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Level III Core · Guidance for Standard III: Duties to Clients

Standard III(E): Preservation of Confidentiality Explained

Updated 8 October 2026 · Fact-checked

Standard III(E) requires you to keep information about current, former and prospective clients confidential. You may disclose it only if it concerns illegal activity, the law requires disclosure, or the client permits it. To solve a question, identify the information, then test it against these three exceptions.

Understand Standard III(E): Preservation of Confidentiality

Standard III(E) says members and candidates must keep information about current, former and prospective clients confidential. The only exceptions are: the information concerns illegal activity by the client, disclosure is required by law, or the client or prospective client permits disclosure.

The duty covers more than money. It covers client identity, holdings, financial situation, family details, goals and the advice you give. It applies even after the client leaves. It also applies to people who never became clients, such as someone who shared data in a pitch meeting.

The duty protects the client's trust. Clients share sensitive facts so you can give good advice. If they fear leaks, they will hold back, and your advice gets worse.

Confidentiality is not the same as the duty on material nonpublic information (MNPI). Standard II(A) governs MNPI: you must not act or cause others to act on it. Standard III(E) governs client information: you must not disclose it. Client information can be confidential without being material to a security's price. MNPI can also come from sources that are not clients. Some facts trigger both standards.

The Standard does not stop you from sharing information with colleagues or supervisors who are working on the client's account, when they need it for that purpose. You should also take reasonable steps to protect records, such as secure storage and limited access, including electronic records.

The illegal-activity exception is about the client's illegal conduct. If the activity is illegal, you may disclose to the proper authorities. Where the law is unclear or the activity is only suspected, consider consulting your supervisor or compliance, or legal counsel, before disclosing. Where local law requires disclosure, you must follow it. Where local law prohibits disclosure that the Code would permit, follow the law (see Standard I(A)).

Key rules to remember

Core duty
Keep confidential all information about current, former and prospective clients
Applies to identity, holdings, finances, goals and advice, and continues after the relationship ends.
Three exceptions
Disclose only if (1) the information concerns illegal activity, (2) disclosure is required by law, or (3) the client permits disclosure
If none applies, do not disclose. Client permission should be clear and preferably documented.
Need-to-know sharing
Share only with supervisors or colleagues who are working with the client on the matter
Sharing is limited to what the work requires.
III(E) versus II(A)
III(E): do not disclose client information. II(A): do not act or cause others to act on MNPI
Different duties. One fact can trigger both.

How to solve Standard III(E): Preservation of Confidentiality questions

Use this method for any confidentiality question or vignette.

  1. 1Identify the information at issue and whose it is: a current, former or prospective client, or someone else.
  2. 2Identify who wants it or who is receiving it: a colleague on the account, an outsider, a regulator, a journalist or the client's relatives.
  3. 3Ask whether an exception applies: illegal activity, legal requirement, or client permission. Check each one against the facts.
  4. 4If an exception applies, check the scope. Disclose only what is needed, and only to the proper party, such as the authority involved.
  5. 5If no exception applies, the conclusion is a violation if disclosed, or compliance if the member refused or kept it private.
  6. 6Check whether Standard II(A) also applies, for example if the information is material and nonpublic and someone trades on it.
  7. 7Choose the answer that names the correct outcome and gives the right reason in the fewest words.

Quickest way: Three-exception test

When to use it: Use it when time is short and the vignette describes sharing client information with someone.

  1. Underline what was shared and with whom.
  2. Ask: illegal activity, required by law, or client permission? If all three are no, it is a violation.
  3. If yes, confirm the disclosure went only to the proper party and stayed within what was needed.
  4. For essay questions, state the standard, the exception that applies or not, and the action in one or two sentences.

Common mistakes in Standard III(E): Preservation of Confidentiality

  • Thinking the duty ends when the client leaves.

    Students link confidentiality to an active relationship.

    Fix: Remember the Standard names current, former and prospective clients.

  • Treating confidentiality as the same as the MNPI rule.

    Both involve protecting information.

