CFA Level I Exam · Guidance for Standard VI: Conflicts of Interest

Stock Ownership and Cross-Departmental Conflicts in CFA Ethics

Updated 7 October 2026 · Fact-checked

Under Standard VI(A), members and candidates must make full and fair disclosure of all matters that could reasonably impair their independence and objectivity or interfere with their duties. Stock ownership in covered companies and pressure between departments, such as investment banking and research, must be disclosed. The Handbook also advises avoiding conflicts where possible. Firewalls help keep research objective.

Understand Conflicts with Stock Ownership and Cross-Departmental Conflicts

Standard VI(A) Disclosure of Conflicts says members and candidates must make full and fair disclosure of all matters that could reasonably be expected to impair their independence and objectivity or interfere with respective duties to their clients, prospective clients, and employer. They must ensure that such disclosures are prominent, are delivered in plain language, and communicate the relevant information effectively.

Note what the standard itself requires: disclosure. The Handbook guidance also advises avoiding conflicts where possible, but avoidance comes from the Handbook, not from the wording of VI(A).

Start with the idea behind it. Clients and employers rely on your advice being objective. If you own the stock you recommend, your personal gain may sway your view. The conflict is not banned. The reader just needs to know about it so they can judge your advice for themselves.

Stock ownership conflicts. When you or your firm hold shares in a company you cover or recommend, disclose the holding. Ownership in covered companies should be disclosed to clients, prospective clients and the employer. A firm may also hold a position in a company it recommends. That too is disclosed. If the holding is large enough that you could not stay objective, disclosure may not be enough and you should avoid the situation. Disclosure is the minimum, not a cure-all.

Cross-departmental conflicts. Inside a firm, departments can pull in different directions. Investment banking earns fees by helping a company raise capital or do deals. Research is supposed to give an honest view of that same company. If bankers pressure analysts for favourable ratings, independence is at risk. The Handbook discusses protecting research from this pressure, for example by keeping research separate from banking and by disclosing the relationship when the firm has been the company's underwriter or adviser.

Firewalls. A firewall is an information barrier or separation between departments. It limits the flow of information and influence, so that the research view is not shaped by banking interests. It supports independence, but it does not replace disclosure. Remember the order of thinking: disclose what could impair objectivity, and tell the right parties in a prominent, plain way. Where you can, also avoid or separate the conflict, as the Handbook advises.

Key formulas to remember

Standard VI(A) core rule: Disclose all matters that could reasonably be expected to impair independence and objectivity or interfere with duties to clients, prospective clients and the employer; The test is what could reasonably be expected to impair objectivity, not what actually did.
Disclosure quality: Disclosure must be prominent, in plain language, and communicate the relevant information effectively; Small print or vague wording fails the standard.
Who receives disclosure: Clients, prospective clients and the employer; Ownership conflicts should be disclosed to all of these parties, not just one.
Disclose and avoid: VI(A) requires disclosure; the Handbook also advises avoiding conflicts where possible; firewalls support but do not replace disclosure; If a conflict is too serious to be managed by disclosure, avoid it.

How to solve Conflicts with Stock Ownership and Cross-Departmental Conflicts questions

Use this method for any Standard VI(A) question on stock ownership or department conflicts.

1Identify who holds the interest: the analyst personally, the firm, or another department.
2Name the conflict: ownership in a covered company, or banking and research pressure.
3Ask whether it could reasonably be expected to impair independence and objectivity or interfere with duties.
4Decide who must be told: clients, prospective clients, the employer, or all.
5Check the form of disclosure: prominent, plain language, effective.
6Decide if disclosure is enough or the conflict should also be avoided or separated by a firewall.
7Choose the option that is a Standard VI(A) action and reject ones that hide, ignore or rely only on a firewall.

Quickest way: Disclose, separate, then check the audience

When to use it: When you have about 90 seconds and three options.

