Code of Ethics and Standards of Professional Conduct

At Level III, ethics questions put you in the seat of a portfolio manager, chief investment officer or compliance head who must judge conduct, design policies and correct problems. This module sets out the framework used in every later ethics module: how CFA Institute enforces its rules through the Professional Conduct Program, what the Code of Ethics and the seven Standards require, including the changes that took effect in 2024, and why a reputation for integrity is an economic asset for firms and markets alike.

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What you will learn

1. Describe how CFA Institute's Professional Conduct Program receives, investigates and resolves possible violations, and the sanctions it can impose.

The PCP, overseen by the Board through the Disciplinary Review Committee, enforces the Code and Standards for members and candidates.
Inquiries start from Professional Conduct Statement disclosures, written complaints, public sources, proctor reports or analysis of exam data.
Staff can close the matter, issue a cautionary letter (not a sanction) or propose a sanction.
A member or candidate who rejects a proposed sanction has the case decided by a DRC hearing panel.
Sanctions: public censure, suspension, revocation of the charter; candidates can be suspended or barred from the program.

2. Summarize the obligations in the Code of Ethics and in each of the seven Standards and their subsections, including the revisions that took effect in 2024.

The Code has six components: integrity and respect, clients and the profession first, reasonable care and independent judgment, credit to the profession, healthy capital markets, and competence.
There are seven Standards with 23 subsections: I(A)-(E), II(A)-(B), III(A)-(E), IV(A)-(C), V(A)-(C), VI(A)-(C), VII(A)-(B).
Since 2024: I(E) Competence was added, V(B) requires disclosure of services and their costs, and VI(A) is titled Avoid or Disclose Conflicts.
The Standards are principles applied to facts; one act can breach several Standards.
Where applicable law is stricter, follow the law; where it is weaker, the Standards set the minimum.

3. Explain why high ethical standards build trust in the investment profession and support well-functioning capital markets.

Information asymmetry between professionals and clients makes trust the core of the business.
Ethical markets reduce the premium investors demand for the risk of being cheated, lowering the cost of capital.
Reputational damage, lost clients and tighter regulation usually cost a firm far more than fines.
The law is a minimum; the Standards often require more.
Situational pressures and overconfidence cause lapses, so culture, incentives and procedures matter as much as rules.

Module at a glance

The Professional Conduct Program investigates possible violations; inquiries start from self-disclosure, complaints, public sources or exam monitoring.
Staff can close a case, send a cautionary letter or propose a sanction; a rejected proposal goes to a DRC hearing panel.
Sanctions include public censure, suspension and revocation; candidates can be suspended or barred from the program.
The Code has six components; the Standards have seven sections and 23 subsections.
Since 2024: new I(E) Competence, V(B) disclosure of services and costs, VI(A) Avoid or Disclose Conflicts.
Trust is the core product of the investment profession; ethics lowers the cost of capital and protects firm value.
Legal is not the same as ethical; situational pressures explain most lapses, so culture and incentives matter.

This free module has 3 lessons, 14 practice questions with full explanations.

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