- Global Frameworks: CFA Institute Code of Ethics and Standards of Professional Conduct, IESBA (International Ethics Standards Board for Accountants) Code.
1. Integrity of Capital Markets: Insider Trading
Financial professionals must maintain market integrity by preventing the misuse of material non-public information.
- Material Information: Information is material if its disclosure would likely affect the price of a security, or if a reasonable investor would want to know it before making an investment decision.
- Non-Public Information: Information that has not been disseminated to the broader marketplace through public regulatory channels or news releases.
- The Prohibition: Trading on, or tipping others with, material non-public information violates both global ethics codes and statutory laws (e.g., US SEC Rule 10b-5), as it undermines investor confidence in fair capital markets.
2. Duties to Clients vs. Duties to Employers
- Fiduciary Duty / Suitability: Financial advisors and managers owe a primary fiduciary duty to their clients, placing client interests above their own or their firm’s. Under the Prudent Investor Rule, managers must ensure investments are suitable for a client’s specific risk profile, financial constraints, and investment objectives.
- Conflicts of Interest: Professionals must fully and cleanly disclose any structural factors that could compromise their independence or objectivity (e.g., referral fees, personal stock ownership, or corporate underwriting relationships with an investee firm).
3. Whistleblower Protection Mandates
Modern ethical frameworks require institutions to provide safe, anonymous channels for employees to report corporate misconduct or financial fraud. Under frameworks like the US Dodd-Frank Act and the EU Whistleblower Directive, whistleblowers are legally protected from retaliation (e.g., wrongful termination or harassment) and may be eligible for financial rewards if their disclosures lead to successful enforcement actions.
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