CFA Institute’s Code of Ethics and Standards of Professional Conduct codify the ethical guidelines for the investment profession that are critical to maintaining the integrity of capital markets and investor trust. Members, candidates, and even firms make a commitment to uphold these standards as they help elevate ethical decision-making universally around the globe.
As investment professionals, we are certain to face important ethical decisions in our day-to-day activities. Some scenarios we encounter will be straightforward, while others may be more complex. No matter what circumstances we face, continuous learning remains imperative in an investment industry that continues to evolve with products undergoing innovation and a regulatory environment continuing to adapt.
For that reason, each week we will feature a sample case from CFA Institute’s Ethics in Practice Casebook. Each case is built upon a real-life example that may involve a regulatory matter or even a CFA Institute Professional Conduct investigation. At the end of the case is a multiple-choice question that addresses the ethical nature of the actions taken in that case.
This week’s case involves Standard I(A) Knowledge of the Law.
Just Protecting Client’s Assets.
Mary Mwangi’s firm offered its clients several different insurance products. Three of Mwangi’s clients initially purchased one type of product (Class A), but later changed their mind and asked to swap the product for another, less expensive type (Class B). To complete the transaction, the law required the clients to execute new sale and purchase documents for the Class B product. The clients wanted to sign the necessary documents at the time they met with Mwangi to switch to Class B, but the documents were not ready. Mwangi advised her clients to wait until all of the paperwork was complete. But when the time came to complete the transaction, Mwangi was unsuccessful in reaching the clients for their signatures. Without the signatures, Mwangi’s firm threatened to cancel the swap, which because of other investment purchases, would have placed the clients’ accounts into an overdraft position. Under the firm’s policies, such shortfalls were to be covered by selling account assets once the debit had been outstanding for two weeks. To keep this from happening, Mwangi forged the clients’ signatures on the necessary documents to put the swap into effect. Mwangi’s actions were
A. unacceptable.
B. acceptable because the clients had already given their permission for the swap.
C. acceptable with approval from her supervisor.
D. acceptable if the clients gave her explicit permission to sign the documents on their behalf.
What do you think is the correct choice? Feel free to discuss in the comments below and make sure to check back later this week as we post the analysis. The completion of this case qualifies for 0.25 hour of Standards, Ethics, and Regulation (SER) credit.
[Update – 6/11/2020]
Welcome back! Here is the analysis of this case:
Analysis:
This case involves Standard I(A): Knowledge of the Law, which requires CFA Institute members to “comply with all applicable laws, rules, and regulations...governing their professional activities.” To complete the swap from the Class A to the Class B product, Mwangi’s clients were legally required to execute new sale and purchase documents, which did not happen because Mwangi forged their signatures. General approval of the transaction by the clients is insufficient to meet the legal requirement for client signatures. Obviously, approval of a supervisor to engage in illegal activities does not relieve Mwangi of her obligation to follow the law. Finally, even if the clients fully understand the circumstances and explicitly approve of Mwangi signing the forms on their behalf, the law requires that actual signatures of the clients must be on the documents. While the intent of the law is meant to protect the clients and the clients are waiving their rights, that still does not allow Mwangi to circumvent the legal requirements. The best response is A.
This case is based on a disciplinary action by the CFA Institute Professional Conduct Program. Before this incident, the member had an unblemished career in financial services for more than 15 years. The firm confronted the member about the forgeries and she readily admitted what she had done. The member was terminated by her employer for cause and they reported her to the regulatory body. The regulator determined that the member had engaged in conduct unbecoming or detrimental to the public interest and in violation of the regulatory body’s member rules. She was suspended, fined, and re-take an exam. CFA Institute investigated and imposed a Nine-Month Suspension on the member for violation of Standard I(A): Knowledge of the Law and Standard I(C): Misrepresentation.
Image by mohamed Hassan from Pixabay
© 2018 CFA Institute. All rights reserved. You may copy and distribute this content, without modification and for non-commercial purposes, provided you attribute the content to CFA Institute and retain this copyright notice. This case was written as a basis for discussion and is not prescriptive of how a business situation or professional conduct matter should or should not be handled or addressed. Certain characters mentioned are fictional to facilitate discussion, and any resemblance to actual persons is coincidental.
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