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 e volve 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 Standards II(A) Material Nonpublic Information and III(E) Misconduct.
Can a Retired Employee Still Access Prior Firm’s Resources and Data?
Mikalev recently retired from his position as the head of mergers and acquisitions at a large international bank. Two weeks into his retirement, he discovered that he still had access to his bank’s online business journal subscription, Bloomberg market data feeds, and online data room, which contains highly sensitive documentation about a client’s upcoming acquisition. Mikalev had been in the very early stage of working on the acquisition when he left the investment bank.
Mikalev enjoys his continued access to the newspaper and Bloomberg and, if he ever considered going back to work in the industry, the information helps him to stay abreast of market trends. Of course, remembering his firm’s annual compliance training, he does not communicate or trade on the information related to the imminent acquisition by his former client. Mikalev’s actions are
A. appropriate as long as he does not trade on the material nonpublic information.
B. inappropriate because he should not have access to material nonpublic information from his firm.
C. inappropriate because he should not access any of the firm’s resources.
D. appropriate, even if he trades on the material nonpublic information, because he is no longer bound by his firm’s standards and compliance policies.
What do you think is the correct choice? Click the “Analysis” button below to see the analysis for this case, and feel free to discuss in the comments below. The completion of this case qualifies for 0.25 hour of Standards, Ethics, and Regulation (SER) credit.
This case relates to duty to employer, confidentiality of client information, and potentially trading on material nonpublic information. Because Mikalev has retired from his position and no longer works for the firm, it would be improper for him to have access to confidential client information. CFA Standard III(E): Confidentiality requires that client information must be kept confidential and shared only under specific circumstances, which are not present in this case. Not trading on the information does not absolve Mikalev of violating the confidentiality standard.
Trading on the client information would not only be a violation of the confidentiality standard but also Standard II(A): Material Nonpublic Information, which prohibits CFA Institute members from trading on material nonpublic information, such as the information related to the client’s planned acquisition. Such action is prohibited regardless of the fact that Mikalev no longer works for the firm.
It is possible that the firm allows employees who have retired to have access to general firm resources, such as journal subscriptions and Bloomberg data that do not include confidential client or material nonpublic information, as “retirement benefit” in gratitude for their past service. But there is no indication from the facts of this case that Mikalev’s firm has given permission or is even aware that he is using firm resources. Without a clear indication of permission by the firm, Mikalev should not use any of the resources, make the firm aware that he mistakenly continues to have access, and proactively request that his access be removed. Answer C is the best choice.
This case is based on facts submitted by an Ethics in Practice reader.
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© 2019 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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