[18490]
February 17, 2005
TO: CHIEF COMPLIANCE OFFICER COMMITTEE No. 15-05
COMPLIANCE ADVISORY COMMITTEE No. 14-05
EQUITY MARKETS ADVISORY COMMITTEE No. 13-05
CLOSED-END INVESTMENT COMPANY MEMBERS No. 14-05
INVESTMENT ADVISER MEMBERS No. 4-05
INVESTMENT ADVISER ASSOCIATE MEMBERS No. 4-05
SEC RULES MEMBERS No. 29-05
SMALL FUNDS MEMBERS No. 16-05
INTERNATIONAL MEMBERS No. 6-05
RE: ICI COMMENT LETTER ON CFA INSTITUTE ASSET MANAGER CODE OF
PROFESSIONAL CONDUCT
Late last year, the CFA Centre for Financial Market Integrity (“CFA Centre”)1 issued for
public comment an exposure draft of an Asset Manager Code of Professional Conduct (“Code”).
According to the exposure draft, the Code “is meant to apply, on a global basis, to firms . . . who
manage client assets as separate accounts or pooled funds (including mutual funds).” The Code
sets forth minimum standards for providing asset management services to clients.
The Institute has filed the attached comment letter on the Code. The letter is briefly
summarized below. In addition to filing the comment letter, the Institute has provided more
detailed comments on the exposure draft to CFA Centre staff members by telephone.
The draft letter notes the Institute’s support for efforts to encourage adherence to high
ethical standards in the investment management industry. It expresses the Institute’s belief,
however, that the Code’s mandatory and specific nature will undermine efforts to create and
maintain effective codes of conduct. It also expresses concerns about the process for developing
the exposure draft and the importance of proper coordination of global efforts in this area. The
letter urges the CFA Centre to refrain from pursuing this initiative further.
The letter states that to be effective, a code of conduct must take into account the
circumstances and characteristics of a particular firm. It points out that while the preamble to
1 The CFA Centre was formed by the CFA Institute (formerly, the Association for Investment Management and
Research, or AIMR).
2
the Code says it is intended to be general in nature and to allow firms flexibility, most
provisions of the Code and related guidance are very specific and are expressed as mandates.
The draft letter states that the sheer diversity of investment management firms around
the world makes it extremely unlikely that all of the Code’s provisions will be appropriate for
all firms. It lists several variables that are relevant and important to the development of a
robust and effective code of conduct for a particular firm and emphasizes that firms need
sufficient latitude to take these variables into account. The letter indicates that the Code’s
mandatory language and “one size fits all” solutions to a wide range of complex issues create
obstacles to the development of effective codes. They also lead to the conclusion that codes that
incorporate standards of conduct that both comply with applicable law and benefit investors
are deficient.
The draft letter provides several examples to illustrate these points. It states that the
examples demonstrate that there are compelling reasons for the CFA Centre not to pursue this
initiative. It expresses concern that firms will be placed in the unfair position of having to
explain any divergence between their own codes and the Code (or alternatively, to adopt
ineffective codes), and urges the CFA Centre not to issue it in final form. The letter
recommends that if the CFA Centre determines to proceed with this initiative, it clarify that the
Code comprises voluntary recommendations that firms may consider and use terms such as
“may” or “could” to describe possible approaches for firms to achieve the recommended
conduct. It states that this is especially important given the stated intent for the Code to apply
broadly to all types of asset management firms throughout the world.
The letter indicates that other issues also need to be addressed if the CFA Centre
proceeds with the Code, and notes that the Institute has provided more specific comments
directly to the CFA Centre staff.
Frances M. Stadler
Deputy Senior Counsel
Attachment (in .pdf format)
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attachment for memo 18490.