Standard I(A): Knowledge of the Law
Know and obey every law, rule and regulation that governs your work, including the Code and Standards. When they differ, follow the stricter. Never knowingly take part in or help a violation. If you find one, dissociate from it, which may mean resigning.
Before this: The seven Standards of Professional Conduct at a glance
On the exam
- Demonstrate the application of the Code of Ethics and Standards of Professional Conduct to situations involving issues of professional integrity
- Recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct
- Identify conduct that conforms to the Code and Standards and conduct that violates the Code and Standards
Demonstrate how I(A) applies, recommend compliance practices and identify compliant conduct. Expect a cross-border "which rule applies?" item and a "what should the analyst do on discovering a violation?" item. The trap is the weaker rule or an invented duty to report.
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.
You know this one. The full lesson is folded away. The takeaways, formulas and checkpoint below are your quick refresher, and the checkpoint is a fair test of whether you still do.
You tested strong here. The full lesson is folded away. The takeaways, formulas and checkpoint below are your quick refresher, and the checkpoint is a fair test of whether you still know it.
What does Standard I(A) require?
Knowledge of the law means you understand and obey every law, rule and regulation that governs your professional activities, plus the Code and Standards themselves. You are not expected to be a lawyer. You are expected to know the rules that apply to your job, and to ask when you are unsure.
Memorize
- Comply with the applicable law of every jurisdiction and body that governs what you do: where you live, where you work, where your client lives and where you sell.
- When the law and the Code differ, follow the stricter one (the stricter law rule ).
- Do not knowingly take part in, or help, a violation of law or of the Code and Standards. That is participation in violations .
- If you find a violation, dissociation is required.
Which rule wins when they differ?
Compare the law and the Code on each issue, and follow whichever asks more of you. If no law covers the point, the Code and Standards apply on their own. A weaker local rule, or none, never lowers the bar.
The Handbook adds a point about global application. The Code and Standards apply to members and candidates wherever they work, so a member in any country follows the stricter of the applicable law and the Code.
- 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
| Situation | What to do |
|---|---|
| You work in a country with weaker rules than the Code (for example no ban on trading on inside information) | Follow the Code |
| Local law is stricter than the Code on client disclosures | Follow local law |
| The law of your home country and the country where you do business disagree | Follow whichever applicable law is stricter, and the Code if it is stricter than both |
| Products are sold across borders | Know the rules of each market you develop for and sell into |
Try this 0 of 3
- Get every case right first time
- Spot the case where local law is stricter than the Code
- Put the dissociation steps in order first time
Case 1 of 4 The dinner tip
Lena Ortiz, CFA, lives in Country P, which has no securities laws, and covers mining stocks listed in Country Q for Corrin Ridge Advisers. Country Q's law allows investors to trade on nonpublic information as long as they did not pay for it. At a dinner, the finance director of a Q-listed miner tells her, before any announcement, that the company will report a large copper find next week. The next morning Lena buys the miner's shares for her own account through a broker in Q. Q's regulator would see nothing wrong with the trade.
Step 1 of 5 Violation or not?
Did Lena break the Code and Standards?
Read the case, then answer each step. 4 cases.
Exam tip ”Legal here” is never the whole answer. Ask which rule asks more of the member, then follow that one.
What do you do when you find a violation?
You must not knowingly take part in or assist a violation, whether it is your own firm’s, a colleague’s or a client’s. If you find one, you dissociate. In practice that is a ladder: urge the firm to correct it, escalate to compliance or legal counsel, document what you found, stop working on it, and resign if the firm will not act.
- 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
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- Report to authorities Use it encouraged, not required by the Standard
Reporting is separate. You are encouraged, and sometimes it is wise, to report a violation to the authorities, and a particular law may require it. The Standard itself does not require you to report to a regulator or to CFA Institute. A colleague’s wrongdoing at an unconnected firm that you merely hear about does not breach I(A) by itself, because you are not taking part in it.
| Situation | What to do |
|---|---|
| Your firm is charging clients a higher fee than it states | Raise it, escalate to compliance, document, step away, resign if it persists |
| You think a colleague broke a law | Seek advice from compliance or legal; reporting to authorities is encouraged, not required |
| You learn of a violation at another firm and take no part | No breach of I(A) by itself |
Compliance practices
For members and candidates:
- Stay informed. Keep up with changes in laws, rules and case law, for example through compliance memos or continuing education.
