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Mary Kim, CFA, practices in the established country of Oldasia as well as in the emerging 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. Mary Kim may:

A) trade ahead of her clients in Newasia only.

B) trade ahead of her clients in Newasia only, as long as she has made full disclosure to her clients that she reserves the right to do this.

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

D) 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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Answer and Explanation

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

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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) adopt a code of ethics to which every employee must subscribe.

C) require employees to write personal ethics statements.

D) 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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Answer and Explanation

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

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Which of the following statements about the responsibilities of CFA charterholders is TRUE? CFA charterholders:

A) must comply with the laws and rules governing their profession or must not engage in any individual behavior that reflects adversely on the entire profession.

B) are not obligated to a special set of standards, but must act honorably.

C) must comply with the laws and rules governing their profession and must not engage in any individual behavior that reflects adversely on the entire profession.

D) are only obligated to comply with securities laws in the U.S.

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Answer and Explanation

CFA charterholders must comply with the laws and rules governing their profession and must not engage in any individual behavior that reflects adversely on the entire profession. While they should act honorably and follow U.S. securities laws, they are obligated to more than that, as set forth in the Code and Standards.

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An analyst, who is a CFA charterholder, is working in a foreign country. Which of the following statements is TRUE? The analyst is:

A) covered by the strictest of the following laws and rules: his own country's, the foreign country's or CFA Institute's Code and Standards.

B) governed by CFA Institute's Code and Standards.

C) governed by the laws and standards of the country in which he is living and working.

D) covered by U.S. securities laws.

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Answer and Explanation

The analyst is covered by the strictest of the following laws and rules: his own countrys, the foreign countrys or CFA Institutes Code and Standards.

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

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

C) less strict, they must still follow the local country laws.

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

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Answer and Explanation

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.

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CFA Institute believes:

A) 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.

B) 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.

C) companies should set standards based on the ethics of upper management and the board of directors.

D) 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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Answer and Explanation

CFA Institutes 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.

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Josh LeBlanc, a CFA charterholder, is an investment analyst for a small stock brokerage firm. He wants to acquire and maintain knowledge about applicable laws, rules, and regulations relating to his professional activities. According to the CFA Institute Standards of Professional Conduct, which of the following ways is least likely to meet compliance procedures?

A) Review written compliance procedures on a regular basis.

B) Maintain current files on applicable statues, rules, and regulations.

C) Keep informed about changes in applicable laws, rules, and regulations.

D) Rely on past practices followed within his firm.

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Answer and Explanation

LeBlanc should follow the compliance procedures under Standard IA -- Knowledge of the law. Relying on his firms past practices may be insufficient for LeBlanc to stay current with changes in applicable laws, rules, and regulations.

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Jason Blackwell, CFA, works as an investment manager for Mega Capital, a large multinational brokerage firm. He resides in a country whose applicable law is stricter than the Code and Standards but does business with clients in a country whose applicable law is less strict than the Code and Standards. Blackwell decides to follow the Code and Standards for clients in the less strict country. While Blackwell is still employed at Mega, Lego Associates verbally asks Blackwell to review client portfolios during evenings and weekends for a fee. Blackwell gets consent from his immediate supervisor at Mega to undertake this independent activity for a one-month trial basis.

Which of the following statements about Blackwells actions involving Standard I, Professionalism, and Standard IV(A), Loyalty is most accurate? Blackwell:

A) did not violate either Standard I or Standard IV(A).

B) violated both Standard I and Standard IV(A).

C) violated Standard I but did not violate Standard IV(A).

D) did not violate Standard I but violated Standard IV(A).

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Answer and Explanation

Blackwell violated Standard I, Professionalism. Because the applicable laws were stricter than the Code and Standards, he must adhere to the more strict applicable law.

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According to the CFA Institute Standards of Professional Conduct, Standard I(A), Knowledge of the Law, members shall not knowingly participate or assist in any violations of laws, rules, or regulations. An analyst:

A) must report all legal violations to the proper regulatory commission and is held responsible for participating in illegal acts when the law is evident to anyone knowing the law.

B) is held responsible for violations by others when the analyst is unaware of the facts giving rise to the violation.

C) is held responsible for participating in illegal acts when the law is evident to anyone knowing the law and is held responsible for violations by others when the analyst is unaware of the facts giving rise to the violation.

D) is held responsible for participating in illegal acts when the law is evident to anyone knowing the law and can participate in a violation by having knowledge of the violation and taking no action to stop it or disassociate from it.

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Answer and Explanation

If you suspect someone is planning or engaging in illegal activities, you should:

1. Determine the legality of the activities. Consult your supervisor and legal counsel.
2. Take appropriate action. Disassociate, attempt to persuade the perpetrator to stop. CFA Institute does not require you to report them to the authorities, but the law might.

1. Determine the legality of the activities. Consult your supervisor and legal counsel.
2. Take appropriate action. Disassociate, attempt to persuade the perpetrator to stop. CFA Institute does not require you to report them to the authorities, but the law might.

If you suspect someone is planning or engaging in illegal activities, you should:

1. Determine the legality of the activities. Consult your supervisor and legal counsel.
2. Take appropriate action. Disassociate, attempt to persuade the perpetrator to stop. CFA Institute does not require you to report them to the authorities, but the law might.

1. Determine the legality of the activities. Consult your supervisor and legal counsel.
2. Take appropriate action. Disassociate, attempt to persuade the perpetrator to stop. CFA Institute does not require you to report them to the authorities, but the law might.

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Janet Green, CFA, provides investment advice and other services to clients in several countries. She resides in Country A whose securities laws and regulations are less strict than the Code and Standards. She also conducts business with clients in Country B, which has no securities laws or regulations, and in Country C, which has securities laws and regulations that are stricter than the Code and Standards. Which of the following statements is TRUE? According to CFA Institute Standards of Professional Conduct, Green must adhere to the Code and Standards in:

A) Country A and Country B but the law in Country C.

B) Country A but the law in Country B and Country C.

C) Country B but the law in Country A and Country C.

D) Country A, Country B, and Country C.

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Answer and Explanation

Green needs to follow Standard I(A) -- Knowledge of the law. In Country A, Green must adhere to the Code and Standards because Country As laws are less strict. In Country B, Green must also adheres to the Code and Standards because Country B has no securities laws. Because Country Cs applicable law is stricter than the requirements of the Code and Standards, Green must adhere to the laws of Country C.

Green needs to follow Standard I(A) -- Knowledge of the law. In Country A, Green must adhere to the Code and Standards because Country As laws are less strict. In Country B, Green must also adheres to the Code and Standards because Country B has no securities laws. Because Country Cs applicable law is stricter than the requirements of the Code and Standards, Green must adhere to the laws of Country C.