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

Knowledge of the Law: Global Application of the Code and Standards

Updated 7 October 2026

Standard I(A) requires members and candidates to understand and comply with all applicable laws, rules and regulations, including the Code and Standards. When more than one rule applies, follow the stricter one. Also, do not knowingly take part in or assist a violation, and dissociate from it if it occurs.

Understand Knowledge of the Law: Global Application of the Code

Standard I(A) starts from a simple idea: you must know the rules that bind you and obey them. Those rules include the laws and regulations of the countries where you work or where your clients are, any rules from your employer or regulator, and the CFA Institute Code and Standards.

The hard part is conflict. A member may work in one country, serve clients in another, and be employed by a firm headquartered in a third. Each can have different rules. The Standard answers this with the stricter-law rule. When applicable law and the Code and Standards conflict, you follow the stricter of the two. When the laws of different applicable jurisdictions conflict, you follow the stricter law, meaning the one that gives clients greater protection, and then compare it with the Code and Standards.

There are three cases. If the law is stricter than the Code and Standards, follow the law. If the Code and Standards are stricter than the law, follow the Code and Standards. If the law permits something but the Code and Standards prohibit it, you must not do it. Legal does not mean ethical.

The Standard also covers other people's violations. You must not knowingly participate in or assist a violation of law, rule or regulation. If you know a violation is happening, you should dissociate from it. Dissociation can mean stopping work on the activity, and in practice it often means reporting the matter to a supervisor or compliance. Leaving the firm is not required in every case. Reporting to a regulator is generally not required by the Standard, but may be appropriate or legally required. Guidance also encourages members to seek legal or compliance advice when unsure about the law.

A related point: if a country has no securities laws, members still follow the Code and Standards. Members are not expected to be legal experts. They are expected to keep reasonable awareness and ask for advice when uncertain.

Key formulas to remember

Stricter-rule test: Follow the stricter of: applicable law ↔ Code and Standards; Compare the two rules on the specific point in the case. Pick the stricter one.
Law stricter than the Code: Law > Code and Standards → comply with the law; Applies when local law demands more than the Standards do.
Code stricter than the law: Code and Standards > Law → comply with the Code and Standards; Applies even if the conduct is fully legal locally.
Knowing violation by others: Do not participate or assist; dissociate; Dissociation includes ceasing work on the matter and often reporting internally. Reporting to authorities is not always required by the Standard.
Conflicting laws across jurisdictions: Where the laws of different applicable jurisdictions conflict, follow the stricter law (the one giving clients greater protection); then compare it with the Code and Standards and follow the stricter; A law is applicable if it binds the member's activity or clients. Candidates should rely on the facts given. The Standard does not require resolving legal doctrine in detail.

How to solve Knowledge of the Law: Global Application of the Code questions

Use this sequence on any Standard I(A) item in a vignette. It keeps you from choosing an answer because it sounds ethical rather than because it fits the Standard.

1Read the vignette and list each rule that could apply: local law, the other country's law, firm policy and the Code and Standards.
2Identify the specific conduct in question, such as a disclosure, trade, or gift.
3Compare the rules on that conduct only. Decide which one is stricter.
4Check whether the law prohibits, permits or is silent on the conduct.
5Apply the stricter rule. If the Code is stricter, the conduct is a violation even if legal.
6Check for third parties: did someone else violate a rule, and did the member know? If so, the member must not assist and should dissociate and report internally.
7Pick the answer that names the correct rule and the correct action. Reject options requiring more than the Standard asks, such as always resigning.

Quickest way: Stricter-rule shortcut

When to use it: Use when time is short and the vignette lists a law and a Standards requirement for the same conduct.

Underline the conduct and the two or three rules named.
Ask: which rule asks more of the member on this point?
Choose the answer that follows that rule.
If a colleague's violation is mentioned, look for the option that avoids participation and dissociates or reports internally.
Eliminate options saying legal means permitted, or that the member must quit or go straight to the regulator.

Common mistakes in Knowledge of the Law: Global Application of the Code

Assuming that conduct is acceptable because local law allows it.
Candidates treat law as the ceiling of ethical behaviour.
Fix: Compare with the Code and Standards. If they are stricter, the Standards apply.
Always choosing the law of the member's home country.
It feels like the natural default.
Fix: Identify which laws apply to the activity and clients. Take the stricter applicable law, the one giving clients greater protection, then compare with the Standards and follow the stricter.
Thinking the Standards override a stricter law.
Candidates over-focus on the CFA Institute text.
Fix: If the law is stricter, follow the law. The stricter rule wins either way.
Believing the member must resign whenever a colleague violates the law.
Confusing dissociation with leaving the firm.
Fix: Dissociation means not participating and stopping involvement in the activity; reporting to supervisors or compliance is typical. Resignation is not always required.
Assuming the member must report every violation to the regulator.
The Standard on knowledge of the law sounds enforcement-oriented.
Fix: The Standard does not require reporting to authorities, though it may be appropriate or legally required. Choose internal escalation first unless the facts say otherwise.
Treating lack of local securities law as freedom from ethical duty.
Candidates read no law as no rule.
Fix: Where there is no law, members still comply with the Code and Standards.