- Maintain current resources. Keep up-to-date copies of the statutes, rules and key cases that apply to your work.
- Seek advice. Ask compliance or legal counsel when it is unclear which rule applies, or when a colleague may be breaking one.
- Dissociate and document. If you find a violation, stop taking part, urge the firm to persuade the person to stop, and write down what you found, whom you told and when.
Go deeper Why dissociation is more than silence
Dissociation means removing yourself from the activity. Staying quiet while you keep doing the work, signing off the statements or running the process is not dissociation. Having raised the matter, you stop taking part, you ask to be moved if you can, and you keep a written record of what you found, whom you told and when. In the extreme case, where the firm will not stop, resigning may be the only way to separate yourself fully. Your name and your work should not help the wrongdoing go on.
Go deeper Whistleblowing and confidentiality
A whistleblowing disclosure is a public or regulatory report of concealed misconduct. The Standards do not require it, and firms with a sound ethics code and clear internal reporting lines rarely push staff to it. Where a law requires reporting, or you believe it is the only way to protect clients and markets, a disclosure may be consistent with the Code. The point for the exam is narrower: it is allowed in some circumstances and never mandatory under I(A). Do not confuse it with the duty to dissociate.
Go deeper Taking legal advice
Seeking advice from the compliance department or legal counsel is recommended when you are not sure which rule applies or whether a colleague is breaking one. It is not an admission of doubt about your competence. It is the step the Standard expects of someone who takes knowing the rules seriously.
Memorize this
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.
- 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
- 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
How it is asked
-
Weaker local law
An analyst works where no law bans trading on material nonpublic information, and buys on a takeover tip. Violation?
Yes, I(A): the Code is stricter, so it governs (II(A) is also broken). Trap: "legal locally".
-
Stricter local law
Local law demands more client disclosure than the Code. Which applies?
The law. Following a stricter law is exactly what I(A) requires.
-
Discovered violation
A colleague mis-marks illiquid holdings. The supervisor will not act. Most appropriate next step?
Dissociate, escalating to compliance; resign if needed. Traps: "must report to CFA Institute", "keep working".
Exam traps
- Following local law because "it is the law" when the Code is stricter. The stricter rule governs.
- Assuming the Code always wins. If the law is stricter, follow the law.
- Thinking you must report a violation to CFA Institute or a regulator. It is encouraged and may be wise, but the Standard requires dissociation.
- Treating ignorance of a rule as an excuse. You are expected to know the rules that govern your work, though not to be a lawyer.
- Dissociating by staying silent while carrying on. You must stop taking part.
Checkpoint
3 exam-style questions. About 90 seconds each.
1An analyst based in a country with no laws against trading on material nonpublic information receives a confidential tip about a takeover and buys shares in the target. Did the analyst violate the Standards?
2A portfolio manager learns that a colleague has been mispricing illiquid holdings. After raising it with the supervisor, nothing changes. The manager's most appropriate next step is to:
3Under Standard I(A), when an applicable law is stricter than the Code and Standards, members and candidates must:
Key takeaways
- Follow the stricter of the applicable law and the Code and Standards, issue by issue.
- Never knowingly take part in or help a violation; dissociate when you find one, and resign if you must.
- Reporting to authorities is encouraged in some cases but not required by the Code.
- Know the rules of every market you work or sell in, and ask compliance or legal counsel when unsure.
All Ethical and Professional Standards formulas, every lesson
Practice exam-style questions on Guidance for Standard I: Professionalism
Questions about this lesson?
Where this comes back
- Standard I(B): Independence and Objectivity Guidance for Standard I: Professionalism
- Standard IV(C): Responsibilities of Supervisors Guidance for Standard IV: Duties to Employers
Questions candidates ask
What does Standard I(A) Knowledge of the Law require?
Members and candidates must understand and comply with all laws, rules and regulations that govern their professional activities, including the Code and Standards. Where they differ, follow the stricter. They must not knowingly take part in or help a violation, and must dissociate if they find one.
What should a CFA member do if local law is less strict than the Code?
Follow the Code and Standards. The stricter of the two applies, and a weaker local rule, or no rule at all, never excuses lower conduct. If the local law is stricter, follow the law instead.
Are CFA members required to report violations?
No. Standard I(A) requires you to dissociate from a violation, not to report it. Reporting to authorities is sometimes encouraged and may be wise, and a law may require it, but the Standard does not.
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