    Fix: III(E) bars disclosing client information. II(A) bars acting on MNPI. Check which one the facts trigger, or both.

  • Assuming a mere suspicion of wrongdoing always allows disclosure.

    Students over-apply the illegal-activity exception.

    Fix: The exception concerns illegal activity. Where facts are unclear, consult supervisor, compliance or legal counsel before disclosing.

  • Forgetting that sharing with colleagues on the account is allowed.

    Students read the duty as absolute secrecy.

    Fix: Sharing with supervisors and colleagues who work on the client's matter is fine when it is needed for that work.

  • Ignoring local law that requires disclosure.

    Students focus on the client's wishes.

    Fix: If the law requires disclosure, you must disclose, even if the client objects. Follow the stricter of law and Code, except where law forbids a disclosure the Code allows.

  • Excluding prospective clients.

    Students think only signed clients count.

    Fix: Information from a prospect during a pitch is protected too.

Worked examples

Example 1

An adviser at a wealth firm knows from a former client's file that the client plans to sell a large stake in a listed company. At a dinner, the adviser tells a friend, who is a portfolio manager, about the former client's plan. The client has not given permission, no law requires disclosure and nothing suggests illegal activity. Did the adviser comply with the Standards?

Show the solution
  1. Information: a former client's plans. Former clients are covered by Standard III(E).
  2. Recipient: a friend, not a colleague working on the account and not an authority.
  3. Exceptions: no illegal activity, no legal requirement and no client permission. None applies.
  4. The adviser disclosed the information anyway, so Standard III(E) is violated.
  5. Standard II(A) is a separate question. It would be triggered only if the information were material and nonpublic and someone traded on it or was caused to trade on it. A planned stake sale is not automatically MNPI, and the facts do not say anyone traded.

Answer: No. The adviser violated Standard III(E) by disclosing a former client's information when no exception applied. Standard II(A) would be an issue only if the information was material and nonpublic and someone acted on it.

Example 2

A portfolio manager discovers that a client's transactions appear to be part of an illegal scheme. The manager tells the client's family friend about her concerns. She also consults the firm's compliance department and then reports the facts to the proper authorities. Which action, if any, violates Standard III(E)?

Show the solution
  1. Information: facts about a current client's apparent illegal activity.
  2. The illegal-activity exception allows disclosure to the proper authorities. It permits disclosure but does not require it unless local law does.
  3. Because the activity was only apparent, consulting compliance or legal counsel before reporting is the advisable course. The manager did this, so the report is supportable.
  4. The family friend is not an authority, a legal requirement or a person the client authorized.
  5. Telling the friend is therefore not covered by any exception.

Answer: Telling the family friend violates III(E). Reporting to the proper authorities after consulting compliance is permitted under the illegal-activity exception.

Exam tips

  • Look at who receives the information. The recipient usually decides the answer.
  • Name the exception explicitly: illegal activity, legal requirement or client permission.
  • Do not choose an answer that says disclosure is allowed just because the information is already widely known inside the firm.
  • In essay sets, answer the command word. If it says identify, name the standard. If it says justify, give the reason in one sentence.
  • Watch for vignettes that mix III(E) with II(A) or III(A). Pick the standard that fits the actual conduct.

Standard III(E): Preservation of Confidentiality in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Standard III(E): Preservation of Confidentiality: frequently asked questions

What are the exceptions to confidentiality under Standard III(E)?

There are three: the information concerns illegal activity, disclosure is required by law, or the client or prospective client permits disclosure. If none applies, you must keep the information confidential.

Does Standard III(E) apply to former and prospective clients?

Yes. It covers current, former and prospective clients. The duty does not end when the relationship ends.

What is the difference between confidentiality and MNPI?

Confidentiality under III(E) protects information about clients from disclosure. MNPI under II(A) is material information not public that you must not trade on or pass for trading. A single fact can fall under both.

Can I share client information with my colleagues?

You may share it with supervisors or colleagues who are working with the client on the matter and who need the information for that work. Sharing it with others without an exception breaches the Standard.