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

Standards of Practice Handbook: Purpose and Structure

Updated 9 October 2026 · Fact-checked

The Standards of Practice Handbook explains how CFA Institute members and candidates apply the Code of Ethics and the seven Standards of Professional Conduct. Each Standard comes with guidance and application examples. To solve a question, identify the facts, find the matching Standard, test the conduct against it, then pick the action that complies.

Understand Standards of Practice Handbook: Purpose and Structure

The Code of Ethics and Standards of Professional Conduct set the minimum ethical behaviour expected of CFA members and candidates. The Handbook is the official text that explains them. It is not a list of rules to memorise word for word. It is a guide to how the rules work in real situations.

The Handbook has a few main parts. It opens with a preface that explains why the Code and Standards exist and how they developed. Then it gives the Code of Ethics, a short set of principles that apply to all members and candidates. Then come the seven Standards of Professional Conduct, which turn those principles into specific duties.

The seven Standards are: I Professionalism, II Integrity of Capital Markets, III Duties to Clients, IV Duties to Employers, V Investment Analysis, Recommendations and Actions, VI Conflicts of Interest, and VII Responsibilities as a CFA Institute Member or CFA Candidate. Most Standards have lettered parts, such as I(A) Knowledge of the Law and I(B) Independence and Objectivity.

Under each Standard the Handbook gives the text of the Standard, then guidance that explains it, then recommended procedures for compliance, then application examples with analysis, and sometimes a short set of questions. The text states the duty. The guidance explains what it means. The procedures show how a firm or person can stay compliant. The examples show it applied to facts.

At Level III the exam does not ask you to recite the structure. It gives you a vignette with a person's conduct and asks whether a Standard is violated, which one, or what action is best. Knowing the structure helps you sort facts quickly, because each Standard answers a different kind of question: who is owed a duty, what the duty is, and what conduct breaks it.

Key rules to remember

Code of Ethics and Standards structure
Code of Ethics + 7 Standards (I to VII) → guidance → recommended procedures → application examples
The Standards are numbered I to VII, with lettered parts under most of them. Know the seven headings and who each protects.
Seven Standards headings
I Professionalism | II Integrity of Capital Markets | III Duties to Clients | IV Duties to Employers | V Investment Analysis, Recommendations and Actions | VI Conflicts of Interest | VII Responsibilities as a CFA Institute Member or CFA Candidate
Use the heading to sort a vignette fast. Ask whose interest or which duty is at stake.
Method for any case
Facts → Standard(s) → test conduct → compliant action
More than one Standard can apply to the same facts. Name all that fit.

How to solve Standards of Practice Handbook: Purpose and Structure questions

Use the same sequence for every ethics question, whether it is an item set or an essay. It keeps you tied to the Standards and away from personal opinion.

  1. 1Read the question stem first so you know whether you must name a violation, a Standard, or an action.
  2. 2Read the vignette and mark who did what, who is affected, and what the person knew.
  3. 3Match each key fact to a Standard heading: law, client, employer, market, research, conflict or CFA programme.
  4. 4Narrow to the specific lettered part, such as III(C) Suitability, using the guidance you have learned.
  5. 5Test the conduct against the Standard. Did the person do what the Standard requires, or fail to?
  6. 6Choose the answer that complies with the Standards, and where laws differ, the stricter rule applies.
  7. 7For essays, follow the command word. State the violation or compliance, then give the reason in one short sentence tied to the Standard.

Quickest way: Heading-sort method

When to use it: Use it when time is short and the vignette has several facts.

  1. Underline the actor and the party they owe a duty to.
  2. Name the heading: client, employer, market, research, conflict, or CFA programme.
  3. Pick the lettered part that fits the specific act.
  4. Decide violated or not, then match the option to that decision.
  5. If two options both look compliant, choose the option that most directly follows the Standard and recommended procedures, such as dissociating and reporting to supervisors or compliance.

Common mistakes in Standards of Practice Handbook: Purpose and Structure

  • Memorising Standard names without learning what conduct breaks them.

    The headings look easy to recall, so students stop there.

