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CFA Level III · Level III Core

Application of the Code and Standards at CFA Level III

This chapter teaches you to apply the CFA Institute Code of Ethics and Standards of Professional Conduct to real case facts. You find the facts, name the Standard breached or met, and state the required action. Level III tests judgment in item sets and essays, not recall of Standard numbers alone.

What this chapter covers

This chapter is about using the Code of Ethics and the Standards of Professional Conduct, not just knowing them. You start with how the Standards of Practice Handbook is built and what it is for. Then you study Knowledge of the Law, which covers what a member must do when the rules of different places conflict. You also cover the case where a country has no securities laws or regulations. Finally you practise on Level III style cases.

The core rule in Knowledge of the Law is simple to state. Members must know and comply with the applicable law, rules and regulations, including the Code and Standards. When laws differ, you follow the stricter one. Exam questions turn on who is the member, where the activity happens, and which rule is stricter. Read the official text supplied in your curriculum and apply it exactly as written.

This chapter links to every other part of the paper. Ethics cases appear as item sets and as essay sets, and the same Standards show up inside portfolio management, client communication and performance reporting scenarios. Ethical and Professional Standards carries a 10-15% topic weight, and this chapter is the application part of that block. It also pairs with GIPS, which is tested in the same ethics area.

Ethical and Professional Standards has a topic weight of 10-15%, and every set is worth 12 points whether item set or essay. There is no minimum passing score per topic, so strong ethics marks can offset weaker areas. Ethics rewards careful reading more than heavy calculation, so the effort-to-mark ratio is good. In essays, a precise Standard and a precise action earn the points. Vague answers do not. Practise this chapter well and you give yourself a reliable source of marks.

Application of the Code and Standards: Level III: topics in the order to study them

  1. 1Standards of Practice Handbook: Purpose and StructureLearn how the Handbook is organised first, so every later case has a clear place to hook the Standard onto.
  2. 2Knowledge of the Law: Global Application of the CodeThis is the central rule for cross-border cases, and you need it before you can handle conflicts between laws.
  3. 3Countries With No Securities Laws or RegulationsIt is a special case of Knowledge of the Law, so it is easier once the main rule and the stricter-law principle are clear.
  4. 4Applying the Standards to Level III Case ScenariosDo this last, because it combines all the earlier rules and trains you to answer in exam format.

How to prepare Application of the Code and Standards: Level III

Aim to move from reading the Standards to applying them quickly under exam conditions. Use the official text supplied in your curriculum as the final authority.

  1. Read the Handbook structure once and list each Standard by name and its core duty in one line. Do not memorise numbers in isolation.
  2. Study Knowledge of the Law with a simple test: which laws apply, which is stricter, and what must the member do. Write the answer in one sentence for each example.
  3. Work out the no-securities-law case separately. Note that the member still follows the Code and Standards, and that you should not assume anything is allowed because no rule exists.
  4. Do cases in item set form first. For each, identify the facts, the Standard, and whether it is a violation, before looking at the options.
  5. Then do essay cases. Read the bold command word, answer only what it asks, name the Standard, and give the action in a short sentence.
  6. Review each wrong answer by writing the fact you missed. Most errors come from misreading who did what and where.
  7. In the last week, redo cases cold and time yourself. Practise finishing each set within its share of the exam time, which is about 12 minutes per set on average.

Common mistakes in Application of the Code and Standards: Level III

  • Following the local law when the Code and Standards are stricter.

    Fix: Always compare the two and choose the stricter. State that comparison in your answer.

  • Assuming anything is allowed where no securities laws exist.

    Fix: Remember the member must still comply with the Code and Standards in that country.

  • Naming the wrong Standard because several seem to fit the facts.

    Fix: Find the main duty at issue, then check the others. Pick the one the facts most directly breach.

  • Writing long essay answers that do not match the command word.

    Fix: Read the bold command word, such as justify or identify, and give only what it asks for in the fewest words.

  • Giving more responses than the item asks for.

    Fix: Give exactly the number asked. Only that number is evaluated, in the order given, so any extra responses beyond that number are not marked. Put your best answers first.

  • Misreading the facts, such as who is the member or where the conduct happens.

    Fix: Mark the people, places and actions first. Then pick the Standard.

Last-day revision: Application of the Code and Standards: Level III

  • The Code and Standards apply to members, candidates and their conduct, and they sit alongside the law.
  • Members must know and comply with applicable law, rules and regulations, including the Code and Standards.
  • Members comply with the stricter of applicable law and the Code and Standards.
  • First identify which laws apply to the member's activity, then compare them with the Code and Standards and follow the stricter.
  • Where no securities laws or regulations exist, the Code and Standards still apply.
  • Ask first: who is the member, what is the conduct, and which Standard governs it.
  • Be precise in essays: name the Standard and state the action.
  • Answer only the number of responses asked for, in the order given.
  • A correct number typed alone earns full credit for a calculation item.
  • There is no penalty for wrong answers, so never leave a set blank.
  • Do not rely on memory of the Standard number. Describe the duty in words if unsure.

Application of the Code and Standards: Level III in other exams

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

Application of the Code and Standards: Level III: frequently asked questions

What does Knowledge of the Law require?

Members must know and comply with the law, rules and regulations that apply to them, including the Code and Standards. If these conflict, they must follow the stricter one. Apply this using the official wording in your curriculum.

What if a country has no securities laws?

The member must still follow the Code and Standards. Lack of local regulation does not lower the standard of conduct expected.

Are ethics questions item sets or essays?

Both can appear. Item sets give a vignette with 4 multiple-choice questions worth 3 points each, and essay sets test constructed responses. Each set is worth 12 points.

How should I answer an ethics essay?

Read the bold command word and answer exactly what it asks. Name the Standard and state the required action in a short, clear sentence. Avoid extra points that were not requested.

Do I need to memorise Standard numbers?

Knowing the Standards by name and duty matters most. Numbers help, but a clear description of the duty applied to the facts is what earns the marks.