Julius Christus is an AIMR member and a vice president in the Risk Control department of a major commercial bank. Julius recently discovered that Jill Chapman had been grossly negligent in her duties involving monitoring of trading limits and violations by the trading desk. This is the first time Jill has been found to be remiss in her duties. Which of the following actions is the minimum necessary for Julius to be in compliance with Standard III (E) - Responsibilities of Supervisors?
Click on the arrows to vote for the correct answer
A. B. C. D.A
"Procedures for Compliance," Standard III (E).
Standard III (E) - Responsibilities of Supervisors, is a part of the CFA Institute's Code of Ethics and Standards of Professional Conduct. It outlines the responsibilities of supervisors in the investment industry. To be in compliance with this standard, Julius Christus, as a supervisor in the Risk Control department, must take appropriate action in response to Jill Chapman's gross negligence in monitoring trading limits and violations by the trading desk.
Let's analyze each answer choice in relation to the requirements of Standard III (E):
A. Initiate an inquiry and take steps, such as placing limits on Jill's activities and increasing the monitoring of her activities to ensure that future violations do not occur. This answer choice demonstrates an appropriate initial response to the situation. Julius should begin by investigating the issue through an inquiry. Placing limits on Jill's activities and increasing monitoring are proactive measures to prevent future violations. This option aligns with the requirements of Standard III (E) as it involves taking action to address the issue while giving Jill a chance to rectify her mistakes.
B. Determine the extent of the violations and warn Jill in no uncertain terms that a repeat incidence would lead to her losing the job. While determining the extent of the violations is important, this answer choice falls short in terms of the appropriate response required by Standard III (E). It only includes a warning to Jill and does not involve any concrete action to address the issue or prevent future violations. While a warning is a potential step, it should not be the sole action taken in this situation.
C. Terminate Jill's employment. Terminating Jill's employment immediately may be too severe of a response for her first instance of negligence. Standard III (E) requires supervisors to take reasonable steps to prevent and detect violations. In this case, termination without any prior corrective measures would not fulfill the requirement to take appropriate action in response to the violation.
D. Report the misconduct to his superiors and warn Jill in writing that future misconduct would lead to immediate termination of employment. This answer choice includes reporting the misconduct to superiors, which is an important step in addressing the issue. However, it falls short by only providing a warning without any specific actions to prevent future misconduct. While a warning is necessary, it should be accompanied by additional measures to ensure compliance with Standard III (E).
Considering the above analysis, the most appropriate answer choice is A. Initiate an inquiry and take steps, such as placing limits on Jill's activities and increasing the monitoring of her activities to ensure that future violations do not occur. This option demonstrates a proactive approach by investigating the issue, implementing controls to prevent future violations, and giving Jill an opportunity to improve her performance while fulfilling the requirements of Standard III (E).