FRM Exam Part I · GARP Code of Conduct

Conflicts of Interest and Confidentiality in the GARP Code

Updated 11 October 2026 · Fact-checked

Under the GARP Code of Conduct, a conflict of interest is a situation where your own interests, or another party's, could compromise your objectivity. You must avoid it or disclose it. Confidentiality means you must not misuse or share non-public information of employers and clients unless legally required or permitted by them.

Understand Conflicts of Interest and Confidentiality

The GARP Code of Conduct sets out how FRM holders and candidates must behave. Two of its core rules in the Rules of Conduct cover conflicts of interest and confidentiality. They are related but they are not the same rule.

A conflict of interest is about your judgment. It exists when something could affect, or look like it affects, your objectivity or independence. Examples: you recommend a fund because you receive a referral fee, you approve a model built by a close friend, or you hold shares in a firm whose risk you are rating. The Code expects you to identify the conflict, disclose it to the affected parties, and avoid or manage it so your judgment is not compromised. Disclosure is the key action. A conflict that is disclosed properly is treated very differently from one that is hidden.

A confidentiality duty is about information. You must not use or share non-public information of your employer or clients for any improper purpose, such as personal gain. You may disclose it only when the law or a regulator requires it, or when the client or employer has given permission. Typical items are client positions, pricing models, trade plans, internal loss data and unpublished results.

A simple way to separate them: conflict of interest asks "Could my own interests bend my judgment?" Confidentiality asks "Am I protecting or misusing information I was trusted with?" One scenario can break both rules. For example, trading your own account ahead of a client's large order uses confidential information and creates a conflict.

Exam questions are short scenarios. You pick the action that follows the Code: disclose, decline, refuse to share, or escalate. Wording is paraphrased, so learn the principles, not exact sentences.

Key formulas to remember

Conflict of interest rule: Identify → Disclose → Avoid or manage; Applies when your own or a related party's interest could compromise objectivity or independence. Disclosure to affected parties is the minimum response, and avoiding the conflict is better where possible.
Confidentiality rule: Non-public information of employer or client → do not misuse or share; Exceptions: disclosure required by law or regulation, or authorised by the employer or client. Never use it for personal gain.
Disclosure test: Would a reasonable observer doubt my objectivity? If yes → disclose; A memory aid for the idea of apparent conflicts. It is not a quotation from the Code.
Confidentiality exception test: Legal requirement OR permission from the owner of the information → disclosure allowed; Curiosity, a colleague's request or personal convenience are not valid reasons.

How to solve Conflicts of Interest and Confidentiality questions

Use this method for any scenario question on conflicts of interest or confidentiality in the GARP Code.

1Read the last line first to see what you are asked: the correct action, the violation, or the rule involved.
2List the facts: who is involved, what you gain or know, and who relies on your judgment or information.
3Decide the issue. If your interest could affect your judgment, it is a conflict of interest. If non-public information is used or shared, it is confidentiality. It can be both.
4For a conflict, ask whether it has been disclosed to the affected parties and whether you can avoid it or manage it.
5For confidentiality, ask whether the information is non-public and whether the law or the owner permits disclosure.
6Remove options that gain personally, hide facts, or share information casually.
7Pick the option that discloses, declines or protects. Check it does not create a new breach.

Quickest way: Two-question filter

When to use it: Use it when you have about a minute per question and the scenario is short.

Ask: "Does anyone's interest threaten my objectivity?" If yes, the answer involves disclosure or avoidance.
Ask: "Is there non-public information that is being used or shared?" If yes, the answer involves protecting it unless the law or the owner allows disclosure.
Eliminate options that stay silent, favour yourself, or leak information.
Between two good options, choose the one that discloses to the affected party or declines to act.

Common mistakes in Conflicts of Interest and Confidentiality

Treating conflict of interest and confidentiality as one rule
Both appear in the same scenarios and both concern trust.
Fix: Label the issue first. Judgment compromised is a conflict. Information misused or shared is confidentiality. Some scenarios involve both.
Thinking a conflict is acceptable if it does not change your actual decision
Candidates focus on outcomes instead of objectivity and appearance.
Fix: The test is whether the interest could compromise objectivity, or reasonably appear to. Disclose anyway.
Choosing 'stay silent' or 'resign from the task quietly' as the answer
Silence feels safe.
Fix: Disclosure to the affected parties is the central action. Avoiding the situation is fine, but hiding it is not.
Believing confidential information can never be disclosed
The rule is remembered as an absolute ban.
Fix: Remember the exceptions: disclosure required by law or regulation, or permitted by the employer or client.
Assuming information is only confidential once it is marked 'confidential'
Candidates rely on labels.
Fix: Non-public information of an employer or client is protected whether or not it is labelled.
Sharing information with a colleague 'who is also at the firm' without a need
Internal sharing feels harmless.
Fix: Share only with people who have a legitimate need and authority. Curiosity and convenience are not reasons.

