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CFA Level 1 Ethical and Professional Standards Questions and Answers 100% Solved
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CFA Level 1 Ethical and ProfessionalStandards
SBS Bank (SBS) serves as a custody bank for a wide range of clients. SBS offers a
variety of services to its clients, including custody, clearing, payment, settlement, and
record keeping. SBS charges its clients an asset-based fee for these services. Pursuant
to the bank's client agreement, custody clients agree to reimburse the bank for out-of-
pocket expenses for items paid by the custodian on their behalf. The majority of these
expenses are for messages sent via the Society for Worldwide Interbank Financial
Telecommunication (SWIFT), a secure messaging network used by banks and other
financial institutions. Although SBS charges custody clients an established rate for
SWIFT messages, the rate is greater than the actual cost of providing this service.
Mandrake, CFA, a vice president at SBS who oversees client service responsibilities,
recognizes this discrepancy and brings it to the attention of his supervisor. In - answerC
This case involves how to appropriately address the misconduct of others in carrying
out your professional responsibilities. Standard I(A): Professionalism, Knowledge of the
Law prohibits CFA Institute members and candidates from knowingly participating or
assisting in legal or ethical violations and requires them to dissociate from any such
activity. SBS is misrepresenting its reimbursable expenses to its custody clients and
overcharging them.
The Investment Analysis, Recommendations, and Actions standard states that
members and candidates must:
A: find an investment suitable for their client before making a recommendation.
B: make reasonable efforts to ensure that performance presentation is fair, accurate,
and complete.
C: distinguish between fact and opinion in the presentation of investment analysis and
recommendations. - answerC
The V.B.4 Communications with Clients and Prospective Clients section of the
Investment Analysis, Recommendations, and Actions standard states that members
and candidates must distinguish between fact and opinion in the presentation of
investment analysis and recommendations.
Based on the Conflicts of Interest standard, members and candidates must:
A: disclose, as required by law, those conflicts interfering with their professional duties.
,B: disclose, as appropriate, any benefit paid to others for the recommendation of
products.
C: seek employer approval before prioritizing their investment transactions over those
clients. - answerB
The VI.C Referral Fees section of the Conflicts of Interest standard requires members
and candidates to disclose to their employer, clients, and prospective clients, as
appropriate, any compensation, consideration, or benefit received from or paid to others
for the recommendation of products or services.
A is incorrect because the VI.A Disclosure of Conflicts section of the Conflicts of Interest
standard requires members and candidates to make full and fair disclosure of all
matters (not limited to legal requirements) that could reasonably be expected to impair
their independence and objectivity or interfere with respective duties to their clients,
prospective clients, and employer.
Which of the following groups is most likely responsible for maintaining oversight and
responsibility for the Professional Conduct Program (PCP)?
CFA Institute Board of Governors
Disciplinary Review Committee
Professional Conduct Division - answerA
All CFA Institute members and candidates enrolled in the CFA Program are required to
comply with the Code and Standards. The CFA Institute Board of Governors maintains
oversight and responsibility for the Professional Conduct Program (PCP).
When can a party, nonmember or firm, most likely claim compliance with the CFA
Institute Code of Ethics and Standards of Professional Conduct? Once they have:
A: ensured that their code and ethics meets the principles of the Code and Standards.
B: notified the CFA Institute of their claim.
C: verified their claim of compliance with the CFA Institute. - answerA
The Code and Standards apply to individual members of CFA Institute and candidates
in the CFA Program. CFA Institute does encourage firms to adopt the Code and
Standards, however, as part of their code of ethics. Those who claim compliance should
fully understand the requirements of each of the principles of the Code and Standard.
Sanctions imposed by CFA Institute for violations of the CFA Institute Code of Ethics or
Standards of Professional Conduct least likely include:
, monetary fines.
public censure.
revocation of a CFA Charter. - answerA
Prudence Charmaine, a CFA charterholder, was recently accused in writing of cheating
on a professional accounting exam. She denied cheating and successfully defended
herself against the allegation. As part of her defense and as evidence of her character,
Charmaine stated that she is a CFA charterholder and upholds the CFA Institute Code
of Ethics and Standards of Professional Conduct. On her next annual Professional
Conduct Statement, Charmaine does not report this allegation to CFA Institute. Did
Charmaine most likely violate the CFA Institute Code of Ethics or Standards of
Professional Conduct?
A: No
B: Yes, she improperly used the CFA Institute Code and Standards to defend herself.
C: Yes, she did not report the allegation on her annual Professional Conduct Statement.
- answerC
Charmaine should have reported the cheating allegation when making her annual
Professional Conduct Statement. Even though she successfully defended herself
against the charges and the charges were dropped, she has a responsibility to report
the written complaint involving her integrity. The Code of Ethics requires CFA
charterholders to practice and encourage others to practice in a professional and ethical
manner that will reflect credit on themselves and the profession.
Which of the following statements is most likely consistent with the CFA Institute Code
of Ethics? CFA Institute members and CFA candidates must:
A: promote the integrity and viability of the global capital markets for the ultimate benefit
of society.
B: practice the highest level of personal and professional integrity and always act in the
best interest of their employers.
C:maintain their professional competence and require investment professionals under
their supervision to adopt the CFA Code of Ethics. - answerA
B is incorrect because there are times when acting in the best interests of an employer
may conflict with the Code and Standards or in the best interests of clients
C is incorrect because there is no such requirement for supervisors.
Which of the following activities if undertaken by CFA Institute members and/or
candidates would most likely violate the Code and Standards?
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