Level III Core · Application of the Code and Standards: Level III

Countries With No Securities Laws: CFA Level III Ethics

Updated 9 October 2026 · Fact-checked

If you work where no securities laws or regulations exist, you still must follow the CFA Institute Code and Standards. Under Standard I(A), you comply with the stricter of applicable law and the Code. When no law applies, the Code and Standards become the benchmark for your conduct. Absence of regulation never excuses unethical behaviour.

Understand Countries With No Securities Laws or Regulations

Standard I(A) Knowledge of the Law says members must understand and comply with all applicable laws, rules and regulations, including the Code and Standards. It also says that when applicable law and the Code conflict, you comply with the stricter of the two, and you must not knowingly participate or assist in any violation.

Now take the extreme case: a country has no securities laws or regulations at all. There is no local rule to compare with the Code. Nothing in the Code treats this as a gap. The Code and Standards then apply in full and become your benchmark for professional conduct.

This matters because a missing law does not make an action ethical. Trading on inside information, misleading a client or favouring one client over another may be legal in such a place. Those actions still breach the Standards. The Code and Standards are a professional obligation that you carry with you, not a local legal requirement.

So your approach does not change much. Identify the conduct, identify the relevant Standard, and apply it. Where no applicable law exists on the matter, the Code is the benchmark. Where other applicable laws exist, compare them with the Code and follow the stricter.

A related point: the Standards apply to you as a member or candidate wherever you work. If local law is stricter than the Code, you follow the law. If the law is weaker or absent, you follow the Code. If the law prohibits you from complying with a part of the Code, you comply with the law but still comply with all the other parts of the Code. In every case, you never knowingly take part in a violation.

Key rules to remember

Strictest-rule principle: Applicable law vs Code and Standards → comply with the stricter; Standard I(A). If the law is stricter, follow the law. If the Code is stricter, follow the Code. If no law applies, the Code is the benchmark.
No-law case: No securities law applies → Code and Standards are the benchmark; The member must still comply fully with every Standard. Lack of regulation is not a defence.
Violations by others: Know of a violation by others → dissociate from it; consider reporting it; Members must not knowingly participate in or assist a violation of laws, rules or the Code. Dissociation may include ceasing to advise or act, and, where appropriate, reporting through the firm's channels.
Where the Code applies: Members and candidates → Code applies everywhere they work; Local custom or a missing law does not reduce the duty.

How to solve Countries With No Securities Laws or Regulations questions

Use this method for any item set or essay question about working where regulation is missing, weak or different from the Code.

1Read the facts and find the conduct in question: what did the member do or plan to do?
2Check whether any local law applies. In this topic the stem says no securities laws or regulations exist.
3State the rule: with no law, the Code and Standards are the benchmark. If a law does exist, compare it with the Code and pick the stricter.
4Link the conduct to the specific Standard, such as II(A), III(B), V(A) or VI(A), and test whether it is breached.
5Check for violations by others. If the member knows of one, they must not take part and should dissociate.
6Choose the answer that complies with the Code. Reject answers that say the lack of law permits the action.
7In an essay, name the Standard, state the violation or compliance, and give the reason in one or two short sentences.

Quickest way: Strictest-rule shortcut

When to use it: Use it for multiple-choice items where the stem mentions a country with weak, different or no regulation.

Ask: is there a law? If none, the Code decides.
If there is a law, ask which is stricter, the law or the Code.
Pick the option that follows whichever is stricter.
If the law prohibits compliance with a part of the Code, follow the law on that part and still comply with the rest of the Code.
Eliminate any option that says no law means no obligation, or that follows local custom over the Code.
Confirm the option names or fits the right Standard.