Worked examples

Example 1

A risk analyst at a bank is asked to validate a pricing model. She learns that her brother owns a significant stake in the vendor that built it. Which action is most consistent with the GARP Code of Conduct? (A) Complete the validation and say nothing, since her brother is not involved in the model's design. (B) Disclose the relationship to her employer and let it decide how to handle the validation. (C) Give the model a favourable review to avoid any appearance of bias against the vendor. (D) Share the model's internal results with her brother so he can assess the vendor's position.

Show the solution

Identify the issue: her family interest in the vendor could compromise her objectivity. This is a conflict of interest.
Apply the rule: identify, disclose, avoid or manage.
Option A hides the conflict. It fails disclosure.
Option C distorts her judgment, which is the harm the rule prevents.
Option D shares non-public employer information for a personal purpose, so it breaches confidentiality too.
Option B discloses to the party that can manage the conflict, for example by reassigning the validation.

Answer: (B). Disclose the relationship to her employer so it can manage or reassign the work.

Example 2

A risk manager at an asset manager learns, through internal reports, that a client plans a large purchase of a thinly traded bond. A friend at another firm asks whether the client is about to buy. Which response best follows the GARP Code of Conduct? (A) Hint that the friend should watch the bond. (B) Buy the bond for his own account first and tell the friend nothing. (C) Decline to share the information, because the client's plans are confidential non-public information. (D) Share it only if the friend promises not to trade on it.

Show the solution

Identify the issue: the client's trading plan is non-public information held because of his role. This is mainly confidentiality.
Check the exceptions: no law requires disclosure and the client has not given permission.
Option A leaks the information indirectly, so it is a breach.
Option B uses the information for personal gain. It also creates a conflict of interest with the client.
Option D still discloses the information without permission. A promise from the friend does not create authority.
Option C protects the information, which is the required action.

Answer: (C). Decline to share, since the information is confidential and no legal or client authorisation exists.

Exam tips

Scenario questions usually have one clearly protective answer. Look for words like disclose, decline, refuse or escalate.
Eliminate options that gain personally, hide facts or leak information. That usually leaves two choices.
Check whether the scenario breaches both rules. If an option fixes only one, it may not be best.
Remember the confidentiality exceptions: legal requirement or permission from the owner of the information.
Learn the principles, not exact Code wording. Questions are paraphrased, and the Code is updated with the annual curriculum, so check the current GARP Study Guide.

Practice questions from GARP Code of Conduct

Conflicts of Interest and Confidentiality in other exams

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

Conflicts of Interest and Confidentiality: frequently asked questions

What is a conflict of interest under the GARP Code of Conduct?

It is a situation where your own interests, or those of a related party, could compromise your objectivity or independence. The Code expects you to identify it, disclose it to those affected and avoid or manage it. Appearances matter as well as actual bias.

What is the difference between conflict of interest and confidentiality in the FRM exam?

A conflict of interest concerns your judgment being influenced by a competing interest. Confidentiality concerns protecting non-public information of employers and clients. One scenario can involve both, such as trading ahead of a client's order.

When can confidential information be disclosed under the GARP Code?

Disclosure is acceptable when the law or a regulator requires it, or when the employer or client gives permission. Personal gain, curiosity or a colleague's request are not valid reasons.

Can I keep a conflict of interest if I disclose it?

Disclosure is the minimum response and it lets affected parties decide how to proceed. Where possible, you should also avoid or manage the conflict. In exam questions, the best answer usually discloses and lets the right party handle the situation.

How many questions will I see on the GARP Code of Conduct in FRM Part I?

GARP does not publish a fixed question count for each subtopic here, so do not rely on a number. Expect short scenario questions within Foundations of Risk Management. Check the current GARP Study Guide for the latest learning objectives.