Ethics, Integrity and Professional Standards
This domain tests conduct under pressure: spotting a conflict before it becomes a breach, deciding whether a benefit is an inducement, and knowing what is expected when something goes wrong.
Core obligations
- Integrity first. The CISI Code of Conduct expects members to act with integrity and due skill, to be open and co-operative with regulators, to manage conflicts fairly and to protect confidentiality. Membership obligations sit alongside FCA rules, not instead of them.
- Inducements. Under COBS 2.3 a firm must not pay or accept fees or non-monetary benefits that conflict with its duty to the client, unless they are designed to enhance the service, are disclosed, and do not impair the duty to act in the client's best interests. Commission from a product provider to an adviser giving independent advice is not permitted in the UK.
- Conflicts and personal dealing. Firms keep gifts and entertainment registers, require pre-clearance of personal account trades, and restrict dealing ahead of client orders.
- Market abuse. Inside information must not be dealt on or disclosed. Offences include insider dealing, unlawful disclosure and market manipulation; suspicious transaction reports go to the FCA.
Worked example
A fund manager is offered hospitality at a sporting event by a broker pitching for order flow. Reasoning: this is a non-monetary benefit. Ask three questions - does it conflict with duties to clients, is it capable of enhancing the service, and is it disclosed? Hospitality that could influence the allocation of orders fails the first test, so it must be declined or pre-approved and logged. If the broker also mentions an unreleased earnings figure, the manager must not deal and should consider a suspicious transaction report.
Traps that cost marks
- Assuming disclosure cures every conflict. Some benefits are prohibited outright.
- Treating a personal account trade as private - it is a controlled activity under firm policy and market abuse law.