You receive an emailed research paragraph from a colleague with no source attribution. You drop it into your own client memo. That single act can implicate three sub-standards of Standard I at once. This lesson untangles which.
Standard I covers five duties tied to individual professional conduct. Each sub-standard has its own scope, its own recommended procedures, and its own classic violations.
Members must understand and comply with all applicable laws, rules, and regulations of any government, regulatory organization, licensing agency, or professional association governing their activities, plus the Code and Standards. When in conflict, comply with the stricter law or standard.
DECISION: Local law silent or weaker than Code and Standards, follow Code and Standards. Local law stricter than Code and Standards, follow local law. The bar is always the highest applicable.
You must not knowingly participate in or assist any violation, and you must dissociate from violations. Dissociation means refusing to be part of the activity.
KEY: Reporting violations to outside authorities is not required by the Standards (with limited jurisdictional exceptions). The required action is dissociation. Whistleblowing is permitted but not mandated.
Common mistakes
- Assuming members must report violations to regulators. The Standards require dissociation, not whistleblowing. Reporting to outside authorities is permitted but not required (with narrow jurisdictional exceptions). Trap: selecting "report to the SEC" as the required action under I(A).
- Treating all gifts as prohibited under I(B). Modest gifts are acceptable. The standard targets gifts that reasonably could compromise objectivity. A holiday calendar from a broker is not a violation. A paid Caribbean vacation from a covered issuer is. Trap: selecting "all gifts must be refused" as the rule.
- Confusing client gifts with third-party gifts. A client's gift for past performance needs disclosure to the employer, and a client's offer of pay contingent on future performance needs the employer's written consent under IV(B). Third-party gifts from issuers seeking favorable coverage face the stricter "reasonably could compromise" test. Trap: applying the same standard to both.
Bottom line
- Standard I has five sub-standards: I(A) Knowledge of the Law, I(B) Independence and Objectivity, I(C) Misrepresentation, I(D) Misconduct, I(E) Competence.
- When local law and the Standards conflict, follow the stricter rule. The Code is the floor when local law is weaker.
- I(A) requires dissociation, not external reporting: escalate internally, refuse to sign, and resign if needed. Whistleblowing to regulators is permitted but not required.
- I(B) restricts only gifts that reasonably could compromise objectivity. Modest items pass; lavish or conditional third-party gifts do not.
Exam shortcut
For Standard I sub-standard identification, use the order Law, Independence, Misrepresentation, Misconduct, Competence (LIMMC). For I(A), the required action is dissociate, not report. For I(B) gifts, ask the reasonable observer test: could this compromise objectivity? If yes, decline or escalate. For I(C), remember that omission counts equally with false statement.
The full lesson (about 3,762 words, 25 min read) adds 5 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- standard I professionalism
Browse all free CFA Level I lessons or jump into free CFA Level I practice questions.