Class notes
Finance IIA: Ethics (FTX3044F)
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Notes cover all content on Ethics taught by Ailie. The notes are based on the slides.
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ETHICS• Ethics can be described as a set of shared beliefs about what is good or
acceptable behaviour and what is bad or unacceptable behaviour.
• Ethical conduct is behaviour that follows moral principles and is consistent with
society’s ethical expectations and conduct that improves outcomes for
stakeholders. Ethical conduct is behaviour that balances your self-interest with
the impact on others.
• Why do we need ethical standards? - TRUST: Investment professionals are
responsible for using their skills to protect and grow the client’s assets.
Investment advice and management are intangible products, making quality and
value received more di cult to evaluate than for tangible products. Investors
need to have the assurance that they can trust investment practitioners and the
markets in which they invest.
Combating unethical investment behaviour:
• External measures:
- Regulation
- Regulatory bodies e.g. the Financial Sector Conduct Authority (FSCA) and the
Prudential Authority (PA) in South Africa, Securities Exchange Commission
(SEC) in the US.
• Internal measures:
ffi
, - Company rules
- Compliance o cer
- Code of ethics
• The CFA Institute maintains and promotes the Code of Ethics and Standards of
Professional Conduct in order to create a culture of ethics for the ultimate
bene t of society
Is a code of ethics law?
• It is not law – not all unethical actions are illegal e.g. recommending a client
invests in your relative’s business without disclosure.
• Legal behavior is required while ethical behavior is morally correct conduct.
Ethical principles often set a higher standard of behaviour that laws and
regulations.
• New laws and regulations often arise from actions perceived to be unethical e.g.
Securities Act of 1933
• Ethical decisions usually require more judgement and consideration of the
impact of behaviour on many stakeholders compared to legal decisions.
The CFA Institute Code of Ethics:
Members of the CFA Institute and candidates for the CFA designation must:
1. Act with integrity, competence, diligence, respect and in an ethical manner
towards other parties.
2. Place the integrity of the investment profession and interests of clients above
their own personal interests.
3. Use reasonable care and exercise independent professional judgement when
undertaking in investment analysis, making recommendations, undertaking
investment actions etc.
4. Practice and encourage others to practice in a professional and ethical manner.
5. Promote the integrity and viability of global capital markets.
6. Maintain and improve their own professional competence and encourage
others to do same.
The Standards of Professional Conduct:
1. Professionalism
2. Integrity of Capital Markets
3. Duties to Clients
4. Duties to Employers
5. Investment Analysis, Recommendations, and Actions
6. Con ict of Interest
7. Responsibilities as a CFA Institute Member or Candidate
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