FRM Part I · FRM Exam Part I · GARP Code of Conduct
A GARP member is preparing a risk report. Her firm's compensation depends partly on reported risk metrics being below a threshold. She has a choice of two defensible methodologies; one gives a figure just under the threshold and the other just over it. Which approach best satisfies the Code?
She should select the methodology on its professional merits and disclose both the conflict of interest and how sensitive the result is to the choice. The Code demands objectivity and transparency, so letting a pay threshold drive the choice, or hiding the alternative, is improper.
- AChoose the one under the threshold since both are defensible, and do not disclose the alternative
- BChoose the method that is most appropriate on professional merit, and disclose the conflict and the sensitivity to the choiceCorrect
- CChoose the one over the threshold to be conservative, regardless of merit
- DAverage the two figures and report the average without explanation
Explanation
The Code requires objective professional judgment, avoidance or disclosure of conflicts of interest, and transparency about methods. Selecting by merit and disclosing the conflict and sensitivity satisfies this. Choosing by the threshold, or blindly being conservative, lets the incentive drive the choice, and unexplained averaging lacks transparency.
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