Financial Risk Manager Part 1
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Carol Bauer, FRM, serves as a portfolio manager for several wealthy clients with well-diversified portfolios. Among her clients is Matthew Cook, for whom she manages a personal portfolio of stocks and government bonds. Cook recently disclosed to Bauer that he is under investigation for tax evasion related to his business, Cook Concrete. After a few days, Bauer shares that information with a friend who works at a local bank that has plans to underwrite Concrete's IPO. Carol Bauer has most likely:
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A
Violated the GARP Code of Conduct with respect to confidentiality.
B
Not violated the GARP Code of Conduct with respect to confidentiality.
C
Not violated the GARP Code of Conduct because she revealed illegal activities on the part of her client.
D
Violated the GARP Code of Conduct by failing to detect the tax evasion despite being central to her client's business dealings.
Explanation:
Carol Bauer has indeed violated the GARP Code of Conduct with respect to confidentiality. The GARP Code of Conduct is a set of ethical guidelines that members of the Global Association of Risk Professionals (GARP) are expected to adhere to. One of the key principles of this code is the protection of confidential information. Members are required to take all reasonable precautions to prevent both intentional and unintentional disclosure of confidential information.
In this case, Bauer was privy to confidential information about her client, Matthew Cook. When Cook informed her about the investigation into his business for potential tax evasion, this information became part of the confidential information that Bauer was obligated to protect. By sharing this information with a friend at a bank that was considering underwriting an IPO for Cook's business, Bauer violated the confidentiality principle of the GARP Code of Conduct. She did not have the right to disclose her client's situation to anyone without his explicit consent, regardless of the circumstances.
Key Points:
- Confidentiality is a fundamental ethical obligation for financial professionals
- Client information must be protected unless there is a legal or professional obligation to disclose
- Bauer's disclosure was unauthorized and could have serious consequences including disciplinary action by GARP and potential legal repercussions
Choice B is incorrect because Bauer clearly violated confidentiality. Choice C is incorrect because revealing illegal activities does not override confidentiality obligations unless required by law. Choice D is incorrect because the violation is about unauthorized disclosure, not failure to detect the tax evasion.
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