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| The government of a developing country published a Request for Proposal (RFP) for the development of policies to improve the business conduct of its capital markets licensees with the hope of improving confidence levels among investors.Kingfisher Financial Development Partners responded with a detailed proposal including the following justifications for why the firm should win the tender: Justification 1: With a team of three CFA charterholders, Kingfisher is more qualified than our competitors to design policies to uphold and enhance capital market integrity. Justification 2: Each team member must annually renew his or her commitment to abide by the CFA Institute Code of Ethics and Standards of Professional Conduct. Justification 3: In addition, every team member passed the CFA exams on the first try.Later, Kingfisher was notified that it won the tender. Kingfisher’s team consists of team leader Khalid Juma, CFA, and his two associates, Vimal Bachu, CFA, and Anila Patel, CFA. Kingfisher and the government agree the first step to improve market integrity is to create an industrywide Code of Conduct based on the CFA Institute Code of Ethics and Standards of Professional Conduct. Although the Code and Standards are not adopted in full, the decision is made to concentrate on four main areas: Professionalism, Capital Market Integrity, Duties to Clients, and Investment Recommendations.The Kingfisher team subsequently drafts the following policy statements:Levels of ProfessionalismFinancial services professionals must act in a professional manner at all times to help protect the integrity of the country’s capital markets. As such, financial services professionals must ensure they meet, at a minimum, three major requirements. Professionals must: (1) disclose all conflicts of interest; (2) selectively differentiate services to clients; and (3) outline all manager compensation arrangements for clients.Capital Market IntegrityFinancial services professionals must protect the integrity of the capital markets by ensuring that any insider information obtained is managed in such a way as to prevent the general investing public from being disadvantaged. In addition, no financial services professional can knowingly participate in any activity devised to mislead investors or distort any price-setting mechanism.Duties to ClientsClients’ interests must come before those of the financial services firm and/or its staff. To ensure clients’ interests are protected, all portfolios must be invested according to each client’s investment plan and must be well diversified across all asset classes available. Furthermore, fund managers must annually review client needs and objectives and rebalance portfolios if required.Investment RecommendationsAll investment recommendations should be made after extensive research undertaken by or on behalf of the firm. In addition, each research report must Requirement 1: be reviewed by peers as soon as practical to ensure that adequate basis and due diligence policies were followed; Requirement 2: be assessed to determine the quality of the recommendation over time; and Requirement 3: name only those team members who took part in the research and agreed with the recommendation.The Kingfisher team and the government committee meet to agree on the draft Code. Members of the government committee suggest an additional policy: “Each financial services firm must have a compliance supervisor to ensure that: Task 1: systems are in place to detect violations of laws, rules, regulations, firm policies, and the industrywide Code of Conduct and to enforce investment–related compliance policies; Task 2: the firm has adequate documented compliance policies and procedures; it trains all personnel on the same and makes sure the policies and procedures are followed; and Task 3: inadequate procedures are identified and recommendations to correct inadequate procedures are submitted to senior management for approval and implementation.” |
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