Level I · Ethical and Professional Standards

Learning Module 2
Code of Ethics and Standards of Professional Conduct

Key Outcomes Summary & Practice Problems

Learning Outcomes

What you must be able to do

Curriculum Year: 2026

LOS 1

Describe the structure of the CFA Institute Professional Conduct Program and the process for the enforcement of the Code and Standards.

LOS 2

Identify the six components of the Code of Ethics and the seven Standards of Professional Conduct.

LOS 3

Explain the ethical responsibilities required by the Code and Standards, including the sub-sections of each Standard.

1 · Acquisition of Intangible Assets

Standards of Practice Handbook — the fundamental element of CFA Institute's ethics education effort; the primary resource for interpreting and implementing the Code and Standards. It is regularly revised so the Code and Standards remain effective and represent the highest ethical standards globally.
Code vs. Standards — the Code contains high-level aspirational principles; the Standards contain practical principles of conduct. They should be read as an interwoven tapestry, not applied principle-by-principle in isolation.
Relevance beyond members — the Code and Standards are often adopted, in whole or in part, by firms and regulators, so their reach extends well beyond CFA Institute members and candidates.

2023 Revisions

NEW / REVISED

Three changes to the Standards: (1) a new Standard I(E) Competence requiring members to act with and maintain the competence necessary to fulfill professional responsibilities; (2) a revision to Standard V(B) Communication with Clients requiring disclosure of the nature of services and the associated costs; (3) a revision renaming Standard VI(A) to "Avoid or Disclose Conflicts," now requiring members to avoid conflicts where reasonable, or otherwise make clear and complete disclosure.

Professional Conduct Program (PCP) — overseen by the CFA Institute Board of Governors; enforces the Code and Standards in conjunction with the Disciplinary Review Committee (DRC), a volunteer committee of charterholders who review conduct on panels.
Sources of inquiries — (1) self-disclosure on the annual Professional Conduct Statement, (2) written complaints, (3) media/regulatory/public sources, (4) exam-day proctor reports, (5) post-exam score/material analysis and social media monitoring.
Possible sanctions — public censure, suspension of membership and use of the CFA designation, revocation of the CFA charter, or suspension/prohibition from the CFA Program for candidates.
Standards of Practice Council (SPC) — a volunteer group of charterholders from many countries that maintains and interprets the Code and Standards, ensuring they remain representative, relevant, globally applicable, comprehensive, practical, specific, enforceable, and testable.
Adoption & the Asset Manager Code — the Code and Standards apply to individual members/candidates; CFA Institute separately publishes the Asset Manager Code, aimed at firms, covering loyalty to clients, the investment process, trading, compliance, performance, and disclosure.

Inquiry initiated (self-disclosure, complaint, media/regulatory source, proctor report, or exam analysis)

Professional Conduct staff investigates: written explanation, interviews, document review

Staff concludes with no sanction, a cautionary letter, or proposed charges/sanction

If rejected, referred to a DRC panel to determine violation & sanction

2 · Why Ethics Matters to the Investment Industry

Capital markets depend on trust — efficient markets match capital with productive uses, but this requires investors to trust that markets are fair and transparent. Laws and enforcement alone are insufficient; markets need an ethical foundation guiding participant judgment and behavior.
"For the ultimate benefit of society" — a recurring phrase in CFA Institute's mission, reflecting the view that efficient capital markets support innovation, jobs, and improved standards of living, and that reduced trust shrinks investment capital and harms the broader economy.
Ethics should be universal — global ethical principles should support trust and integrity above local custom; different countries may be at different stages of development, but the end goal is consistent global standards.
Market sustainability and the actions of one — individually small or innocuous decisions can, in aggregate, precipitate a market crisis in an interconnected global economy; those in positions of authority bear special responsibility for risk management, product design, and compensation structures that don't tempt otherwise ethical people into misconduct.
Ethics goes beyond legal compliance — legal behavior is what is required; ethical behavior is what is morally correct. Limited regulatory resources mean compliance with law alone cannot ensure ethical behavior — strong ethical principles at the individual and firm level are needed to limit abuses that circumvent the rules.
Applying an ethical framework — analyzing decisions from an ethical perspective (not just a profit/loss perspective) helps investment professionals navigate the conflicting interests inherent in research, recommendations, and managing money for others.
Commitment to ethics by firms — a code of ethics risks becoming "a largely ignored, dusty compilation" unless integrated into the fabric of the business; a demonstrated culture of integrity from senior management may be the single most important factor in promoting ethical behavior firm-wide.
CFA Institute's ethical commitment — for more than 60 years, members and candidates have been required to abide by the Code and Standards, periodically revised to remain relevant as the profession evolves.

3 · The CFA Institute Code of Ethics and Standards of Professional Conduct

Preamble — the Code and Standards are fundamental to CFA Institute's mission and have promoted the integrity of members since the 1960s, regardless of job function, cultural differences, or local laws. Violations can lead to revocation of membership, candidacy, or the right to use the CFA designation.