    Fix: For each Standard, write one example of a breach and one of compliance from the application examples.

  • Treating the Handbook as a set of laws, not ethical minimums.

    Students assume that if the law allows it, the Standards do.

    Fix: Remember that members must follow the stricter of law and the Code and Standards, and must not knowingly take part in violations.

  • Naming only one Standard when several apply.

    Students stop at the first match.

    Fix: Check each fact against every heading. One act can breach, for example, both Misrepresentation and Diligence.

  • Answering from personal opinion or what feels fair.

    Vignettes describe relatable workplace problems.

    Fix: Anchor every answer to the wording and guidance of a named Standard, not to your view of the best business outcome.

  • Ignoring the recommended procedures for compliance.

    They seem like optional extras next to the Standards.

    Fix: Use them to pick the best action. Questions often ask what a firm or member should do, and these procedures show it.

Worked examples

Example 1

An analyst reads the Handbook and asks what role the application examples play. Which statement is most accurate? A) They create new Standards. B) They show how the Standards apply to specific facts. C) They replace the guidance. D) They apply only to firms, not individuals.

Show the solution
  1. The Standards are fixed by the Code and Standards text, so examples do not create new ones. A is wrong.
  2. Examples follow the guidance and illustrate how the Standard works on facts. This matches B.
  3. They add to the guidance and do not replace it. C is wrong.
  4. Examples involve both individuals and firms. D is wrong.

Answer: B. The application examples show how the Standards apply to specific facts.

Example 2

A portfolio manager learns that a colleague routinely sends clients performance figures that the colleague knows are inflated. The manager says nothing and keeps working alongside. Which Standard and lettered part apply to the colleague's conduct, and what must the manager do? Answer in two sentences.

Show the solution
  1. Identify the act: knowingly inflated performance figures sent to clients.
  2. Sort by heading and lettered part: this is misleading information, which falls under Standard I(C) Misrepresentation. The colleague's conduct breaches it.
  3. Look at the manager's own conduct: the manager knows about the violation, says nothing and keeps working alongside the colleague. Under Standard I(A) Knowledge of the Law, a member must not knowingly participate in or assist a violation. Silence alone is not automatically a breach, but a member who knows of a violation should dissociate from it. Continued association and failure to dissociate may be seen as participation or condoning, so the manager risks breaching I(A).
  4. Add the action: the manager must dissociate from the violation and report it to supervisors or compliance. If the violation continues, the manager may need to cease work on the matter.

Answer: The colleague's conduct breaches Standard I(C) Misrepresentation. The manager must dissociate from the violation and report it to supervisors or compliance, and may need to cease work on the matter, because continued association and failure to dissociate may be seen as participation or condoning and risk a breach of I(A) Knowledge of the Law.

Exam tips

  • Learn the seven headings in order so you can sort any vignette within seconds.
  • Use the exact action asked for by the command word. If it says justify, give one reason tied to a Standard.
  • Where an option says to follow local law and the Code is stricter, the stricter rule is the answer.
  • In essay sets, name the Standard first, then the reason. Short and exact earns the points.
  • Practise with the application examples, not only the Standard text, because the exam is built from facts like these.

Standards of Practice Handbook: Purpose and Structure in other exams

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

Standards of Practice Handbook: Purpose and Structure: frequently asked questions

What is the purpose of the Standards of Practice Handbook?

It explains how to apply the Code of Ethics and the Standards of Professional Conduct. It gives the text of each Standard, guidance, recommended procedures and application examples. Members and candidates use it to judge their own conduct.

How are the Code and Standards structured?

The Code of Ethics sets out the core principles. The seven Standards, numbered I to VII, set specific duties, and most have lettered parts. Each Standard is followed by guidance, procedures for compliance and application examples.

How should I study Application of the Code and Standards for Level III?

Learn the seven headings and the lettered parts first. Then work through application examples and practise sorting facts to a Standard, deciding violated or not, and giving a short reason. Repeat with item sets and essay questions.

Do I need to memorise the Handbook word for word?

No. You need to know what each Standard requires and be able to apply it to new facts. Understanding the guidance is more useful than recalling exact wording.