Topic 2: ESG. Regulation and Ethics
2.1 Code of conduct
The CFA Institute Asset Manager Code outlines the ethical and professional responsibilities of
firms (“Managers”) that manage assets on behalf of clients. Managers must:
1. Act in a professional and ethical manner at all times.
2. Act for the benefit of clients.
3. Act with independence and objectivity.
4. Act with skill, competence, and diligence.
5. Communicate with clients in a timely and accurate manner.
6. Uphold the applicable rules governing capital markets.
The Code does not require firms to include a claim of compliance on marketing materials. If the
firm claims compliance with the GIPS standards and the Code, the firm is not required to
include a claim of Code compliance on GIPS-compliant performance.
2.1.1 Loyalty to clients
Managers should;
1- Place client interests before their own
2- Preserve the confidentiality of information communicated by clients within the scope of
the Manager–client relationship
, 3- Refuse to participate in any business relationship or accept any gift that could
reasonably be expected to affect their independence, objectivity, or loyalty to clients
2.1.2 Investment process and actions
Managers should;
1- Use reasonable care and prudent judgment when managing client assets
2- Not engage in practices designed to distort prices or artificially inflate trading volume
with the intent to mislead market participants
3- Deal fairly and objectively with all clients when providing investment information,
making investment recommendations, or taking investment action
4- Have a reasonable and adequate basis for investment decisions
2.1.3 Trading
Managers should;
1- Not act or cause others to act on material nonpublic information that could affect the
value of a publicly traded investment
2- Give priority to investments made on behalf of the client over those that benefit the
Managers' own interests
, 3- Use commissions generated from client trades to pay for only investment related
products or services that directly assist the Manager in its investment decision-making
process, and not in the management of the firm
4- Maximize client portfolio value by seeking best execution for all client transactions
5- Establish policies to ensure fair and equitable trade allocation among client accounts
2.2 Financial market regulation
The primary regulators for entities and individuals engaged in the securities and investment-
related activities in the US are the Securities and Exchange Commission (SEC), Financial Industry
Regulatory Authority (FINRA), state securities agencies, the US Commodity Futures Trading
Commission (CFTC), and the National Futures Association (NFA).
The SEC oversees the key participants in the US securities markets, including securities
exchanges, securities brokers and dealers, investment advisers, and mutual funds. As the primary
overseer and regulator of the US securities markets, the SEC’s responsibilities include: protecting
investors; maintaining fair, orderly, and efficient markets; and facilitating capital formation.
The SEC disclosure regime includes principles-based disclosure requirements, which are intended
to provide investors with the material information they need about companies and their
securities offerings to make informed investment decisions.
• Financial Industry Regulatory Authority (FINRA): Overseen by the SEC, FINRA is a
nongovernmental, self-regulatory organization (SRO) that supervises and regulates the
broker-dealer industry to ensure that it operates fairly and honestly, including writing and
2.1 Code of conduct
The CFA Institute Asset Manager Code outlines the ethical and professional responsibilities of
firms (“Managers”) that manage assets on behalf of clients. Managers must:
1. Act in a professional and ethical manner at all times.
2. Act for the benefit of clients.
3. Act with independence and objectivity.
4. Act with skill, competence, and diligence.
5. Communicate with clients in a timely and accurate manner.
6. Uphold the applicable rules governing capital markets.
The Code does not require firms to include a claim of compliance on marketing materials. If the
firm claims compliance with the GIPS standards and the Code, the firm is not required to
include a claim of Code compliance on GIPS-compliant performance.
2.1.1 Loyalty to clients
Managers should;
1- Place client interests before their own
2- Preserve the confidentiality of information communicated by clients within the scope of
the Manager–client relationship
, 3- Refuse to participate in any business relationship or accept any gift that could
reasonably be expected to affect their independence, objectivity, or loyalty to clients
2.1.2 Investment process and actions
Managers should;
1- Use reasonable care and prudent judgment when managing client assets
2- Not engage in practices designed to distort prices or artificially inflate trading volume
with the intent to mislead market participants
3- Deal fairly and objectively with all clients when providing investment information,
making investment recommendations, or taking investment action
4- Have a reasonable and adequate basis for investment decisions
2.1.3 Trading
Managers should;
1- Not act or cause others to act on material nonpublic information that could affect the
value of a publicly traded investment
2- Give priority to investments made on behalf of the client over those that benefit the
Managers' own interests
, 3- Use commissions generated from client trades to pay for only investment related
products or services that directly assist the Manager in its investment decision-making
process, and not in the management of the firm
4- Maximize client portfolio value by seeking best execution for all client transactions
5- Establish policies to ensure fair and equitable trade allocation among client accounts
2.2 Financial market regulation
The primary regulators for entities and individuals engaged in the securities and investment-
related activities in the US are the Securities and Exchange Commission (SEC), Financial Industry
Regulatory Authority (FINRA), state securities agencies, the US Commodity Futures Trading
Commission (CFTC), and the National Futures Association (NFA).
The SEC oversees the key participants in the US securities markets, including securities
exchanges, securities brokers and dealers, investment advisers, and mutual funds. As the primary
overseer and regulator of the US securities markets, the SEC’s responsibilities include: protecting
investors; maintaining fair, orderly, and efficient markets; and facilitating capital formation.
The SEC disclosure regime includes principles-based disclosure requirements, which are intended
to provide investors with the material information they need about companies and their
securities offerings to make informed investment decisions.
• Financial Industry Regulatory Authority (FINRA): Overseen by the SEC, FINRA is a
nongovernmental, self-regulatory organization (SRO) that supervises and regulates the
broker-dealer industry to ensure that it operates fairly and honestly, including writing and
