UK Regulation & Ethics Flashcards

What are the key obligations under the CFA Institute Standard on 'Disclosure of Conflicts'?

Answer: Making full and fair disclosure of all matters that could reasonably be expected to impair independence and objectivity, or interfere with duties to clients or employers

Standard VI(A) requires disclosure of actual and potential conflicts of interest to clients and prospective clients (and employers where relevant). Disclosure enables clients to assess the objectivity of advice received and make informed decisions. The standard of disclosure is what a reasonable investor would want to know.

What is 'churning' in investment management ethics?

Answer: Excessive trading in a client's account that is not in the client's best interests, undertaken to generate commissions for the manager

Churning refers to excessive, unnecessary trading in a client's account primarily to generate commissions or fees for the manager rather than to benefit the client. It breaches fiduciary duty (loyalty, prudence, care) and fair dealing standards.

What does the CFA Institute Standard on 'Performance Presentation' require?

Answer: Presenting investment performance in a fair, accurate, and complete manner that does not mislead clients

Standard III(D) requires that performance presentation be fair, accurate, and complete. This includes not cherry-picking favourable time periods, not selectively presenting the best accounts, ensuring composites are representative, and maintaining records supporting all claims. GIPS compliance is encouraged.

What is the purpose of the Global Investment Performance Standards (GIPS)?

Answer: To provide a consistent, ethical framework for calculating and presenting investment performance that allows fair comparability across firms and geographies

GIPS, established by the CFA Institute, provides a voluntary set of standards for calculating and presenting investment performance. Compliance enables investors to compare performance across managers fairly and trust that performance data is not manipulated.

What is 'whistleblowing' protection in UK financial services?

Answer: Legal protections for employees who report regulatory breaches or wrongdoing within their firm, preventing retaliation, and encouraging reporting of concerns

UK law (the Employment Rights Act and FCA rules) protects employees ('whistleblowers') who make protected disclosures about regulatory breaches, financial crime, or other wrongdoing from dismissal and detriment. The FCA also has a whistleblowing scheme and requires certain firms to appoint a 'whistleblowers' champion'.

What is the CFA Institute Standard on 'Preservation of Confidentiality'?

Answer: Members must keep client information confidential unless disclosure is legally required, the client permits disclosure, or it is necessary to prevent illegal activity

Standard III(E) requires members to keep information about current, former, and prospective clients confidential unless disclosure is legally required, the client consents, or the information concerns illegal client activity (where reporting may be required). The duty continues after the client relationship ends.