Learning Module 3 of Ethical and Professional Standards 10–15% of the exam

Guidance for Standard I: Professionalism

5 lessons. About 26 minutes in cram mode, 132 minutes in full.

Start with lesson 1 Learn with Sensei Read the module summary Practice this module

Lessons

1
Standard I(A): Knowledge of the Law
demonstrate 6 min cram, 30 min full
2
Standard I(B): Independence and Objectivity
demonstrate 6 min cram, 32 min full
3
Standard I(C): Misrepresentation
demonstrate 6 min cram, 30 min full
4
Standard I(D): Misconduct
demonstrate 4 min cram, 20 min full
5
Standard I(E): Competence
demonstrate 4 min cram, 20 min full

What the exam expects you to do

Demonstrate the application of the Code of Ethics and Standards of Professional Conduct to situations involving issues of professional integrity.Standard I(A): Knowledge of the Law
Recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct.Standard I(A): Knowledge of the Law
Identify conduct that conforms to the Code and Standards and conduct that violates the Code and Standards.Standard I(A): Knowledge of the Law

Module summary

The whole module on one sheet, organised by lesson: what to memorize, how the ideas fit together, the formulas and the key terms. No paragraphs, just what you need to revise.

Hide what I know

How deeply to learn each part

Know the idea: Understand it in general. It frames other topics, but you will not calculate with it.
Use it: Understand it well enough to solve a question with it. Recognize when it applies.
Memorize: Learn it by heart. The exam will not give it to you.

Standard I(A): Knowledge of the Law

Known

MemorizeStandard I(A): what to do

Situation	Required action
Law and Code differ	Follow the stricter one
No law on the point	Follow the Code and Standards
Law stricter than the Code	Follow the law
Law weaker than the Code	Follow the Code
You know of a violation	Dissociate: do not take part or help; may mean resigning
Unsure what applies	Ask compliance or legal counsel
Reporting a violation to authorities	Encouraged, not required (unless the law requires it)

Memory hook The higher bar wins, and you walk away from wrongdoing: stricter rule, step away.

Know it cold Dissociate means: urge the firm to stop it, document what you found, stay out of it, and resign if you must. Reporting to CFA Institute or regulators is not required by the Standard. The Code applies wherever you work: the stricter of law and Code governs.

Key terms

knowledge of the law Memorize
applicable law Use it
stricter law rule Memorize
participation in violations Memorize
dissociation Memorize
whistleblowing Know the idea
legal counsel Use it

Which rule do you follow?

Applicable law vs the Code and Standardscompare them issue by issue

Law is stricter Memorize follow the law
Code is stricter Memorize follow the Code and Standards
No law applies Memorize follow the Code and Standards

When you find a violation

Knowing participation or assistance is a breachso you separate yourself

Dissociate Memorize required
- Urge the firm to stop it supervisor, then compliance or legal
- Document the facts what, whom you told, when
- Stop working on it ask to be reassigned
- Resign last resort, if nothing else works
Report to authorities Use it encouraged, not required by the Standard

Standard I(B): Independence and Objectivity

Known

MemorizeStandard I(B): pressure points and the right response

Situation	Right response
Gift or entertainment	Token items only; customary business entertainment is fine if not meant to influence. Gift from a client: accept modest, disclose to employer
Issuer offers flights or hotel	Pay your own way: commercial transport and hotel
Investment banking colleagues want a positive view	Resist. Firewall, or put the company on a restricted list (factual information only)
Public company or issuer pressures the rating	Keep the rating unaffected by the pressure
Issuer-paid research	Acceptable only with full disclosure and a flat fee not tied to the conclusion
A conflict you cannot avoid	Disclose it under VI(A)

Memory hook Who gives, how much, and what they want next: a token from a client is fine, a free trip from an issuer is not.

Know it cold Three compliance practices: comply with firm policies (including a restricted list), restrict special cost arrangements (pay your own commercial travel and hotel), limit gifts to token items.

Key terms

independence and objectivity Memorize
gifts and entertainment Memorize
issuer-paid research Memorize
travel funding Memorize
investment banking relationship Use it
credit rating agency Use it
restricted list Memorize

Where pressure on independence comes from

Threats to independence and objectivityany gift, benefit or pressure that could sway judgment

Investment banking colleagues Memorize want a positive rating on a banking client
Public companies and issuers Memorize pressure, hospitality, paid trips
Credit rating agencies Use it the issuer pays for the rating
Issuer-paid research Memorize fee and disclosure rules

Compliance practices for I(B)

Keeping judgment independentthree practices

Comply with firm policies Memorize including a restricted list
- Restricted list factual information only on that company
Restrict special cost arrangements Memorize pay your own commercial travel and hotel; issuers should not reimburse air travel
Limit gifts Memorize token items only

Standard I(C): Misrepresentation

Known

MemorizeStandard I(C): what is and is not misrepresentation

Case	Verdict
False or misleading statement, written, oral, electronic or social media	Violation
Omitting a fact that makes the message misleading	Violation
Guaranteeing a risky investment's return	Violation
Accurately describing a product with a real guarantee (for example an insured deposit)	Fine
Copying or lightly rewording others' work, charts or forecasts without credit	Plagiarism: violation
Common data from recognized statistical sources (for example a published central bank rate)	Fine without citation
Using firm research or a departed colleague's model under the firm's name	Fine: work for employer
Reissuing a colleague's report solely under your own name	Violation
Unintentional error you correct promptly	Not a violation; stop distribution, correct it
Communication that is not accurate, timely, complete and in plain language	Risks misrepresentation
A model shown with one rosy set of assumptions	Use a broad range, very positive to extremely negative
Third-party information you incorporate	Becomes your responsibility
Stating or implying clients will achieve a past rate of return	Violation
Showing only the best accounts (cherry-picking)	Violation: misrepresents performance history

Memory hook Would it mislead a reasonable reader? Lie, leave out, guarantee, or lift: all four are I(C).

