CFA: Chartered crypto analysts

The CFA is one of the world's hardest exams, or so they say.

Just Google “world's hardest exam” and you'll find the qualification listed alongside the All Souls Fellowship -- a scholarship test at Oxford that once required applicants to write a three-hour paper on a single word.

Run by the CFA Institute, the certification is a three-year theoretical golden ticket to the Willy Wonka factory of high finance. The tests are notoriously gruelling -- each of its three levels requires a recommended 300 hours of study time -- and junior investment analysts sacrifice the nights of their youth in hope of accelerating their careers.

Often, dreams are dashed: the pass rate for Level 1 stood at only 43 per cent as of last December's exam.

Given its reputation as the high-water mark of financial qualifications, we were surprised yesterday when Bloomberg reported the CFA Institute is adding questions about cryptocurrency and blockchain to the first two levels of its three-part exam. Via Bloomberg:

CFA added the topics, part of a new reading called Fintech in Investment Management, after industry participants showed surging interest in surveys and focus groups.

The questions will appear in the new fintech curriculum, and will be included in the tests starting next summer.

Stephen Horan, managing director of credentialing at the CFA Institute, described the subject matter as “not a passing fad”. That description directly contradicts Alphaville's experience of the blockchain and cryptocurrency scene, which at best seems to resemble an ever-escalating arms race to who can publish the most nonsensical press release. At worst, to quote Obi-Wan Kenobi, it seems to be a wretched hive of scum and villainy.

Not to mention the fact that cryptocurrency prices have collapsed since the hodl highs of December.

So given the crypto-nonsense, why is the CFA Institute getting involved?

It certainly has got nothing to do with the business of the Institute itself. In fact, the qualification has never been more popular.

Exam registrations for all three levels rose 20 per cent to 227,031 for June's exam season, and with 2017's revenues coming in at $312.6m, up 11 per cent from the year before, it is fair to say the CFA Institute is doing just fine.

But perhaps this is also part of the problem. If too many boffins hold the qualification, then there's an existential risk of the CFA becoming just another three letters on a business card, rather than a distinguished badge of financial wizardry. Crypto-questions add another potential layer of complexity for candidates, which could help sift out entrants who struggle with amorphous concepts yet to find useful real-world applications, such as blockchain.

While increasing failure rates may not be the savviest business decision in the short term, given CFA charterholders are required to pay annual fees to continue their membership, finding a balance between recurring revenue and exam difficulty will surely be a priority for the Institute.

Another reason may lie in the qualification's future relevancy. As with all accreditation, whether it is a graduate degree or an MBA, the need to prove a qualifications value to an employer, prospective or current, is clear.

In a world of shifts to algorithmic trading and passive investment vehicles, the fundamental financial skills that the CFA aims to cultivate are arguably losing some of their shine. Employers may ask whether it is a better use of an analyst's time to learn a programming language, such as Python, rather than sinking 1000 hours into figuring out how to calculate modified duration with a Texas Instruments BA II Plus or Hewlett Packard 12C.

The new fintech module in the CFA, which includes questions on big data analysis and robo-advisers (as well as crypto), is clearly designed to cater to these new investment frontiers. But with quantitative hedge funds disregarding financial experience in favour of science doctorates, and assets rapidly flowing into passive vehicles, these skills may become more niche if current trends continue apace.

However, there is one place where we think crypto questions are required: the CFA's famous ethics section.

Luckily, the CFA Institute has obliged. Bloomberg confirmed crypto questions will appear in the ethics quiz, which counts for 15 per cent of level one, so here's a suggestion from us for starters:

1. Your colleague Izzy recommends you invest in the ICO of ToDaMoon coin, a new coin-offering which promises to “make you richer than Croesus but on the blockchain”. What is your response?

a. Great idea Izzy, let's buy and HODL until our deepest and darkest desires are fulfilled.

b. The CFA code of ethics forbids investments in magical 1s and 0s with no clear regulatory framework.

c. We must first read the white paper to make sure the founder has at least 2 months experience mining Bitcoin.

Any suggestions for more CFA ethics questions on crypto are welcome below.

The CFA Institute weren't immediately available for comment. We will update the story if and when they get back to us with a response.

Related Links:
The London School of Cryptonomics - FT Alphaville
Universities of Britain: cosying up to crypto is a bad look - FT Alphaville