CFA Level II Exam · Guidance for Standard I: Professionalism

Standard I(A) Knowledge of the Law: Stricter Rule and Dissociation

Updated 7 October 2026 · Fact-checked

Standard I(A) requires members and candidates to understand and comply with all applicable laws, rules and regulations, including the Code and Standards. When rules conflict, follow the stricter one. If you know of a violation by others, you must dissociate from it, and you may consider reporting it.

Understand Standard I(A): Knowledge of the Law

Standard I(A) is the first rule in the Professionalism group. It says you must know the laws that apply to your work and obey them. It also says you must obey the CFA Institute Code and Standards. You cannot use "I did not know" as a defence.

Applicable law means the laws of the countries and regions where you work, and the laws that apply to the service you give. If your firm is in one country and your client is in another, more than one set of rules may apply. You decide which applies to the activity at hand. If you are unsure, seek advice from your compliance department or legal counsel.

The key conflict rule: if the law and the Code and Standards differ, you must follow the stricter one. If the law is stricter, follow the law. If the Code and Standards are stricter, follow them, as long as doing so does not break the law. For example, if local law allows something the Code forbids, you do not do it. If local law demands more than the Code, you meet the law.

The second duty is about others. Members and candidates who know that another person is violating law or the Code and Standards must dissociate from the activity. Dissociation means you stop taking part in it, and you do not knowingly help or benefit from it. The Standard itself does not make reporting mandatory in every case, but it is encouraged. It may be the proper route to prevent further breaches. However, applicable law or your firm's policies may require reporting. If they do, the stricter rule applies and you must report. Reporting to a supervisor or compliance is the usual first step.

If you cannot otherwise dissociate, you may need to cease the activity you are involved in. Leaving the firm is a last resort, used only when you cannot dissociate in any other way. Under the Standard itself, a member does not have to report to CFA Institute, but doing so is encouraged. Local law or firm policy may still require reporting, and the stricter rule applies. Supervisor responsibilities are covered by Standard IV(C), not Standard I(A). Standard VII(A) Conduct as Participants in CFA Institute Programs is different: it covers conduct in the exam and other CFA Institute programs.

Key formulas to remember

Stricter rule: Follow the stricter of (applicable law, Code and Standards); If the law is less strict, follow the Code and Standards. If the law is stricter, follow the law. Never break the law to meet the Code.
Dissociation duty: Know of a violation by others → dissociate from it; Dissociate means stop participating and do not knowingly benefit. Reporting is encouraged and may be the right step but is not always mandated by the Standard.
Unsure of the law: Unsure → consult compliance or legal counsel; Relying on advice from legal counsel or compliance is a sound step. It does not excuse continuing a clearly unlawful act.
Multiple jurisdictions: Apply the law of the countries relevant to the activity; follow the strictest if they conflict; Applies when the firm, client or product sits in different places.

How to solve Standard I(A): Knowledge of the Law questions

Use this order for any Standard I(A) item. Read the vignette for the countries, the rules named and who did what.

1Identify whose conduct is being tested: the candidate, a colleague, a supervisor or the firm.
2List the rules in play: local law, the law of other relevant countries, firm policy and the Code and Standards.
3Compare the rules and decide which is stricter on the exact point in question.
4Apply the stricter rule. Check that following the Code does not require breaking the law.
5If someone else is violating, ask what the candidate knows. If they know of the violation, they must dissociate.
6Choose the action: stop participating, raise it with a supervisor or compliance, and consider reporting. The Standard does not itself mandate reporting, but if applicable law or firm policy requires it, the stricter rule applies and the candidate must report. Leaving the firm is a last resort if dissociation is not otherwise possible.
7Match your answer to the option that is compliant, not merely cautious or merely legal.

Quickest way: Stricter rule and dissociate check

When to use it: Use this when an item gives you two sets of rules or a colleague doing something questionable.

Underline each rule named in the vignette and mark which is stricter.
Pick the stricter rule as the one to follow.
If a colleague is involved, ask: does the candidate know? If yes, dissociate.
Reject options that only ignore the issue, or that say the law alone is enough.
Prefer the option that escalates to a supervisor or compliance over silent inaction.

