Ethics, Codes & Standards of Professional Conduct

Ethics, in the definition the guides take from the CFA Institute, is a set of moral principles or rules of conduct that guides a person's behaviour when it affects others. The exam draws a line between the principle and the act: ethics is the system of principles, while unethical behaviour is the act that falls outside what the individual, the professional community or the industry treats as morally right. Ethics goes beyond regulation and the law, and the guides sum it up as doing the right thing even when no one is looking. Around that principle a representative carries obligations at three levels, and it is vital not to confuse them:

9 sections~8 min read

Checked against the IBF RES 1B Study Guide v1.1 (Nov 2024) ch.4 and ch.5.4; IBF RES 2B Study Guide v1.0 (6 Jun 2024) ch.5, 2026-09-12. Unofficial prep, not endorsed by MAS or IBF.

Must-know for the exam

Three levels of obligation exist: ethical standards, codes of conduct, and statutory law (SFA) — an act can breach one, two or all three, and the level determines the consequence.
An ethical breach harms trust/reputation; a code breach triggers disciplinary/professional sanctions; a statutory offence under the SFA can lead to criminal prosecution and/or civil penalties.
MAS is the statutory regulator. SGX-ST is the exchange, but since 2017 the front-line regulatory functions have been carried out by SGX RegCo, an independent regulatory subsidiary of SGX with its own board of directors (guide 1.3.1.7).
The conflict-management hierarchy is: avoid, then control/manage (information barriers, segregation), then disclose — and disclosure alone does not cure a conflict that disadvantages the client.
Priority of transactions: transactions for clients and for the employer rank ahead of any transaction in which the representative is the beneficial owner, and the representative must not deal for his own account until the client's transaction has been completed (guide 4.4.1.6(ii) / 5.4.1.6(ii)). There is no 'same or better price' let-out.
Front-running — dealing ahead of a known client order or research to profit from the expected price move — breaches priority rules and codes, and can be a statutory market-misconduct offence.
MAS's Fair Dealing Guidelines set five outcomes and place responsibility on the Board and Senior Management for fair customer outcomes across the product life-cycle.
'Fair' does not mean 'identical' — differentiated service is acceptable if disclosed and offered on fair-dealing principles; suitability still requires a reasonable basis grounded in KYC.
Best execution means the best available terms overall — price together with speed, likelihood of execution, size and total cost — not simply the best headline price.
Personal-trading controls (pre-clearance, holding periods, account reporting), gifts-and-inducements registers, and client confidentiality (including the PDPA) are standard safeguards against conflicts and abuse.
The ethical framework has five elements even though the diagram labels four components: understanding and comprehension, analyse risks, execute solutions, serve clients, and safeguarding reputation (guide 4.2 / 5.2). Learn all five.
Unethical behaviour has one external driver, client pressure to bend the rules or lose the business, and three internal ones: inadequate skill, knowledge or supervision; deliberate pursuit of financial or non-financial gain; and peer or senior pressure in a weak workplace culture (guide 4.2.1 / 5.2.1).
Six steps prepare you for the ethical role: clients' interests first; integrity, competence, diligence and respect; care and independent professional judgement; building trust and respecting market conduct rules; disassociating yourself from the deal when that is the ethical thing to do; and seeking guidance from compliance and legal whenever in doubt (guide 4.2.2 / 5.2.2).
A trade on material non-public information that loses money is still insider trading. The offence is acting, or causing another to act, on the information, not making a profit (guide 4.4.1.2(i) / 5.4.1.2(i); SFA s.216 sets the material-effect test, with the prohibitions in SFA ss.218 and 219).
Suitability is measured against the client's stated objectives and risk appetite. A high income does not justify recommending a risky product to a risk-averse client (guide 4.4.1.3(iii) / 5.4.1.3(iii); FAA s.36 and FAA-N16).
Fair dealing extends to the firm's own investment process: representatives are expected to have a policy on the corporate governance of the companies they invest in, and to formalise how companies with adequate governance are selected (RES 2B guide 5.4.1.3(ii)).
Where your own research diverges sharply from the house view published by research colleagues, investigate the reasons for the variance and make sure any opinion you give rests on independent analysis. Conforming to the house view, or rushing a contrary view out to clients, is the wrong answer (guide 4.4.2.1 and 4.4.2.3).
Two industry codes are named for dealers: the Singapore Guide to Conduct and Market Practices for Wholesale Financial Markets ('the Blue Book'), issued by the Singapore Foreign Exchange Market Committee, and the FX Global Code, issued by the Bank for International Settlements around six leading principles (RES 2B guide 5.4.3 and 5.4.4).

Ethics vs law: three levels of obligation

(1) Ethical standards — principles of honesty, integrity, objectivity and putting the client first. An ethical breach may not always break a written rule, but it damages trust and reputation. (2) Codes of conduct — written standards set by the firm, by SGX, or by industry/professional bodies (e.g. IBF standards, firm compliance manuals). A code breach exposes the representative to disciplinary or professional sanctions (warnings, fines, suspension, loss of accreditation). (3) Statutory law — the Securities and Futures Act (SFA) and its subsidiary legislation (e.g. the Securities and Futures (Licensing and Conduct of Business) Regulations) plus SGX-ST Rules. A statutory offence (e.g. insider trading, false trading, market manipulation) can lead to criminal prosecution and/or civil penalties.

A single act can breach all three levels at once, and knowing which level applies tells you the consequence. The Monetary Authority of Singapore (MAS) enforces the statutory layer. The exchange layer is enforced by SGX RegCo, the independent regulatory subsidiary that has carried out all of SGX's front-line regulatory functions since 2017 (guide 1.3.1.7). The ethical layer is enforced first by the professional themselves and by their firm's culture.

Conflicts of interest and their management

A conflict of interest arises whenever a representative's or firm's own interests (or the interests of another client) could improperly influence the service given to a client. Because a securities firm acts simultaneously as agent for clients and, at times, as for its own account, conflicts are structurally unavoidable. Common examples: dealing for the firm's own while holding client orders; recommending products that pay the firm higher commission; allocating a limited allotment between clients and staff; and a representative's overlapping with client activity.

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Traps that cost marks

Ethics is about behaviour and principles, not statutes; legal compliance is the floor, not the whole of ethical conduct.
Executing orders in the sequence received is the correct opposite behaviour, not front-running.
Best execution is not best price at a single instant; it is a multi-factor, policy-based duty.
Fair does not mean equal/identical (A) — that is a common misconception.
Disclosing only the upside is misleading and breaches fair-dealing principles.
After-the-fact disclosure (B) does not cure front-running; the client order must always come first.
Disclosure is important but does not by itself cure a conflict that disadvantages the client — avoidance/management comes first.
Filling the firm's own account first breaches priority of client orders; choosing by brokerage is unfair.

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Exam-style questions

A product provider offers a representative an expensive overseas trip contingent on the representative steering a set volume of clients into the provider's products. This is best characterised asAnswer explained →A representative's own research on a company conflicts sharply with the recommendation published by his firm's research colleagues. According to the guide's standards on independence and integrity of opinions, he shouldAnswer explained →Which of the following are among the recommended procedures for compliance set out in the guides?Answer explained →A representative trades on material non-public information about a listed company. This conduct is best described asAnswer explained →A client with a well-paid job tells his adviser he is risk-averse and wants stable income for a fixed future expense. The adviser recommends high-risk products because the client's salary can absorb losses. Which statement is correct?Answer explained →

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