Standard IV(C) – Responsibilities of Supervisors

Standard IV(C) – Responsibilities of Supervisors indicates that supervisors must make every effort to ensure subordinates comply with appropriate laws, firm policies, and the Code of Standards.

Compliance

This standard relates to employees within immediate supervision (i.e., direct reports). Supervisors with many employees must make it clear to direct reports that secondary or distant subordinates are expected to uphold the strictest law and ethical standards.

Standard IV(C) – Responsibilities of Supervisors encourage supervisors to establish compliance systems such as policies and procedures, ethics training, and/or incentive structure to commend ethical conduct.

Additionally, it is incumbent upon supervisors to anticipate policies and informal behavior that may result in ethical violations. For example, if an officer of the firm is partially compensated on the volume of trades within a firm, that officer may not fully investigate large trades of ethical dubiousness.  Therefore, this compensation policy directly conflicts with the promotion of fitting behavior.

Suspected ethics violations by employees should be investigated, documented, and communicated by supervisors to individual employees.  Additionally, discussing the consequences of further abuse of laws, policies, or the Code of Standards should be part of this discussion.

Violation

Clear policies and supervision of subordinate activities can prevent a violation of Standard IV(C) – Responsibilities of supervisors. Furthermore, accurate and complete record-keeping related to subordinate actions to prevent or detect code violations is a critical aspect of supervisory responsibility. Finally, failure to establish and encourage ethical action within a firm is a violation of Standard IV(C) – Responsibilities of supervisors.

Question

Which of the following is not an appropriate action under the tenets of Standard IV(C) – Responsibilities of supervisors?

A. Supervisors are expected to address inadequate compliance systems with a firm’s leadership, as well as make recommendations for repairing inadequacies.

B. Supervisors are permitted to delegate compliance enforcement responsibilities to another member of a firm, thereby relieving them of their oversight obligations.

C. Supervisors are to fully understand the CFA Code of Standards and enforce said standards within their organizations.

Solution

The correct answer is B.

Supervisors may partially delegate responsibility for compliance enforcement to another member of their organization.  However, this does not relieve a supervisor from being ultimately responsible for his organization’s compliance.