Spot the interest: shares held, or banking ties.
Eliminate any option that keeps it quiet or says no action is needed.
Eliminate any option that treats a firewall alone as the full answer.
Pick the option that discloses to the right parties in clear terms, or removes the conflict.

Common mistakes in Conflicts with Stock Ownership and Cross-Departmental Conflicts

Thinking owning stock in a covered company is prohibited.
Students link conflict with ban.
Fix: Ownership is allowed. It must be disclosed, and avoided if it would impair objectivity.
Disclosing only when the analyst's view was actually biased.
Confusing actual harm with potential harm.
Fix: The test is whether the matter could reasonably be expected to impair objectivity.
Treating a firewall as a replacement for disclosure.
Firewalls sound like a full solution.
Fix: A firewall supports independence. Remaining conflicts are still disclosed.
Disclosing in vague or buried wording.
Students assume any mention counts.
Fix: Disclosure must be prominent, plain and effective.
Telling only the employer, or only clients, about a holding in a recommended stock.
Assuming one audience is enough.
Fix: Disclose ownership conflicts to clients, prospective clients and the employer.

Worked examples

Example 1

An analyst at a brokerage owns shares in a company she covers. She is about to publish a Buy recommendation. Which action best complies with Standard VI(A)? A. Publish without comment because owning shares is legal. B. Disclose her ownership prominently in the report. C. Sell the shares after publication and say nothing.

Show the solution

The interest is personal ownership in a covered company.
It could reasonably be expected to affect objectivity, so disclosure is required.
Option A hides the conflict.
Option C fails because she held the shares at the time of publication and did not disclose the holding to the readers relying on the report. Selling afterwards does not cure the missing disclosure.
Option B discloses it clearly to the people relying on the recommendation.

Answer: B

Example 2

A firm's investment banking team has won an advisory mandate from a company that the firm's research department covers. A banker asks the analyst to keep the rating positive. Which response best fits Standard VI(A)? A. Set the rating on her own analysis and disclose the banking relationship in the report. B. Set the rating at the level the banker requests and disclose the banking relationship in the report. C. Set the rating on her own analysis and leave the banking relationship out of the report.

Show the solution

The conflict is between departments: banking fees versus honest research.
Independence must be protected, so the analyst cannot let bankers shape the rating.
Option B discloses the relationship, but the rating is set at the banker's request. Disclosure does not fix a rating that has lost its independence.
Option C keeps the rating independent, but it hides the banking relationship from clients and the employer, which Standard VI(A) requires to be disclosed.
Option A keeps the rating independent and discloses the relationship.

Answer: A

Exam tips

Look for the words disclose, prominent and plain language. They point to Standard VI(A).
Reject options that say no action is needed because the holding is legal.
If an option leaves the conflict hidden, it is almost always wrong.
A firewall answer is strong only when it is combined with disclosure or separation of influence.
Ask who is affected: clients, prospective clients or employer.

Practice questions from Guidance for Standard VI: Conflicts of Interest

Conflicts with Stock Ownership and Cross-Departmental Conflicts in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Conflicts with Stock Ownership and Cross-Departmental Conflicts: frequently asked questions

What is a firewall in CFA ethics conflicts of interest?

A firewall is a barrier that limits the flow of information and influence between departments, such as investment banking and research. It helps protect independent research. It supports disclosure but does not replace it.

What is the difference between disclosing and avoiding a conflict of interest?

Disclosing means telling the affected parties clearly so they can judge your advice. Avoiding means removing the conflict, for example by not taking the position or by separating the influence. Standard VI(A) requires disclosure, and the Handbook also advises avoiding conflicts where possible.

Must a research analyst disclose owning stock in a company she covers?

Yes, under Standard VI(A) the holding should be disclosed because it could reasonably be expected to impair objectivity. Clients, prospective clients and the employer should all be told. The disclosure must be prominent and in plain language.

Is the investment banking and research conflict tested directly?

It appears as a case where bankers pressure an analyst or the firm has a banking tie to a covered company. The correct answer protects independence and discloses the relationship.