Know it cold The Standard bites on knowing misstatements, but you should have known counts when a falsehood repeats in your own materials. Compliance practices: factual presentations, qualification summary, verify outside information, keep web pages current, plagiarism policy (keep copies, attribute quotes and summaries), monitor online content.

Key terms

misrepresentation Memorize
omission Memorize
guarantee of performance Memorize
plagiarism Memorize
attribution Use it
work completed for employer Memorize
qualification summary Use it
social media Know the idea
plain language Use it
third-party information Use it

What counts under I(C)

Misrepresentationany knowing false or misleading message

False or misleading statements Memorize any form, including social media
- About analysis and recommendations certainty that is not there
- About qualifications and services experience, degrees, services no longer offered
Omissions Memorize leaving out a fact that misleads
Investment performance Use it comparable benchmark, consistent pricing, no cherry-picking, no implied past returns
Communication quality Use it every message and model
- Accurate, timely, complete and in plain language
- Models broad range of assumptions, not one rosy case
- Third-party information your responsibility once incorporated
Guarantees Memorize banned on uncertain returns; real guarantees may be described accurately
Plagiarism Memorize presenting others' work as your own
- Copied or lightly reworded text credit it
- Unsourced charts, forecasts, quotes name the source
- Others' spreadsheets or models get permission
- Allowed without credit common data, and the firm's own work

Standard I(D): Misconduct

Known

MemorizeStandard I(D): the test

Question	If yes
Is it professional conduct? (work, academia, the profession or markets, or it uses the charter, candidacy or a society membership)	Then I(D) can apply. If not, generally not covered
Is that conduct dishonest, fraudulent or deceitful?	Misconduct
Does it damage your professional integrity, reputation or competence (for example working impaired)?	Misconduct
Is it purely private conduct, with no tie to the profession?	Generally not covered, even if dishonest

Memory hook Professional first, then dishonest: ask whether it is professional conduct before asking whether it is dishonest.

Know it cold Firm compliance practices: a code of ethics, a list of violations and sanctions, and reference checks on new hires.

MemorizeWhat counts as professional activity

Professional activity	Example
Dealing with colleagues and clients	An expense claim, a client meeting
Presenting yourself as a charterholder or candidate	A CV, a biography, a business card
Volunteering for CFA Institute or a society	Running a society event, teaching a review course
Attending industry events	A conference or a networking evening
Writing about investments outside work	A blog or a book
Communicating with regulators in a professional capacity	A consultation response

Memory hook Work, the markets, the profession, or the letters: if you use any of them, it is professional.

Know it cold Professional conduct: conduct relating to financial analysis, investment management, security analysis, stewardship or similar that happens in the workplace, academia or the profession or markets, or uses the CFA charter, CIPM, CFA Institute or society membership, or candidacy.

Key terms

misconduct Memorize
dishonesty, fraud and deceit Memorize
professional reputation Use it
professional conduct Memorize
personal behavior Use it

Is it misconduct under I(D)?

Conduct or actprofessional conduct or private life

Professional conduct Memorize I(D) can apply
- Dishonesty, fraud or deceit in the workplace, or when using the charter, candidacy or a society role
- Acts that damage integrity or competence for example working while impaired
Not professional conduct Memorize generally not covered
- Peaceful civil disobedience not dishonest
- Personal bankruptcy unless it involved fraudulent or deceitful business conduct
- A dishonest act in private life no tie to work, the markets, the charter or candidacy

What makes conduct professional

Professional conductfinancial analysis, investment management, security analysis, stewardship or similar

Where it happens Memorize any one is enough
- The workplace colleagues, clients, expense claims
- Academia teaching or research on investments
- The profession or markets industry events, writing about investments, regulators
What it uses Memorize any one is enough
- The charter or a related credential CFA charter, CIPM
- CFA Institute or society membership including volunteering
- Candidacy presenting yourself as a candidate

Standard I(E): Competence

Known

MemorizeStandard I(E): what it requires and what it does not

Point	Rule
Duty	Act with and maintain the competence your responsibilities require
Made of	Knowledge (what you know), skills (what you can do), abilities (capabilities and attitudes behind results)
Depends on	The role; changes when the role changes
A loss or wrong forecast	Not proof of incompetence
Education alone	Not enough: a specialist may be out of depth in a new area
Training program	None mandated; you choose how
Status	New in the 2023 revision

Memory hook K-S-A: Know it, Show it, Act on it. Competence is the job you do now, kept current.

Know it cold Recommended: ongoing professional development, studying for or earning certifications, conferences and webinars, employer training, self-study, expert groups, and becoming proficient when responsibilities change.

Key terms

competence Memorize
knowledge, skills and abilities Memorize
maintaining competence Memorize
continuing education Use it
professional development Use it

What competence is and how to keep it

Competence for your roleact with it and maintain it

Knowledge, skills and abilities Memorize what the role needs
- Knowledge information applied to the function
- Skills capability to perform role-specific tasks
- Abilities capabilities and attitudes behind observable results
Ways to maintain it Memorize none is mandated
- Professional development or continuing education regular
- Certifications and designations studying for or earning them
- Conferences, seminars, webinars attending
- Employer training taking part regularly
- Self-study and expert groups reading, joining organizations
- New skills when the role changes become proficient first