professional conduct evaluation into the employee's performance review.

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While a supervisor should respond promptly and investigate violations, there is no obligation to hold hearings when violations have occurred.

1215

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.

1215

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

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

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.

1215

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.

1215

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 CORRECT?

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

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

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.

1215

Wanda Kirby, CFA, recently joined Allegheny Investments as a senior analyst. Because of her extensive experience in the investments business and knowledge of the Code and Standards, Allegheny's management asked her to assume supervisory responsibility. Kirby reviewed Allegheny's existing compliance system and determined that it was inadequate to allow her to clearly discharge her supervisory responsibility. According to CFA Institute Standards, Kirby should:

A) agree to accept supervisory responsibility provided that Allegheny adopts reasonable procedures to allow her to adequately exercise such responsibility.

B) decline in writing to accept supervisory responsibility until Allegheny adopts reasonable procedures to allow her to adequately exercise such responsibility.

C) agree to accept supervisory responsibility and to develop reasonable procedures to allow her to adequately exercise such responsibility.

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If Kirby clearly cannot discharge supervisory responsibilities because of an inadequate compliance system, she should decline in writing to accept supervisory responsibility until Allegheny adopts reasonable procedures to allow her to adequately exercise such responsibility.

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1215

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

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

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.

1215

Which of the following statements about Standard IV(C), Responsibilities of Supervisors, is NOT correct? CFA Institute members with supervisory authority:

A) are expected to bring an inadequate compliance system to the attention of the firm's senior managers and recommend corrective action.

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

C) may delegate supervisory duties, which relieves them of their supervisory authority.

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Standard IV(C) permits members to delegate supervisory duties but such delegation does not relieve members of their supervisory responsibility.

1215

For years, John Berger, a CFA charterholder and CEO of a company, relied upon a set of reasonable procedures for preventing violations of the Standards of Practice in the firm. The company has recently arranged to have members of CFA Institute as mid-level supervisors throughout the firm. With this arrangement Berger has delegated the supervision of employees with respect to the Code and Standards to the mid-level managers. With this action Berger:

A) is relieved of his obligation to supervise the employees under the mid-level supervisors.

B) has violated Standard IV(C), Responsibilities of Supervisors.

C) is still responsible for seeing that procedures are in place to prevent violations of the Code and Standards.

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Berger has not violated any of the Standards. He has the right to delegate supervisory duties. This delegation does not relieve him of the responsibility of making sure that procedures are in place to prevent violations of the Code and Standards.

1215

Which of the following statements about Standard IV(C) Responsibilities of Supervisors is least accurate?

A) If a subordinate violates a securities law, her supervisor is in violation of Standard IV(C).

B) If the supervisor makes a reasonable effort to detect violations, but fails to detect a violation that occurs, she is in compliance with Standard IV(C).

C) If no effort is made to detect violations, the supervisor is in violation of Standard IV(C) even if no violations by her subordinates have occurred.

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Standard IV(C) Responsibilities of Supervisors requires members to make a reasonable effort to detect violations by their subordinates. Violations by subordinates do not necessarily mean the supervisor has violated this Standard.