Explanation:
GARP Members should comply with all applicable laws, rules, and regulations. A delegation of those responsibilities violates the GARP’s rules of conduct.
Option A is incorrect. Benton prepared a detailed analysis and made all necessary disclosures, giving his employer the chance to decide on whether Benton’s approval was biased or not.
Option C is incorrect. Members may present their own opinion as long as it is clearly separated from factual information.
Option D is incorrect. Members shall not knowingly misrepresent any information. In cases where the misrepresentation was not intentional, members are not in violation of rules.
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Q.3 Which of the following cases includes a violation of GARP’s rules of conduct?
A
Frank Benton - a risk manager and participant in the FRM program - oversees all investments in the healthcare startups for an investment bank. After thorough analysis and evaluating all necessary disclosures, Benton approves a significant loan facility to LLL Medicine (a young startup initiated by Frank’s brother).
B
Andrea Jenkins, FRM, is a rising star at Trust Hedge Fund. Behind Jenkins’ success is her ability to fully concentrate on investment analysis since all other concerns – like the evaluation of an investment’s suitability based on funds’ internal rules, verification of compliance with laws, etc. – are handled by a third-party accounting firm.
C
On a quarterly basis, Lisa Stone, a bank manager, presents to the board of directors a summary of the key ratios used to identify the credit quality of existing borrowers with large exposures. The analysis is based on quarterly reports published by clients. In addition, she always includes one slide with her own opinion on changes in ratios presented in case of adverse market movements. The slide has a footnote clarifying that the presented information is based on Stone’s estimations.
D
Jack Merton, who recently passed part one of the FRM exam, was reviewing his analysis on interest rate risk presented to the ALCO committee of Warsaw Bank last week. He noticed a major mistake and immediately informed all parties involved in this mistake.
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