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

During a routine review, an FRM holder at a hedge fund discovers that her supervisor has been valuing illiquid positions using a model that overstates values, inflating performance fees. She raises it internally and nothing happens. Which statement best reflects the Code's treatment of confidentiality in this situation?

She should escalate appropriately and refuse to take part in the misvaluation. The Code does not make confidentiality absolute where law requires disclosure, and it requires members not to knowingly misrepresent facts. Posting values publicly or adopting the flawed model would be inappropriate.

  1. AConfidentiality duties are absolute, so she must remain silent in all circumstances
  2. BConfidentiality duties do not prevent her from complying with applicable law or from refusing to take part in unethical conduct, and she should escalate appropriatelyCorrect
  3. CShe may publish the valuations on social media since the employer acted unethically
  4. DShe should adopt the supervisor's model to remain consistent with firm practice

Explanation

The Code requires integrity and refusal to knowingly misrepresent facts, and confidentiality yields where law requires disclosure. Escalating through proper channels is consistent with both. Public disclosure is not a measured response and following the flawed model would be participation in misrepresentation.

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