Association of Chartered Financial Analysts responds to Chandra Jayaratne

With reference to the letter sent by Chandra Jayaratne (See Daily FT story titled ‘Chandra J writes to Association of CFAs over broker research reports’ in yesterday’s issue), Vice President of CFA Sri Lanka Malinga Arsakularatne has issued the following response:

Dear Mr. Jayaratne,

Re:  Capital market development via the enforcement of the codes of ethics, standards and governance binding investment intermediaries, securities analysts and financial analysts

This refers to your letter dated 27 October 2010 to Mr. Murtaza Jafferjee, President of CFA Sri Lanka. I am responding on behalf of CFA Sri Lanka in the capacity of its Vice President, on the topic concerned. I am also responding on behalf of our President, Mr. Jafferjee, as he is conflicted in commenting on the issue raised on account of being a proprietor and Managing Director of a brokerage firm.

CFA Sri Lanka’s members as CFA charter holders are bound by the Code of Ethics and Standards of Practice and Conduct espoused by the CFA Institute. (http://www.cfainstitute.org/ethics/codes/ethics/Pages/index.aspx)

CFA, as an institute, strictly governs its membership in the areas of ethics. These guidelines clearly and specifically state the best practice to be followed in the area of equity research and publication.

The institute has a mandate to govern its membership along these lines, and takes action against any member it deems to have violated these standards. CFA Institute and CFA Sri Lanka do not have a mandate or the jurisdiction to act upon non-members.

While I cannot approve of the contents of the said research report since its remarks are personal in nature and therefore not an objective document intended to aid a well-thought-out investment research process, the scope of censure for such a document clearly falls outside the purview of our association.

In 2008, CFA Sri Lanka was involved in developing part of the syllabi on ethics for the Certificate of Capital Markets (CCM) programme administered by the Securities and Exchange Commission of Sri Lanka (SEC). Some of the best practices developed and adopted by the CFA Institute were incorporated into this programme and include areas such as “use of reasonable and adequate basis, supported by research,” “distinguishing between fact and opinion” and “use of reasonable judgment” in developing and presenting investment rationale.

Although these elements were incorporated as a ‘best practice,’ and not as a mandatory standard by the program,e, should policymakers desire to enforce such a practice, we are happy to volunteer our services to suggest and recommend suitable measures.

CFA Sri Lanka roundly condemns any breach of such best practices in the publication of presentation of research documents. Such actions are, in our opinion, detrimental to the viability of the investment process and industry, no matter whatever short term benefits they may be perceived to generate.

CFA Sri Lanka, through the auspices and guidance of the CFA Institute, will continue to adhere to and enforce internationally accepted best practices and ethical guidelines amongst its membership, while advocating the adopting of such by all market participants in our jurisdiction.

CFA Sri Lanka is always and ever willing to impart whatever expertise and knowledge we have access to, to regulatory or policymaking bodies.



Yours sincerely,

Malinga Arsakularatne

Vice President

CFA Sri Lanka