Which CFA Institute standard is violated when a supervisor disregards a subordinate's report of unethical trading?

• A. Standard III.A Loyalty, Prudence, and Diligence.
• B. Standard III.C Responsibilities of Supervisors.
• C. Standard IV.E Preservation of Confidentiality.
• D. Standard I.D Misconduct.

Answer: (B)

Supervisors must actively oversee the ethical behavior of those they supervise and take action when concerns about unethical trading are raised. The standard that covers this explicitly requires supervisors to provide proper oversight, ensure that concerns are investigated, and address ethical breaches promptly. When a supervisor disregards a subordinate’s report of unethical trading, they fail to fulfill this duty, which can allow misconduct to continue and undermine the firm’s ethical culture and the protection of clients’ interests.

Preservation of confidentiality is about protecting client information and isn’t the issue here. Misconduct is a broad term for improper behavior, but the specific duty at stake is the supervisor’s responsibility to monitor subordinates and respond to reports of unethical conduct. Loyalty, Prudence, and Diligence relates to duties to clients, not the internal supervisory obligations being exercised in this scenario.