CFA L1 / Ethics / M5. Application
Module 5 · Ethics & Professional Standards

Ethics Application

EN: Common exam scenarios mapped to Standards. Ethics is 15-20% of the exam — read scenarios carefully.
VN: Tình huống thường gặp trong đề thi và Standard tương ứng.

Common Scenarios & Likely Standard Violated Concept

  • Insider info Trading on info from a friend at the company → II(A) MNPI.
  • Pumping a stock on TV → II(B) Market Manipulation.
  • Lavish gift from broker Could compromise objectivity → I(B). Modest, customary OK.
  • Front-running Personal trade ahead of client trade → III(A) Loyalty/Prudence + VI(B) Priority.
  • "Best ever" return claim → I(C) Misrepresentation; III(D) Performance Presentation.
  • Side business without disclosure → IV(A) Loyalty to Employer.
  • Issuing report w/o adequate research → V(A) Diligence.
  • Failing to disclose referral arrangement → VI(C) Referral Fees.
  • Using "CFA®" as a noun → VII(B). Correct: "John Doe, CFA" or "I am a CFA charterholder".
  • Disclosing exam questions → VII(A) Conduct as Member/Candidate.

Test-Taking Tips Concept

  • Most likely violated Some answers may seem partially correct — pick the MOST direct violation.
  • Disclosure resolves Many conflicts are acceptable IF disclosed and consent obtained.
  • Best practice ≠ violation Distinguish required (must) from recommended (should).
  • Read carefully "What did Smith do wrong?" vs "Was Smith's action a violation?" require different analysis.
  • "Dissociate" When facing a violation by colleague/firm, dissociate (refuse to be linked) — not necessarily resign immediately.

Practice problem Practice

Practice problem

An analyst attends a private dinner where a CEO mentions, in confidence, that the company's quarterly earnings beat will be 30% — a major surprise. What should the analyst do?

Show solution
Information is material (large earnings surprise) and nonpublic.
Trading on it or sharing with clients = Standard II(A) violation.
Encourage CEO to disclose publicly; if not, do not act on the information.
Do not trade and do not share. Encourage public disclosure; document the encounter.