Professionalism in NSE; Still a Long Way Off…

Below is the overview of the CFA Institute Standards of Professional Conduct. But for this post, I will restrict myself to the first one, especially in light of the recent unfortunate developments in the Kenyan Capital Markets.

I. Professionalism

II. Integrity of Capital Markets

III. Duties to Clients

IV. Duties to Employers

V. Investment Analysis, Recommendations, and Actions

VI. Conflicts of Interest

VII. Responsibilities as a CFA Institute Member or CFA Candidate

Professionalism cover four key areas, as shown below (extracted verbatim from the CFA Institute Standards of Professional Conduct).

1. PROFESSIONALISM

A. Knowledge of the Law. Members and candidates must understand and comply with all applicable laws, rules, and regulations (including the CFA Institute Code of Ethics and Standards of Professional Conduct) of any government, regulatory organizations, licensing agency, or professional association governing. In the event of conflict, members and candidates must comply with the more strict law, rule or regulation. Members and candidates must not knowingly participate or assist in and must dissociate from any violation of such laws, rules and regulations.

B. Independence and Objectivity. Members and candidates must use reasonable care and judgment to achieve and maintain independence and objectivity in their professional activities. Members and candidates must not offer, solicit, or accept any gift, benefit, compensation, or consideration that reasonably could be expected to compromise their own or another’s independence and objectivity.

C. Misrepresentation. Members and candidates must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities.

D. Misconduct. Members and candidates must not engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that reflects adversely on their professional reputation, integrity, or competence.

By virtue of the fact that those in the investment profession should adhere to the more strict law, blame for the shoddy investment activities should not be put squarely on the CMA, but that should not be taken to mean that CMA is excused. Blame lays squarely on those who did no comply with the laid down Code of Ethics and Standards of Professional Conduct, both of which know no borders. The more strict law was put in place to guard against such cases as we now see in Kenya, and for the benefit of those who do not know of it, it means that in the event where the local laws are nonexistent or lax, members and candidates should abide by the CFA Institute Standards of Professional Conduct, and that in the case where the local laws are more strict that the CFA Institute, Members and Candidates should adhere to the local laws hence the phrase, “the more strict law”. That means that either way, activities such as front running and trading of clients shares where the accounts are not discretionary accounts – very well defined here in InvestorWords.

On the other three topics, I think it is straight forward. Our investment institutions have on many occasions proven that they are not independent and objective, they have misrepresented themselves especially when it came to getting new clients, and misconduct is the reason many have complained, and also the reason I am writing this today.

I hope that this will help you the next time you choose your investment firm. I would implore you to ask them to furnish you with a copy of their Standards of Professional Conduct. That may just save your investments from sinking down the drain.