{"id":38821,"date":"2021-12-08T02:26:22","date_gmt":"2021-12-08T02:26:22","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=38821"},"modified":"2026-03-06T10:22:01","modified_gmt":"2026-03-06T10:22:01","slug":"fundamentals-of-compliance","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/ethical-and-professional-standards\/fundamentals-of-compliance\/","title":{"rendered":"Fundamentals of Compliance"},"content":{"rendered":"<p><iframe loading=\"lazy\" src=\"\/\/www.youtube.com\/embed\/KL_ToCtahKM\" width=\"611\" height=\"343\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>The GIPS standards must be applied on a firm-wide basis. There are two important issues that must be considered by a firm when it complies with the GIPS standards:<\/p>\n<ol style=\"list-style-type: lower-roman;\">\n<li>Definition of the firm.<\/li>\n<li>Definition of discretionary.<\/li>\n<\/ol>\n<div style=\"text-align: center; margin: 18px 0;\"><a style=\"display: inline-flex; align-items: center; justify-content: center; padding: 10px 18px; border: 2px solid #1e5bd8; color: #1e5bd8; background: #f5f7fb; border-radius: 9999px; text-decoration: none; font-weight: 600; white-space: nowrap;\" href=\"https:\/\/analystprep.com\/free-trial\/\" target=\"_blank\" rel=\"noopener noreferrer\"> Understand GIPS compliance concepts with CFA practice questions <\/a><\/div>\n<h2>Definition of Firm under GIPS<\/h2>\n<p>The GIPS standards state \u201cThe firm should adopt the broadest, most meaningful definition of the firm. The scope of this definition should include all geographical (country, regional, etc.) offices operating under the same brand name, regardless of the actual name of the individual investment management company.\u201d<\/p>\n<p>This implies that:<\/p>\n<ul>\n<li>Firms must be defined as an investment firm, subsidiary, or division held out to clients or prospective clients as a distinct business entity.<\/li>\n<li>Total firm assets must be the aggregate of the fair value of all discretionary and non-discretionary assets under management within the defined firm.<\/li>\n<li>Firms must include the performance of assets assigned to a sub-advisor in a composite, provided that the firm has discretion over the selection of the sub-advisor.<\/li>\n<li>Changes in a firm\u2019s organization are not sufficient grounds for alternation of historical composite results.<\/li>\n<\/ul>\n<h2>Definition of Discretionary under GIPS<\/h2>\n<p>The GIPS standards state \u201cIf documented client-imposed restrictions interfere with the implementation of the intended strategy to the extent that the portfolio is no longer representative of the strategy, the firm may determine that the portfolio is non-discretionary.\u201d<\/p>\n<p>Non-discretionary portfolios must not be included in a firm\u2019s composites.<\/p>\n<div style=\"text-align: center; margin: 32px 0 10px;\"><a style=\"display: inline-flex; align-items: center; justify-content: center; padding: 12px 24px; border-radius: 9999px; background: #1e5bd8; color: #ffffff; font-weight: bold; text-decoration: none;\" href=\"https:\/\/analystprep.com\/free-trial\/\" target=\"_blank\" rel=\"noopener noreferrer\"> Start Free Trial \u2192 <\/a><\/p>\n<p style=\"margin-top: 12px; font-size: 16px; line-height: 1.5;\">Strengthen your ethics and professional standards knowledge by solving CFA exam-style questions on GIPS compliance, firm definition, and discretionary portfolio requirements.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>The GIPS standards must be applied on a firm-wide basis. There are two important issues that must be considered by a firm when it complies with the GIPS standards: Definition of the firm. Definition of discretionary. Understand GIPS compliance concepts&#8230;<\/p>\n","protected":false},"author":15,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[3],"tags":[],"class_list":["post-38821","post","type-post","status-publish","format-standard","hentry","category-ethical-and-professional-standards","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Fundamentals of Compliance - AnalystPrep | CFA\u00ae Exam Study Notes<\/title>\n<meta name=\"description\" content=\"Definition of Firm under GIPS: The GIPS standards state \u201cThe firm should adopt the broadest, most meaningful definition of the firm.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/analystprep.com\/cfa-level-1-exam\/ethical-and-professional-standards\/fundamentals-of-compliance\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Fundamentals of Compliance - 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