Page 34 - FINAL CFA II SLIDES JUNE 2019 DAY 1

READINGS 1 AND 2: CFA INSTITUTE CODE OF ETHICS AND STANDARDS OF
MODULE 2.7: PROFESSIONAL CONDUCT GUIDANCE FOR STANDARDS I–VII
STANDARDS IV(A), IV(B), AND IV(C)
IV(C) Responsibilities of Supervisors.

Guidance: Must make reasonable efforts to prevent employees from violating laws, rules, regulations, or the Code and Standards, as well as make
reasonable efforts to detect violations.

Compliance Procedures: Must meet industry standards, regulatory requirements, and the requirements of the Code and Standards. Members with
supervisory responsibilities have an obligation to bring an inadequate compliance system to the attention of firm’s management and recommend
corrective action. While investigating a possible breach of compliance procedures, it is appropriate to limit the suspected employee’s activities. A
member or candidate faced with no compliance procedures or with procedures he believes are inadequate must decline supervisory responsibility in
writing until adequate procedures are adopted by the firm.
Recommended Procedures for Compliance
1
Recommend that your employer adopt a code of ethics. Employers should not commingle compliance procedures with the firm’s code of ethics—this can
dilute the goal of reinforcing one’s ethical obligations. Provide details to clients. Adequate compliance procedures should:
1. Be clearly written;
2. Be easy to understand;
3. Designate a compliance officer with authority clearly defined;
4. Have a system of checks and balances;
5. Outline the scope of procedures;
6. Outline what conduct is permitted;
7. Contain procedures for reporting violations and sanctions;
8. Structure incentives so that unethical behavior is not rewarded.

Once the compliance program is instituted, the supervisor should:
1) Distribute it to the proper personnel;
2) Update it as needed;
3) Continually educate staff regarding procedures;
4) Issue reminders as necessary;
5) Require professional conduct evaluations;
6) Review employee actions to monitor compliance and identify violations;
7) Enforce procedures once a violation occurs;
8) Review procedures and identify any changes needed to prevent violations in the future; 9) If there is a violation, respond promptly and conduct a thorough
investigation while increasing supervision or placing limitations on the wrongdoer’s activities.