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CFA Level II Exam · Application of the Code and Standards: Level II

Countries with No Securities Laws or Regulations: CFA Standard I(A)

Updated 7 October 2026 · Fact-checked

If you work in a country with no securities laws or regulations, you must still apply the Code and Standards. Standard I(A) Knowledge of the Law requires you to follow the strictest applicable rule. Where no law exists, the Code and Standards set your conduct. If others violate them, you must dissociate from the violation.

Understand Countries with No Securities Laws or Regulations

Standard I(A) says members and candidates must understand and comply with all applicable laws, rules and regulations. This includes the laws of any government, regulatory organization, licensing agency or professional body that governs their activities. It also includes the Code and Standards themselves.

The usual guidance is the strictest-rule principle. When the law and the Code and Standards differ, you follow the stricter one. If the law is stricter, you follow the law. If the Code and Standards are stricter, you follow them. You must never violate applicable local law, even when the Code is stricter. If the two conflict, follow the stricter requirement in a way that keeps you within the law.

Now take the extreme case: a country has no securities laws or regulations at all. There is no local law to compare against. So the Code and Standards become the standard you follow, subject to any other law that still applies to you, such as the law of your home country or your employer's jurisdiction. Being in a place without rules does not free you from professional duties. You cannot say, "Nothing here forbids it."

The second duty is dissociation. If you know, or should know, that your employer, a colleague or a client is violating laws, rules, regulations or the Code and Standards, you must not knowingly take part. You must dissociate from the activity. At a minimum, this means stopping your participation and not associating with the violation.

Dissociation may mean more than stopping. Members are encouraged to urge the firm to correct the problem, usually by reporting it to a supervisor or compliance. Where the violation is serious and nothing is done, you may need to step back from the work or the relationship. Leaving the firm may be the last step. Standard I(A) does not make it mandatory to report to CFA Institute, though members may choose to do so. Prudence suggests keeping records and seeking legal advice when unsure.

Key formulas to remember

Strictest-rule principle
Follow the stricter of (applicable law) and (Code and Standards)
If no law exists, the Code and Standards govern your conduct. Never break applicable law that is stricter.
Duty on known violations
Know or should know of a violation → do not knowingly participate → dissociate
At minimum, stop taking part. Encourage correction through supervisor or compliance.
Limit of the duty
Standard I(A) does not require members to report violations to authorities
Reporting may be prudent or required by law, but I(A) itself requires dissociation.

How to solve Countries with No Securities Laws or Regulations questions

Use this method on any vignette about a jurisdiction with weak or no law, or about a violation you discover.

  1. 1Read the vignette and find the jurisdiction facts: is there no law, a weaker law, or a stricter law than the Code and Standards?
  2. 2Identify the activity at issue and who is doing it: the candidate, a colleague, the employer or a client.
  3. 3Name the Standard that applies. Usually it is I(A) Knowledge of the Law, sometimes with I(D) Misconduct or IV(A) Loyalty.
  4. 4Compare the rules. If there is no law, the Code and Standards govern. If the law is stricter, follow the law. If the Code is stricter, follow the Code.
  5. 5Decide whether the candidate knows or should know of a violation. If yes, they must not knowingly take part.
  6. 6Pick the action that dissociates: stop participating, urge correction through supervisor or compliance, and document. Reject answers that only say to continue or to wait.
  7. 7Check the wording of each option. Prefer the one that applies the Standard without overreach, such as mandatory resignation or mandatory reporting to CFA Institute.

Quickest way: Three-question check

When to use it: Use when time is short and the option set mixes law, Code and reporting choices.

  1. Is there a law? If none, the Code and Standards govern.
  2. Is the Code stricter than local law? If so, follow the Code, without breaking any applicable law.
  3. Is there a known violation? If so, dissociate: stop, escalate internally, document.

Common mistakes in Countries with No Securities Laws or Regulations

  • Concluding that no law means no obligation

    Candidates link duty only to legal compliance.

    Fix: Remember that CFA members must follow the Code and Standards everywhere. Where law is silent, they are the rule.

  • Following the weaker rule because it is the local custom

    Local practice seems to justify the conduct.

    Fix: Apply the strictest-rule principle. Local custom does not override a stricter Standard.

  • Thinking I(A) requires reporting to CFA Institute or regulators

    Dissociation is confused with whistleblowing.

    Fix: Standard I(A) requires dissociation. Reporting can be prudent or legally required, but it is not the basic duty.

  • Thinking dissociation always means resigning

    Candidates choose the most dramatic option.

    Fix: Start with stopping participation and urging correction internally. Resignation is only a last step if the violation continues.

  • Staying passive because the candidate is not the one violating

    Candidates think only personal conduct is covered.

    Fix: If you know or should know of a violation by others, you must not knowingly participate in or assist it.

Worked examples

Example 1

Vignette: Mara Tan, a CFA charterholder, joins a fund manager in a newly formed country that has no securities laws. Her manager says she may trade ahead of client orders because nothing in local law forbids it. Question 1: What governs Mara's conduct? A) Local custom; follow the manager. B) The Code and Standards; refuse and dissociate. C) Nothing; no law exists. Question 2: What should she do about the trading practice? A) Take part, because no law forbids it. B) Refuse to take part and urge the manager or compliance to stop it. C) Take part but disclose it to clients later.

Show the solution
  1. The country has no securities law, so there is no stricter local rule to follow.
  2. The Code and Standards apply to Mara anywhere. They govern her conduct here.
  3. Trading ahead of client orders is front-running. It breaches Standard III(A) Loyalty, Prudence and Care, Standard III(B) Fair Dealing and Standard VI(B) Priority of Transactions, so she must not do it.
  4. Mara knows of the practice. She must dissociate: refuse to take part and urge the manager or compliance to stop it. Later disclosure does not cure the breach.

Answer: Question 1: B, the Code and Standards govern. Question 2: B, she should refuse to participate and urge correction internally.

Example 2

Vignette: Ravi Menon works in Country X, whose securities law is weaker than the Code and Standards on disclosure of client conflicts. His firm follows only the local law. Question: Under Standard I(A), what must Ravi follow? A) The local law. B) The Code and Standards, as they are stricter. C) Whichever the firm prefers.

Show the solution
  1. Compare the rules: the local law is weaker than the Code on conflict disclosure.
  2. Under the strictest-rule principle, follow the stricter rule.
  3. The stricter rule is the Code and Standards.
  4. The firm's preference does not change Ravi's duty as a CFA member.

Answer: B. Ravi must follow the Code and Standards because they are stricter than the local law.

Exam tips

  • Spot the trigger phrases: no law, weaker law, local custom. They signal the strictest-rule principle.
  • Prefer answers that dissociate and escalate internally over answers that ignore the issue or jump to reporting authorities.
  • Watch for overstatements such as must resign immediately or must report to CFA Institute. These are usually wrong for I(A).
  • Name the Standard first in your head, then test each option against it before choosing.

Countries with No Securities Laws or Regulations in other exams

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

Countries with No Securities Laws or Regulations: frequently asked questions

What if a country has no securities laws?

You still follow the Code and Standards. With no local law, they govern your conduct, along with any other law that still applies to you.

What does dissociate mean under Standard I(A)?

It means you must not knowingly take part in a violation. At a minimum, you stop your involvement and are encouraged to urge the firm to correct the problem.

Must I report a violation to CFA Institute?

Standard I(A) does not require this. Reporting may be prudent or required by other law, but the core duty is to dissociate.

Do I follow local law or the Code if they conflict?

Follow the stricter of the two. If the Code is stricter, follow it. If the law is stricter, follow the law. Do not violate applicable local law.