CFA Standards in Practice

At New Frontiers Learning Centre, I offer Ethics classes for CFA Level 1 and Level 2 students and they often ask what are the CFA Institute’s standards I practice in my industry (as a Credit / Research analyst).

When I worked in a credit rating company in India and Nigeria, there were many policies that a rating analyst must follow, including the company’s compliance policies and the laws governing professional activities. But the important standards which come to my mind and that which we practiced in our day-to-day activities as rating/research analysts were –

·??????Strict policy against plagiarism.

In simple terms, plagiarism is copying someone else works and presenting it as your own, without acknowledging the source.

CFA Standard I (C) – Misrepresentation – that states Members and Candidates must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities.

Misrepresentation through plagiarism is a violation of this standard.

·??????A rating report should reflect an unbiased opinion on a particular company’s creditworthiness, supported by appropriate research and investigations. It means an analyst should conduct the analysis and make the recommendation based on his or her own view without compromising his/her independence and objectivity. Also, the report must have a reasonable basis for the recommendations supported by thorough research.

Standard I(B) – Independence and Objectivity – Members and Candidates must not offer, solicit, or accept any gift, benefit, compensation, or consideration that reasonably could be expected to compromise their own or another’s independence and objectivity.

Standard V(A) – Diligence and Reasonable Basis - Members and Candidates must:

• Exercise diligence, independence, and thoroughness in analyzing investments, making investment recommendations, and taking investment actions.
• Have a reasonable and adequate basis, supported by appropriate research and investigation, for any investment analysis, recommendation, or action.

·??????Preserving Confidential Client information – as rating analysts, we would receive a lot of confidential information from the client, it is very important to protect the confidentiality of clients’ information.?The information includes (but is not limited to) - profit and loss statements, balance sheets, forecasts, company strategy, top clients, suppliers, subsidiaries, and other company-related information.

This comes under Standard III (E)- Preservation of Confidentiality - Members and Candidates must keep information about current, former, and prospective clients confidential unless –

·??????The information concerns illegal activities on the part of the client;

·??????Disclosure is required by law; or

·??????The client or prospective client permits disclosure of the information.

·??????Record Retention – This is an important activity for an analyst in any industry. In our company, we were asked to store the supporting documents physical (in a file room) as well as in an electronic format (company server).

Standard V(C) Record Retention - Members and Candidates must develop and maintain appropriate records to support their investment analyses, recommendations, actions, and other investment-related communications with clients and prospective clients.

These are some of the standards which come to my mind as a rating/research analyst - How about you? What standards do you follow in your company?