Act with integrity, competence, diligence, respect, and in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues, and other market participants.

Place the integrity of the investment profession and the interests of clients above personal interests.

Use reasonable care and exercise independent professional judgment in investment analysis, recommendations, actions, and other professional activities.

Practice and encourage others to practice professionally and ethically, reflecting credit on themselves and the profession.

Promote the integrity and viability of the global capital markets for the ultimate benefit of society.

Maintain and improve personal professional competence and strive to improve the competence of others.

I PROFESSIONALISM

Knowledge of the Law — understand and comply with all applicable laws/rules/regulations (incl. the Code and Standards); comply with the stricter requirement in case of conflict; do not knowingly participate in, and must dissociate from, violations.

Independence and Objectivity — use reasonable care and judgment to achieve/maintain independence and objectivity; do not offer, solicit, or accept anything that could compromise independence or objectivity.

Misrepresentation — do not knowingly misrepresent investment analysis, recommendations, actions, or other professional activities.

Misconduct — do not engage in professional conduct involving dishonesty, fraud, or deceit, or commit acts that reflect adversely on professional reputation, integrity, or competence.

Competence NEW 2023 — act with and maintain the competence necessary to fulfill professional responsibilities.

II INTEGRITY OF CAPITAL MARKETS

Material Nonpublic Information — do not act or cause others to act on material nonpublic information that could affect an investment's value.

Market Manipulation — do not engage in practices that distort prices or artificially inflate trading volume with intent to mislead market participants.

III DUTIES TO CLIENTS

Loyalty, Prudence, and Care — act with reasonable care and prudent judgment; act for clients' benefit and place client interests before employer's or own interests.

Fair Dealing — deal fairly and objectively with all clients when providing analysis, recommendations, taking action, or engaging in other professional activities.

Suitability — in an advisory relationship: make reasonable inquiry into a client's experience/objectives/constraints, determine suitability given written objectives, and judge suitability in the context of the client's total portfolio; for a specific mandate, take only actions consistent with the stated objectives/constraints of the portfolio.

Performance Presentation — make reasonable efforts to ensure investment performance information communicated is fair, accurate, and complete.

Preservation of Confidentiality — keep client information confidential unless it concerns illegal client activity, disclosure is required by law, or the client permits disclosure.

IV DUTIES TO EMPLOYERS

Loyalty — act for the employer's benefit; do not deprive the employer of one's skills/abilities, divulge confidential information, or otherwise cause harm.

Additional Compensation Arrangements — do not accept gifts/benefits/compensation that competes with, or could reasonably create a conflict with, the employer's interest, without written consent from all parties.

Responsibilities of Supervisors — make reasonable efforts to ensure those under one's supervision/authority comply with applicable laws, rules, regulations, and the Code and Standards.

V INVESTMENT ANALYSIS, RECOMMENDATIONS & ACTIONS

Diligence and Reasonable Basis — exercise diligence, independence, and thoroughness; have a reasonable, adequate, research-supported basis for any analysis, recommendation, or action.

Communication with Clients and Prospective Clients REVISED 2023 — disclose the nature of services and associated costs; disclose the basic format/principles of the investment process and promptly disclose material changes; disclose significant limitations and risks; use reasonable judgment on which factors to include; distinguish fact from opinion.

Record Retention — develop and maintain appropriate records supporting investment analyses, recommendations, actions, and related communications.

VI CONFLICTS OF INTEREST

Avoid or Disclose Conflicts REVISED 2023 — avoid, or make full and fair disclosure of, matters that could reasonably impair independence/objectivity or interfere with duties to clients, prospective clients, and employer; ensure disclosures are prominent, in plain language, and effectively communicated.

Priority of Transactions — client and employer transactions take priority over transactions in which the member/candidate is the beneficial owner.

Referral Fees — disclose to employer, clients, and prospective clients any compensation/consideration/benefit received from or paid to others for product or service referrals.

VII RESPONSIBILITIES AS A CFA INSTITUTE MEMBER OR CANDIDATE

Conduct as Participants in CFA Institute Programs — do not engage in conduct that compromises the reputation/integrity of CFA Institute, the CFA designation, or the integrity/validity/security of CFA Institute programs (e.g., exam conduct, confidentiality of exam content).

Reference to CFA Institute, the CFA Designation, and the CFA Program — do not misrepresent or exaggerate the meaning or implications of membership, the CFA designation, or candidacy.

Memory anchor — 6 Code principles, 7 Standards: the Code is aspirational and principle-based (the "why"); the Standards are specific and behavioral (the "how"). Exam questions often test which Standard governs a given scenario — note how Standards II(B) Market Manipulation, V(C) Record Retention, and III(E) Confidentiality are commonly confused with neighboring standards.