CFA Level I · CFA Level I Exam

Application of the Code and Standards: Level I: formula sheet

Full chapter guide

Key formulas

Seven Standards map: 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 Candidate; Memorise the order and the theme of each. Most cases can be placed under one heading in seconds.
Handbook layout for each Standard: Standard text → Guidance → Recommended procedures for compliance → Application examples; Use this to remember that guidance explains the rule, procedures are suggestions, and examples are illustrations.
Law versus Standards rule: Where applicable law and the Standards differ, follow the stricter one; If the law is stricter, follow the law. If the Standards are stricter, follow the Standards. Standard I(A) deals with this.
Where the rules sit: Code of Ethics + Standards of Professional Conduct = the rules; Handbook = explanation of how to apply them; Recommended procedures are good practice, not extra Standards in themselves.
Stricter rule: If law and Standards conflict → follow the stricter; Applies under Standard I(A). Compare the two and pick the one that demands more of you.
Law silent or weak: No local law → Code and Standards still apply; The Standards set a minimum ethical level even where no securities law exists.
Law stricter: Local law stricter than Standards → follow the law; Do not use the Standards as an excuse to do less than the law requires.
Violation by others: Know of a violation → dissociate from it; Dissociation is required and may mean ceasing to participate in the activity if the firm will not stop it. Reporting is encouraged but not required by Standard I(A), though the law may require it. Consulting counsel or compliance is a recommended action.
No applicable law: No securities laws in the country → members and candidates must still adhere to the Code and Standards; Missing law never removes the duty. The Standards become the governing rule.
Law stricter than the Standards: Law stricter than Standards → follow the law; Handbook guidance on applicable law: follow the stricter of the law or the Code and Standards. I(A) text itself covers conflicts between laws.
Standards stricter than the law: Standards stricter than local law → follow the Standards; Complying with the law alone is not enough if the Standards demand more.
Violation of law: Know of a violation → you must dissociate from it; reporting to authorities is permitted but not required by the Standards; Under Standard I(A) guidance, you must dissociate from the activity. Dissociation can mean ceasing to participate and, where appropriate, reporting the matter to your supervisor or compliance. The Standards do not require you to report to authorities, though you may choose to. Local law or employer policy may require it.

Quick revision

The Code of Ethics and Standards of Professional Conduct apply to CFA members and candidates.
There are seven Standards, each with sub-parts, so cite the exact one, for example II(A).
If law and the Standards differ, follow the stricter of the two.
Know the applicable law, do not knowingly take part or assist in a violation by others, and dissociate from any violation you know of.
Where no securities laws exist, members and candidates must still comply with the Code and Standards.
Read the facts first, then name the Standard, then test every option.
Compliance means your action matches the Standard, not just that it seems fair.
Options are A, B, C only, so eliminate two and pick the remaining one.
There is no penalty for a wrong answer, so never leave a question blank.
Do not rely on memory of cases; rely on the wording of the Standard.
Watch for qualifiers in the facts such as material, nonpublic, client, and employer.

Common mistakes

Treating the Handbook as a list of facts to memorise word for word. Fix: Learn the duty behind each Standard and practise applying it to short cases. Keep the official wording for the key phrases only.
Studying from an older edition of the Handbook or outdated notes. Fix: Use the edition and curriculum readings assigned for your exam window. Check any third-party notes against the current text.
Thinking local law always overrides the Standards. Fix: Local law wins only when it is stricter. If the Standards ask for more, follow the Standards.
Thinking the Standards always override local law. Fix: The rule is the stricter of the two. Sometimes that is the law.
Thinking no law means no duty Fix: Remember the Standards bind you as a member or candidate regardless of local law.
Choosing the law whenever the two differ Fix: Choose the stricter of the law and the Standards. Sometimes that is the Standards.

Exam tips

Know the seven Standards by number and theme so you can place any case at once.
Expect three-option questions that ask for the compliant action or the violation, so practise short case drills rather than reading only.
Check which Handbook edition and curriculum your exam window uses, and study from that material.
When two options look compliant, choose the one that better protects clients and market integrity and is more transparent.
Remember the stricter-rule principle for law versus Standards; it is a frequent basis for elimination.
Expect stems set in a named foreign country. The answer almost always turns on which rule is stricter.
Reject options that say one source always wins. Correct answers say the stricter one governs.
If a stem describes a colleague's or client's violation, favour dissociation over silence or continued participation. Involving compliance or counsel is a recommended action, but dissociation is the requirement.