Ethical and Professional Standards
Guidance for Standards I–VII
Standard I:
Professionalism
1
Guidance for Standards I–VII
Standard I(A): Knowledge of the Law
Understand and comply with all laws, rules, and regulations
(including Code and Standards) of any government,
regulatory agency, or association governing professional
activities
Comply with more strict law, rule, and regulation
Do not knowingly assist in violation—otherwise, dissociate
from activity
© Kaplan, Inc. 3
Guidance for Standards I–VII
Standard I(A): Knowledge of the Law
Guidance
Most strict
First, notify supervisor or compliance
May confront wrongdoer directly
Dissociate if necessary
Inaction may be construed as participation
No requirement to report violations to governmental
authorities, may be appropriate in certain cases
© Kaplan, Inc. 4
2
Guidance for Standards I–VII
Standard I(A): Knowledge of the Law
Recommended procedures
Keep informed, regularly review written compliance
procedures, maintain files
Seek compliance/legal advice as needed
Encourage firms to adopt code of ethics
© Kaplan, Inc. 5
Guidance for Standards I–VII
Standard I(A): Knowledge of the Law
Recommended procedures
Distribute information internally on applicable laws
and regulations
Have written procedures for reporting suspected
violations
Members strongly encouraged to report violations
by other members
© Kaplan, Inc. 6
3
Guidance for Standards I–VII
Standard I(B): Independence and Objectivity
Use reasonable care and judgment to achieve and
maintain independence in professional activities
Do not offer, solicit, or accept any compensation that could
compromise independence or objectivity
© Kaplan, Inc. 7
Guidance for Standards I–VII
Standard I(B): Independence and Objectivity
Guidance
Modest gifts okay
Distinguish between gifts from clients and gifts from
entities trying to influence a member’s behavior
May accept gift from clients—disclose to employer—get
permission if for future performance
© Kaplan, Inc. 8
4
Guidance for Standards I–VII
Standard I(B): Independence and Objectivity
Guidance
Members responsible for hiring outside managers
should not accept travel, gifts, or entertainment that
could impair their objectivity
Investment banking relationships—do not bow to
pressure to issue favorable research
For issuer-paid research, flat fee structure is preferred;
must disclose
© Kaplan, Inc. 9
Guidance for Standards I–VII
Standard I(B): Independence and Objectivity
Guidance
Members working for credit rating firms should avoid
influence by issuing firms
Users of credit ratings should be aware of this potential
conflict
Best practice is for analysts to pay for their own commercial
travel to firms being analyzed or to firm events
© Kaplan, Inc. 10
5
Guidance for Standards I–VII
Standard I(B): Independence and Objectivity
Recommended procedures
Protect integrity of opinions—reports should reflect
unbiased opinion
Create a restricted list
Restrict special cost arrangements
Limit gifts; clear value limits by firm
Be careful with IPO share allocations
© Kaplan, Inc. 11