Level 1 CFA® Exam Ethics, Standards IV (C)
Below we consider a situation in which – being a CFA member or candidate – you become a supervisor, i.e. you assume both power and responsibilities. And not only responsibilities that are naturally involved in the role of the supervisor, such as managing people and being the head of a larger group of employees, but also responsibilities incorporated in the Code and Standards.
In the position of a supervisor, you assume specific responsibilities regulated by Standard IV (C): Responsibilities of Supervisor.
3 Basic Steps to Follow
If you happen to become a supervisor, as a CFA member or candidate you are obliged to carry your supervisory responsibilities in accordance with the Code and Standards. That is why you will need to have an in-depth knowledge of all the provisions of the Code and Standards in order to be able to identify situations of potential violations and to prevent them.
There are 3 steps that every supervisor should follow:
- construct an effective compliance program,
- monitor the effectiveness of the compliance program, and
- enforce this compliance program.
Let’s analyze the three steps bit by bit.
If you want to perform your supervisory duties well, you should construct an effective compliance program that will prevent your employees from violating any relevant laws and regulations. So, you will have to formulate specific and adequate procedures that your employees will have to follow.
What does it mean to formulate adequate procedures?
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What happens, however, when the compliance program is implemented, nevertheless a violation occurs?
Such situations are far from scarce, for sure. Life is too complex and all potential violations and ethical dilemmas cannot be foreseen. That is why, after compliance procedures are established, they should be periodically monitored and evaluated.
If a violation occurs, it may mean that the procedures are insufficient and that there’s a need for restrictions.
When a violation takes place:
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The last step that every supervisor should take is to try to the best of their abilities to enforce the program effectively. As we’ve said, life is a complex experience and various scenarios unfold but it is our duty to do our best to prevent any wrongdoing or misconduct from happening under the circumstances that are known to us at a given moment.
Do your best to prevent any wrongdoing or misconduct from happening based on what you know at a given moment. Do not evade your supervisory responsibilities!
When you follow the three steps we’ve just described, you will remain in compliance with the Code and Standards.
Keep in mind, however, that as a good supervisor, you should perform the supervision both over the employees that are CFA members or candidates and over the employees that do not have this status. While the former should be motivated to act in an ethical manner since they are also obliged to know and obey the Code and Standards, it may be all up to you to make the latter understand the gravity and importance of following the provisions included in the Code and Standards.
Suppose that Jacob, not a CFA member or candidate, violated Standard VI (C) by not disclosing to his client the referral fee he paid for being recommended to the client. Is Jacob in violation of the Code and Standards and/or the company’s compliance policy? What’s the best you can do in such a situation?
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- There are 3 steps that every supervisor should follow: (1) construct an effective compliance program, (2) monitor the effectiveness of the compliance program, and (3) enforce this compliance program.
- A compliance program should be able to effectively prevent employees from violating relevant laws and regulations.
- Effective compliance procedures should, among other things, elaborate on specific conduct allowed in the company.
- It is important what course of action you’ll take when the compliance procedures are violated.
- You should never evade your supervisory responsibilities and always do your best to prevent any wrongdoing or misconduct.
CFA Exam: Responsibilities of Supervisors
Supervision is strictly related to various areas and issues covered by different Standards (I-VI). As a supervisor, your duty will be to prevent and detect violations that may result from a breach of the Code and Standards.
AS A SUPERVISOR:
- have in-depth knowledge of the Code and Standards,
- promote compliance with the Code and Standards (even it is not the standard followed by your company),
- prevent and detect possible violations by establishing effective compliance systems,
- implement a system of checks and balances to maintain adequate compliance procedures,
- exercise the supervisory responsibility over all of your employees, whether or not related to the CFA Program or CFA Institute,
- delegate supervisory duties to subordinates if you oversee large numbers of employees,
- instruct those subordinates about how to promote ethical conduct and prevent and detect violations,
- implement incentives that reward ethical conduct and encourage employees to work to achieve a culture of integrity,
- provide your employees with regular training on compliance procedures and prevention and detection of possible violations,
- encourage your superiors to establish or modify company-wide compliance procedures or incentives, even if you are not in a position of authority to introduce them yourself,
- never excuse yourself from supervisory responsibilities because of the absence or inadequacy of compliance procedures,
- act promptly when a violation occurs to remedy the situation.