Common mistakes in Standard I(A): Knowledge of the Law

Following the law when the Code is stricter.
Candidates think legal compliance is enough.
Fix: Compare both. If the Code is stricter and does not require breaking the law, follow the Code.
Following the Code when it would require breaking the law.
Candidates apply the stricter-rule idea without checking legality.
Fix: You never break the law to meet the Code. Follow the law and stay as close to the Code as is lawful.
Thinking you must always report a colleague to CFA Institute or regulators.
The word "must" in dissociation is read as mandatory reporting.
Fix: The required duty is to dissociate. Reporting is encouraged and may be the right step, but the Standard does not demand it in every case.
Staying in a situation and only stating disapproval.
Candidates think objecting is enough.
Fix: Dissociation means you stop taking part. If you cannot otherwise dissociate, you may need to cease the activity, and as a last resort leave the firm.
Assuming ignorance of the law is a defence.
The vignette says the candidate was unaware of a rule.
Fix: The duty is to know the applicable law. Lack of knowledge does not excuse a violation.
Using only the home country's law for a cross-border service.
Candidates ignore the client's or product's location.
Fix: Identify every jurisdiction relevant to the activity and follow the strictest requirement.

Worked examples

Example 1

Vignette: Anil, a CFA charterholder, works for a global asset manager in Country X. Country X law lets advisers accept small gifts from clients without disclosure. The Code and Standards would require disclosure to his employer. Question 1: What should Anil do about a gift he receives? Question 2: If Country X law forbade accepting any gift, what would change?

Show the solution

Identify the rules: Country X law (permits, no disclosure) and the Code and Standards (disclosure required).
Compare: the Code and Standards are stricter on disclosure.
Following the Code does not require breaking the law, since disclosing is lawful.
So Anil follows the Code and Standards and discloses.
For Question 2, law would then forbid any gift. Law is stricter than the Code, so he follows the law and declines the gift.

Answer: Q1: Follow the Code and Standards and disclose the gift, because they are stricter and lawful to follow. Q2: Follow the law and do not accept the gift, because the law is then stricter.

Example 2

Vignette: Mei is an analyst at a firm. She learns that her portfolio manager has been allocating profitable trades to a favoured account, which is a likely breach of the Standards and of local law. Her supervisor says to ignore it. Question 1: What is Mei's minimum required action under Standard I(A)? Question 2: What is the best course if the firm will not act?

Show the solution

Mei knows of a likely violation by another person.
Standard I(A) requires her to dissociate from the activity: she must not take part or knowingly benefit.
Reporting is encouraged but the Standard does not mandate it in every case, so the minimum is dissociation.
Her supervisor has told her to ignore it, so internal inaction is not acceptable.
A stronger course is to raise it with compliance or senior management, and if the firm still does nothing, consider reporting to the regulator. Leaving the firm is a last resort, only if she cannot otherwise dissociate.

Answer: Q1: Dissociate from the activity. Q2: Escalate to compliance or senior management and consider reporting externally. Leaving the firm is a last resort if she cannot otherwise dissociate.

Exam tips

When a vignette names two rules, mark which is stricter before you read the options.
Watch for "the law allows it" as a trap. The Code may still forbid it.
Dissociation is the required step. Reporting is encouraged. Choose the option that matches the strength of the facts.
If the candidate is unsure about the law, the best answer usually involves consulting compliance or counsel.
Check whether the vignette says the candidate knew of the violation. Only then does the dissociation duty apply.

Standard I(A): Knowledge of the Law in other exams

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

Standard I(A): Knowledge of the Law: frequently asked questions

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

It requires you to understand and comply with applicable laws, rules and regulations, including the Code and Standards. You must follow the stricter one if they differ. You must also dissociate from violations by others that you know of.

Which do I follow: the stricter law or the Code and Standards?

Follow whichever is stricter. If the law is stricter, follow the law. If the Code and Standards are stricter, follow them, provided that does not mean breaking the law.

Do I have to report a colleague who violates the law or the Code?

You must dissociate from the violation. Reporting is encouraged and often appropriate, especially if the firm does not act. The Standard does not mandate reporting to CFA Institute or regulators in every case.

What counts as dissociation?

Dissociation means you stop participating in the activity and do not knowingly benefit from it. Examples include refusing to work on the tainted deal and escalating to compliance. If you cannot otherwise dissociate, you may need to cease the activity, and leaving the firm is a last resort.