CFA Institute Centre - Update

Kurt Schacht, CFA – Managing DirectorCFA Institute Centre for Financial Market Integrity

September 2007

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CFA Institute & Ethics

Ethical Leadership

Code of Ethics and Standards of Professional Conduct

Global Investment Performance Standards (GIPS)

Advocacy Efforts in Financial Reporting

CFA Institute Centre for Financial Market Integrity

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CFA Centre Mission

Mission• to be a leading voice on issues of fairness,

efficiency, and investor protection in global capital markets;

and

• to promote high standards of ethics, integrity and professional excellence within the investment community.

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Making A Difference

What Is the Value of the CFA Centre?• Representing the Investor’s VOICE in

Regulatory Matters

• Improving Ethics & Financial Market Integrity

• Enhancing the CFA Brand through Quality Projects & Publications

• Standing Up and Being Counted on Key Industry Issues

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Standards for Our Members

CFA Institute Code & Standards

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Standards for the World

Global Investment Performance Standards (GIPS®)

Convergence of many national standards.

Providing consistent performance measurement and reporting for investors worldwide.

Experts from a variety of fields within the global investment industry.

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Standards for the World

Asset Manager CodeLoyalty to Clients

Investment Process & Actions

Trading

Compliance & Support

Performance & Valuation

Disclosure

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Educating Investors

Corporate Governance Manual

CG scandals have resulted in huge investor losses.

Returns are linked to governance.

Investors need help:– Recognize the risks,– Understand their

implications, and – Know where to find

relevant information.

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Educating Investors

Investor BrochureExplaining & Promoting the CFA Charter to Individual Investors

Differentiating Investment Managers from Financial Planners and others

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Thought Leadership

Breaking the Short-term CycleCorporate issuers, analysts, asset managers,

institutional investors made recommendations in 5 areas to support building long-term value:

Earnings Guidance Reform

Incentives

Leadership

Communications

& Transparency

Education

New Projects Underway

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Re-Release of the CBRM

New Accounting ModelReporting from Investor Perspective.

Reflect Fair Value, Not Historic Cost.

All Changes in Net Assets on One New Statement.

Require Direct Method Cash Flow.

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Self-Regulatory Organizations

Regulation and Roles of Self-RegulationOptimum role of government in regulation of global financial marketsConflicts between markets and regulators

Continued Viability of SROsCharacteristics of successful regulatory systemsDuplicative rules and regulations, overlapping jurisdictions and financial sectorsRisk of regulatory arbitrage – race to the bottom.

Globalization and Consolidation of MarketsMovement towards global market/regulatorCross-border mergers and conflicts between sovereign regulators

Demutualization of MarketsPrimary conflicts between for-profit exchanges and regulatorsImplications for shareholders vs. investor interests

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Pension Trustee Code

Conduct of Pension Fund Trustees

Conflicts of interest

Competence

Due Diligence

Fiduciary Duty & Delegation

Personal Travel and Gifts

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Executive Compensation

Supplement to the CG Manual

Explains common practices and the ways firms report compensation.

Assists investors in dissecting the realities of the firm’s current reporting.

Covers cash, pensions, deferrals, options, and perks.

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Other Ideas in the Making

Model RFP for Small Institutional & Individual Investors

Standards for Investment Consultants

Fixed-Income Trading Guidelines

Mutual Fund Governance Reform

Proxy Access - Issues & Solutions

XBRL Tracking and Education

Hedge Fund Self-regulation

Financial Market Integrity Index

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Financial Market Integrity Index

Index of Member SentimentFocus - trends in member sentiment over time

Aggregate opinions of CFA members worldwide

Major Financial markets covered

Members rate ethical behavior of:– Sell-side analysts, corporate boards &

management, investment managers, hedge fund & private equity professionals

Members assess:– Corporate governance, regulatory protections,

legal protection of shareholders, financial transparency

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United States – FMI Index

Confidence in Ethical Behavior of US Market Participants & in Market ProtectionsNon-US have higher confidence than US in integrity of both participants & protections in the US markets.Market Protections trusted more than participants.Confidence lowest in hedge fund/private equity professionals.Ethics of corporate boards & execs seen as less than adequate.Money managers, followed by sell-side analysts rated most ethical.“…many players have high ethical standards, [but] the impact of those who do not is disproportionate…”

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United Kingdom – FMI Index

Confidence in Ethical Behavior of UK Market Participants & in UK Market ProtectionsUnlike US & Canada, UK participants have more confidence in integrity of both professionals & market protections than non-UK participants.In US, behavior of market participants were less that adequate; in Canada market protections were less than adequate; but in UK both were trusted.Like US & Canada, confidence lowest in hedge fund/private equity professionals – in fact the only area that was less that adequateLike US & Canada, money managers, followed by sell-side analysts rated most ethical.

APAC Advocacy issues

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APAC Advocacy Activities/ Issues

Ethics Training ProgramShareholder activism – an article in Sept CFA magazineChina Corporate Governance SurveyStudy on Executive Compensation disclosuresGIPS adoptionCFA Institute Centre documents translated into Japanese, Mandarin, Thai languagesThai Stock Exchange adopts CG Manual