Skip to content

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

A member who is an FRM holder is asked by her employer to validate a credit model built by her own close relative, who is a contractor at the firm. She believes she can remain objective. Which course of action best complies with the GARP Code of Conduct on conflicts of interest?

She should disclose the family relationship to her employer before validating and let the employer decide. The Code requires upfront disclosure of relationships that could reasonably impair objectivity; self-assessed objectivity, late disclosure, or secretly offsetting bias with a conservative rating does not satisfy it.

  1. APerform the validation silently, since she believes she is objective
  2. BPerform the validation and disclose the relationship only if the model fails
  3. CDisclose the relationship to her employer and let it decide whether she should perform the validationCorrect
  4. DDecline to tell anyone but give the model a conservative rating to offset any bias

Explanation

The Code requires members to disclose relationships that could reasonably be expected to impair objectivity or create a conflict. Disclosure must be made up front so the employer can decide. Believing oneself objective does not remove the duty, disclosure only after failure is late, and secretly adjusting a rating is not transparent.

Did you get it right without looking?

One question tells you little. A timed set on GARP Code of Conduct shows your real accuracy, how long you take and where you lose marks.

Practise GARP Code of ConductFree diagnostic mock

More GARP Code of Conduct questions