Ethics - Qbank #9

I know this question has been discussed before, i still have one doubt… :frowning: Jason Blackwell, CFA, works as an investment manager for Mega Capital, a large multinational brokerage firm. He resides in a country whose applicable law is stricter than the Code and Standards but does business with clients in a country whose applicable law is less strict than the Code and Standards. Blackwell decides to follow the Code and Standards for clients in the less strict country. While Blackwell is still employed at Mega, Lego Associates verbally asks Blackwell to review client portfolios during evenings and weekends for a fee. Blackwell gets written consent from his immediate supervisor at Mega to undertake this independent activity for a one-month trial basis. Which of the following statements about Blackwell’s actions involving Standard I, Professionalism, and Standard IV(A), Loyalty is most accurate? Blackwell: A) did not violate either Standard I or Standard IV(A). B) violated both Standard I and Standard IV(A). C) violated Standard I but did not violate Standard IV(A). D) did not violate Standard I but violated Standard IV(A). My question is that we are not given which law applies… It could be that MSL states that law of locality where business is done applies… (in that case code of ethics should be used)… Do we assume that if not specified, assume that law of locality is not applicable??

whats the right answer? Seems like A) to me

A seemd right to me. He uses the Code and Standards since the law is less strict. And he asks his employers consent before doing work for Lego.

C. Got to use the most strict which in the question is residing country law. Not good enough to simply follow the code (which we’ve been told is weaker). Asked and received employers permission. Not going to affect his customers so ok.

This question should also specify (generally contracts do) the laws of which country govern the contract, but these laws are generally the laws of the country where business takes place. If that is the case, then the answer must be A (for laws less strict than the Code, follow the Code). If the laws of the country where the analyst resides governs the contract, then the answer must be C, as the stricter than Code laws should be followed. The stricter of the laws is not always the right answer.

Correct Answer is C. But i dont understand which law will apply to the contract as they haven’t explicitly stated. What should be do in such cases?

If I were you I would write to the third party providing this question, signaling the question as incomplete. There are plenty of examples in the Code and Standard that contradict the solution given above ©, but the table in the CFAi text specifies always the applicable law, or further details (like say the applicable laws are those of the country with more strict laws, but in the same time it states that the laws of the place where business is conducted govern). You would probably get 1 question on applicable law in the exam, but better be safe than remember this incomplete example as a rule for further problems.

Its not a case of which law applies to the contract. To be ethically ok you must follow the strictest. Instead of writing to Schweser or whoever I suggest you re-read the ethics section. I’ve seen questions like that in CFA books / exams. It is specifically stated in the code that if you are a CFA charterholder or candidate who resides in country A and does business in country B you must follow the most strict of the code and the law of country A or country B (assuming that they are NOT mutually exclusive – no evidence of that here). The Question is therefore fine as is. Answer is C. Learn the above and if (when) it comes up in the exam consider yourself lucky you’ve got such an easy one. Say I’m based in the USA and we have rules prohibiting insider trading. By being a CFA charterholder or candidate I can’t do insider trading in any country. This includes foreign ones where my legality is not goverened by USA law but by local law. This gets easier with time.

Totally disagree. It all depends on what laws apply under the agreement for service, and what the applicable law under the agreement states about the applicable law under such an agreement. Check Volume I CAFi text, reading 2, page 20-21. The stricter laws is not always the correct answer. Generally, if applicable law is stricter than the code, adhere to the stricter laws. If applicable law is less strict than the code, adhere to the code. And that’s about it. If you are free to trade on insider information in (say) Cayman Islands (supposing they have laws less strict than the Code), for a Cayman Island citizen, and the agreement between the 2 of you states that the law of the country of which your Client is from apply, you will not do it because you are bounded by the Code, not by the US Laws (albeit the US Laws interdict it too, and the Cayman Island laws permit it).