Rule 204A‑1 under the Investment Advisers Act of 1940 – the so-called “code of ethics rule” (Rule) – requires investment advisers to establish, maintain and enforce written codes of ethics, which must set standards of conduct expected of certain personnel and address conflicts that arise from personal trading by those employees. The Rule is not especially long or complex, yet advisers continue to violate it. In fact, Rule violations were referenced in recent SEC risk alerts and enforcement actions. This three-part series reviews the fundamentals of codes of ethics, focusing on the three core mandates of the Rule: establish, maintain and enforce. This first article discusses why fund managers need codes of ethics, as well as the consequences of failing to comply with the Rule’s requirements. The second article will focus on the “establish” element of the Rule, explaining what codes of ethics must – and may – include. The third article, focusing on the “maintain” and “enforce” elements, will discuss how to monitor compliance with codes of ethics, including the role of technology, and handle violations by employees. See “Beyond Codes of Ethics: Why Simply Having a Code Is Not Enough” (Feb. 13, 2020).