Worked examples

Example 1

Vignette: Amara, a CFA charterholder, works in Country A for a global asset manager. Country A's law does not require disclosure of a referral arrangement she has with a broker. Her firm's clients live in Country B, whose law requires written disclosure of such arrangements. Both countries' laws apply to her business. Standard VI(C) Referral Fees also requires members to disclose referral arrangements to clients. Q1: Which rule should Amara follow? Q2: Does the absence of a requirement in Country A change her duty?

Show the solution

List the rules: Country A law (no disclosure), Country B law (written disclosure), and the Code and Standards, where Standard VI(C) Referral Fees requires disclosure. Both countries' laws apply because she works in A and serves clients in B.
Compare the applicable laws on the conduct, disclosure of the referral arrangement. Country B's law is stricter and gives clients greater protection, so it is the law she follows.
Compare Country B's law with Standard VI(C). Both require disclosure, so she must disclose, and in writing because Country B's law demands it.
Country A's silence is a permission, not a prohibition. It does not outweigh a stricter rule.

Answer: Q1: Follow Country B's law, the stricter applicable law that gives clients greater protection, together with Standard VI(C) Referral Fees. Both require disclosure, in writing under Country B's law. Q2: No. Country A's lack of a requirement does not change her duty.

Example 2

Vignette: Luis works on the trading desk of an investment firm in Country X, where the law permits personal trading ahead of the publication of a firm's own research reports. The Code and Standards require client transactions to take priority over personal transactions. Luis's colleague Priya, an analyst, tells him she plans to buy a stock for her own account before the firm disseminates a buy recommendation to clients. Her purchase would put her ahead of clients and disadvantage them. She asks Luis to place her order on the desk. Q1: Does the law's permission justify Luis assisting Priya's trade? Q2: What should Luis do about Priya's request?

Show the solution

Identify the rules: Country X law (permits the trade) and the Code and Standards (client transactions take priority over personal transactions).
Compare: the Standards are stricter on this conduct, so they govern even though the law permits it. Priya's planned trade would violate Standard VI(B) Priority of Transactions. That Standard is about Priya's own conduct.
Luis's own duty comes from Standard I(A). He must follow the stricter rule, so he cannot justify his help by pointing to the law.
Priya's request is a knowing violation of the Standards by a colleague. Placing the order would be knowingly assisting, which Standard I(A) prohibits.
Luis should decline and dissociate from the activity. Dissociation may include reporting the matter to his supervisor or compliance, which is the usual step, though the Standard does not make it mandatory.

Answer: Q1: No. The Standards are stricter than the law, so they apply despite the law's permission. Priya's trade would violate Standard VI(B), and Luis assisting it would breach Standard I(A). Q2: He should refuse to place the order and dissociate. Reporting internally to his supervisor or compliance is the usual way to dissociate.

Exam tips

Almost every I(A) question reduces to one comparison: which rule is stricter on this exact conduct. Do that first.
Reject answers that say legal means acceptable. They are a frequent distractor.
Watch for over-demanding options: always resign, always report to the regulator. The Standard asks for dissociation, and internal reporting is the usual route.
Check the vignette for what the member knew. The Standard text says members must not knowingly participate or assist in a violation and must dissociate from it. Guidance adds that members who know or should know of a violation should dissociate. This is the same duty, not a wider one, so look for facts showing what the member knew or should have known.
If the vignette mentions a country with no securities law, the answer is to follow the Code and Standards.

Knowledge of the Law: Global Application of the Code: frequently asked questions

What does Standard I(A) Knowledge of the Law require?

Members and candidates must understand and comply with all laws, rules and regulations that apply to their professional activities, including the Code and Standards. They must follow the stricter rule when the law and the Standards differ. They must not knowingly participate in or assist any violation.

Which applies if local law and the CFA Standards conflict?

The stricter one applies. If local law is stricter, follow it. If the Code and Standards are stricter, follow them, even when the conduct is legal locally.

Must I report a colleague's violation to the regulator under Standard I(A)?

The Standard requires you to dissociate from the violation, not to report it externally. Reporting to a supervisor or compliance is the usual step. Reporting to authorities may be appropriate or legally required depending on the facts.

What if the country I work in has no securities laws?

You still must comply with the Code and Standards. The absence of law does not remove your ethical obligations.