Members and Candidates must make reasonable efforts to ensure that anyone subject to their supervision or authority complies with applicable laws, rules, regulations, and the Code and Standards.
The minimum duty is to make reasonable efforts to prevent and detect violations by establishing effective compliance procedures. These should include adopting a code of ethics, compliance policies and procedures, education and training, incentive structures that reward ethical behavior, and and adopting firm-wide best practices standards.
Supervisory responsibility may be delegated, provided delegates are instructed about methods to promote compliance, including preventing and detecting violations.
Compliance procedures should be developed prior to violations taking place. Once established, supervisors must make reasonable efforts to ensure that they are enforced and take steps to ensure that any violations will not be repeated.
Companies should produce stand-alone codes of ethics that outline fiduciary responsibilities in general terms. These should be kept distinct from detailed compliance procedures to reinforce the need to act with integrity at all times.
Adequate compliance procedures are clearly written, accessible, and easy to understand. They should be widely disseminated, kept up-to-date, and enforced. Once violations are detected supervisors should conduct a thorough investigation, increase supervision, and review the potential need for changes in procedures.
Training should be provided on a regular basis. Incentives should be aligned with ethical behavior.
The CFA Institute Standards of Practice Handbook provides several examples of potential violations of supervisory responsibility.
- failing to establish effective policies
- failing to detect the use of material non-public information
- failing to detect excessive trading in client accounts
- attempting to silence a whistleblower
- failure to monitor social media
- failing to follow a firm’s established procedures