An analyst posts a tip on a private message board, copies a model from her old employer, and accepts an undisclosed referral fee. Three actions, three different Standards, one disciplinary file. Ethics on the CFA exam is not philosophy. It is pattern recognition against a fixed list.
The CFA Institute Board of Governors has ultimate authority. It delegates enforcement to the Disciplinary Review Committee (DRC), a volunteer body of CFA charterholders. Day-to-day work is performed by Professional Conduct staff in the Designation Compliance function. Staff investigate. DRC adjudicates. The Board sets policy.
KEY: Staff investigates, DRC hears and decides, Board oversees. Three layers, distinct roles.
Investigations begin when staff receives credible information from any of these channels:
- Self-disclosure on the annual Professional Conduct Statement (PCS) that every member and candidate must sign. The PCS asks about civil litigation, criminal investigations, written complaints, and regulatory actions.
- Written complaints from clients, employers, peers, or the public.
- Public information (news reports, regulatory filings, court records) that staff monitors.
Common mistakes
- Confusing the counts. The Code has six components. The Standards number seven (I through VII). Reversing those numbers ("seven components, six Standards") is a frequent trap.
- Citing the wrong Standard for misconduct. Plagiarism and guaranteed-return statements fall under I(C) Misrepresentation, not I(D) Misconduct. I(D) Misconduct covers dishonesty, fraud, and acts reflecting on professional integrity outside investment activities specifically.
- Treating local law as a ceiling. When local law is less strict than the Code, you must comply with the Code. When local law is stricter, you must comply with local law. The principle is always the stricter standard, "I followed local law" is not a defense if the Code is stricter.
Bottom line
- Six components of the Code and seven Standards (I to VII), roughly twenty sub-sections; memorize the verbatim list and counts.
- Professional Conduct staff investigate, the DRC adjudicates contested cases via hearing panel, and the Board of Governors oversees policy; a proposed sanction can be accepted or appealed.
- Investigations start from self-disclosure on the annual Professional Conduct Statement, written complaints, public or media reports, exam-room evidence, or reports from members.
- Sanctions range from a private cautionary letter to public censure, suspension, and revocation of membership, charter, or candidacy.
Exam shortcut
For component counts, remember "6 Code, 7 Standards." Six precedes seven, and the Code precedes the Standards in the source document. For the enforcement chain, remember Staff. DRC. Board. in that order: investigate, adjudicate, oversee. For local-versus-Code conflicts, the answer is always the stricter rule wins. When in doubt, that single principle resolves most jurisdictional questions on exam day.
The full lesson (about 2,950 words, 20 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- code of ethics and standards
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