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

An FRM holder is asked by a client to review a derivatives valuation. The model the FRM uses relies on a key assumption that materially limits the reliability of the result. Which action best complies with the GARP Code of Conduct?

The FRM should disclose the assumption and its limitations in the report. The GARP Code requires members to communicate known limitations of their analyses and to avoid misrepresenting facts. Omitting it, revealing it only on request, or picking a convenient assumption would leave the client with a misleading view.

  1. AOmit the assumption from the report to avoid confusing the client
  2. BDisclose the assumption and its limitations so the client can understand the reliability of the resultCorrect
  3. CDisclose it only if the client asks a direct question
  4. DReplace it with a more favorable assumption that supports the client's preferred conclusion

Explanation

The Code requires members to disclose relevant limitations and assumptions in their analyses and not to misrepresent facts. Omitting or hiding the assumption, or choosing it to please the client, breaches that duty. Waiting to be asked still withholds material information.

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