Common mistakes in Countries With No Securities Laws or Regulations

Concluding that no law means the member has no duty.
Candidates link ethics too closely with legal compliance.
Fix: Remember that the Code is a professional duty. Without law, it is the benchmark, and every Standard still applies.
Looking for a stricter local rule when none exists.
Candidates apply the strictest-rule logic mechanically.
Fix: If no law exists, there is nothing to compare. Apply the Code directly.
Following local law when it is weaker than the Code.
Candidates assume the local law wins because the member works there.
Fix: When the Code is stricter, follow the Code. Only follow the law when it is stricter.
Treating local custom as a replacement for the Standards.
A stem may say that everyone in the market behaves a certain way.
Fix: Custom is not law and does not override the Code. Test the conduct against the Standards.
Naming the wrong Standard for the violation.
Candidates anchor on I(A) because the topic is about law.
Fix: I(A) sets the framework. The actual breach is often under another Standard, such as II(A) for inside information or III(B) for fair dealing. Name that one.
Ignoring what to do about others' violations.
Candidates focus only on the member's own conduct.
Fix: Remember that a member who knows of a violation must not participate and should dissociate, and may need to escalate.

Worked examples

Example 1

A CFA charterholder moves to a country that has no securities laws or regulations. A friend of hers asks her to buy shares for the friend's personal account just before a large client order in the same shares is executed, so the friend can profit from the price rise. She is told that nothing prohibits this locally. What should she do?
A. Proceed, because no law prohibits front-running
B. Proceed only if the friend gives written consent
C. Decline, because the Code and Standards still apply and the trade would breach them
D. Decline only if her employer has a written policy against it

Show the solution

Check for local law: none exists, so there is nothing stricter to follow.
With no law, the Code and Standards are the benchmark for her conduct.
Trading for a friend's account ahead of a large client order is front-running. It breaches Standard III(A) Loyalty, Prudence and Care and Standard III(B) Fair Dealing, because the client's interest is put behind a third party's. Standard II(A) also applies if the pending client order is material nonpublic information. Standard VI(B) Priority of Transactions applies only if the trade is for her own or a related beneficial interest.
A is wrong: a lack of law is not a defence. B is wrong: the friend's consent does not cure the harm to the clients whose order is front-run. D is wrong: the duty comes from the Code, not from firm policy.

Answer: C. She must decline, because the Code and Standards apply in full and the trade would breach them.

Example 2

An analyst works in a market with no securities regulation. He learns that his colleague plans to share material nonpublic information about a merger with a favoured investor. Explain what the analyst should do and why. (4 points)

Show the solution

State the rule: with no securities law, the Code and Standards are the benchmark. The missing law does not make the colleague's plan acceptable.
Identify the Standard: Standard II(A) prohibits acting or causing others to act on material nonpublic information.
Apply Standard I(A): he must not knowingly participate in or assist a violation of the Code.
Action: he should dissociate from the activity, tell the colleague the plan breaches the Code, and, if it continues, report it through the firm's compliance or supervisory channels.

Answer: He must dissociate and not assist. The plan violates Standard II(A) even though no local law bans it, because the Code is the benchmark. He should urge the colleague to stop and escalate to compliance or a supervisor if it continues.

Exam tips

If a stem says no laws exist, the answer almost always says the Code and Standards apply in full.
Reject any option using phrases like 'since no law prohibits' or 'because local custom allows' as the main justification.
In essays, name the Standard, say whether it is breached, and give a one-line reason. Do not write more than the command word asks for.
Check whether the stem gives a law that is stricter or weaker than the Code. That changes which rule wins.
Remember that the conduct is usually judged under another Standard, so link it to the right one.

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 does Standard I(A) say about countries with no securities laws?

The Standard requires members to comply with applicable laws and the Code, and to comply with the stricter where they conflict. If no law exists, the Code and Standards are the benchmark. The member must still comply fully.

Can I follow local custom if no law exists?

No. Custom is not law and does not replace the Code. You test your conduct against the Standards and follow them.

What if local law is weaker than the Code?

You follow the Code, because it is stricter. If the law is stricter than the Code, you follow the law.

What should I do if I know of a violation by someone else in such a country?

You must not knowingly participate in or assist the violation. You should dissociate from it and consider reporting it through the firm's compliance or supervisory channels. The absence of law does not change this duty.