What does Standard I (Professionalism) actually require? How does Knowledge of the Law work in practice?

Question

AcadiFi · Accepted Answer

Standard I covers the foundational professionalism requirements for CFA charterholders and candidates. It has four sub-standards:

**Standard I(A) — Knowledge of the Law:**
You must understand and comply with all applicable laws, regulations, and the CFA Institute Code and Standards. When there's a conflict:

```mermaid
flowchart TD
    A[Conflict Between Laws?]
    A -->|Local law vs. CFA Standards| B{Which is stricter?}
    B -->|CFA Standards| C[Follow CFA Standards]
    B -->|Local Law| D[Follow Local Law]
    A -->|Firm policy vs. Law| E{Which is stricter?}
    E -->|Firm Policy| F[Follow Firm Policy]
    E -->|Law| G[Follow Law]
    H[Rule: Always follow the STRICTER requirement]
```

**The key rule:** Always follow the **more strict** requirement. If local law allows insider trading (hypothetically) but CFA Standards prohibit it, follow the CFA Standards. If local law is stricter than CFA Standards, follow local law.

**What to do when you discover a violation:**
1. Report it through internal channels (compliance, supervisor)
2. If the firm fails to act, consider dissociating from the activity
3. You are NOT required to report to regulatory authorities (though you may choose to)
4. Document your actions

**Standard I(B) — Independence and Objectivity:**
Don't let gifts, compensation, or relationships bias your professional judgment. A client offering you a luxury vacation to write a favorable report? Decline or disclose.

**Standard I(C) — Misrepresentation:**
Never misstate credentials, performance, or analysis. This includes plagiarism — always attribute the work of others.

**Standard I(D) — Misconduct:**
Don't engage in any professional conduct involving dishonesty, fraud, or deceit. This also covers personal behavior that reflects poorly on professional competence (e.g., conviction for fraud, even outside work hours).

**Practical Example:**
Adriana works at a brokerage in a country where front-running client orders is technically legal. The CFA Code prohibits it. Adriana must follow the CFA Standard (stricter) and NOT front-run, regardless of local law.

**Exam tip:** Ethics questions on the CFA exam are scenario-based. The key is identifying the specific sub-standard being violated. When in doubt, the answer that involves the strictest ethical requirement is usually correct.

Explore our CFA Level I Ethics course for more scenario-based practice.

What does Standard I (Professionalism) actually require? How does Knowledge of the Law work in practice?

Master Level I with our CFA Course

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