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FRM Part I · FRM Exam Part I · GARP Code of Conduct

A GARP member managing a trading desk's risk reports is asked by her manager to omit a model limitation from a report to the board because it could 'cause unnecessary concern'. The limitation materially affects reported VaR. Which response best reflects the Code's rules of conduct?

She should disclose the model limitation in the report. The Code forbids knowingly misrepresenting facts or omitting material information that makes professional work misleading, and a limitation materially affecting VaR is such information. A manager's instruction does not relieve her of this duty to exercise independent, honest judgment.

  1. AOmit the limitation, because the manager is accountable for the final content of the report
  2. BDisclose the limitation in the report, since the Code prohibits knowingly misrepresenting or omitting facts that make the report misleadingCorrect
  3. CMention the limitation orally to a few directors but leave it out of the written report
  4. DInclude the limitation only if the model is later found to have produced a loss

Explanation

Members must not knowingly misrepresent or omit material facts in professional activities, and must exercise independent judgment. A material limitation affecting VaR must be disclosed to avoid misleading the board. An oral hint to some directors does not give accurate, complete reporting.

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