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P1.T1.20.18. GARP Code of Conduct

Nicole Seaman

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Learning objectives: Describe the responsibility of each GARP Member with respect to professional integrity, ethical conduct, conflicts of interest, confidentiality of information and adherence to generally accepted practices in risk management. Describe the potential consequences of violating the GARP Code of Conduct.


20.18.1. Peter is a Risk Analyst (and certified FRM) tasked by his firm to evaluate a half dozen vendors and make a recommendation to purchase one of their risk management software packages. The firm has a specific need and the Risk Committee of the board has given the list of six vendors to Peter because they are each reputable vendors in the software category. Upon seeing the list, Peter realizes that he is friends with one of the CEOs (among the six vendors) because they both volunteer their time to a local charity and, due to this shared interest, they frequently socialize together.

According to GARP's Code of Conduct, should Peter take any action with respect to a potential conflict of interest?

a. No action is necessary because the Code is silent with respect to conflicts of interest
b. Peter must withdraw from the task because an FRM must avoid actual, perceived or potential conflicts of interest
c. Peter should disclose his potential conflict to his superior(s) but he should be able to retain the task
d. Peter should cease contact with the CEO (and hiatus the volunteering) because an FRM must avoid all actual conflicts of interest

20.18.2. Barbara is a certified FRM who previously generated income statement and profit projections over a five-year horizon in response to her client's request. Subsequent to the coronavirus outbreak, her client asks Barbara to generate revised financial projections (income statement and balance sheet) and provide the best single point estimate of future revenue, profit, and equity. Barbara utilizes Monte Carlo simulation. Although her client has asked for a single point estimate of these future financial metrics, Barbara perceives that the virus (and the consequential responses) render economic predictions extremely difficult and necessarily laced with great uncertainty. Which of the following is probably her BEST approach to the problem?

a. She can comply by simply selecting the most probable future outcome; the Code has generally nothing to say about this technical task
b. She can comply but she should qualify her findings to avoid overstating the accuracy of her projections; for example, she can plot a future distribution
c. She should work hard to generate the most precise estimate possible; for example, "sales will go down by 10.85%" is more useful than "sales will go down by 10%"
d. She should avoid the temptation to offer any revised future estimates in the face of several "unknown unknowns" because some future values cannot be estimated with sufficient accuracy

20.18.3. Rankplus Energy is an international firm that is preparing its marketing materials for high net worth (HNW) private investors. In addition to other regulations, duties, rules, and norms, the firm seeks to comply with GARP's Code of Conduct because several members of the investment and client service teams hold FRM or ERP certifications. As the firm reviews its latest promotional material, with respect specifically to compliance with GARP's Code of Conduct, each of the following is true statement EXCEPT which is false?

a. The firm's analysis and recommendations should distinguish between fact and opinion
b. The firm should mention any material departure(s) from generally accepted risk management practices
c. The firm will never disclose a client's confidential information unless prior consent has been received, nor will any employee of the firm make use of confidential information for personal benefit
d. If and where local requirements, customs or norms (including local ethics) conflict with the GARP's Code, the firm will adhere to GARP's Code because it takes precedence over local requirements

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