cfaedu

A manager has pointed out that his firm has experienced significant expansion over the past few years. Until recently, its Legal Department was responsible for the firm's compliance activities. Now, however, the legal and compliance functions have been separated. A compliance officer has been formally designated and a comprehensive compliance program has been put in place.

In order to function effectively, the compliance officer must have the authority:

A) to affect, control, and guide employee behavior and to respond to employee misconduct.

B) to hire and fire personnel.

C) to hire trading personnel and to supervise operations personnel.

D) which is consistent with the most senior partner or executive officer in the firm.

---

Answer and Explanation

Compliance officers must be able to guide employee behavior and respond to employee misconduct, otherwise there will be no effective compliance procedures in place. Unless the compliance officer can effectuate compliance procedures, the compliance program has no chance of responding to or preventing violations of the Standards.

cfaedu

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) Both Luck and Long violated the procedures for compliance.

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

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

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

---

Answer and Explanation

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.

cfaedu

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

B) educate all analysts under his supervision about the compliance procedures.

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

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

---

Answer and Explanation

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.

cfaedu

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

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

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

D) decline orally to accept supervisory responsibility until Allegheny adopts reasonable procedures to allow her to adequately exercise such responsibility.

---

Answer and Explanation

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.

cfaedu

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

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

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

D) Miller no longer has supervisory responsibility for those duties delegated to her subordinates.

---

Answer and Explanation

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