GARP Code of Conduct

After completing this reading, you should be able to:

• Describe the responsibility of each GARP Member concerning professional integrity, ethical conduct, conflicts of interest, the confidentiality of information, and adherence to generally accepted practices in risk management.
• Describe the potential consequences of violating the GARP Code of Conduct.

The excerpt is the GARP Code of Conduct by GARP.

Introductory Statement

The GARP Code of Conduct (“Code”) sets forth principles of professional conduct for Global Association of Risk Professionals (“GARP”), Financial Risk Management (FRM®FRM®) and Energy Risk Professional (ERP®ERP®) certifications and other GARP certification and diploma holders and candidates, GARP’s Board of Trustees, its Regional Directors, GARP Committee Members and GARP’s staff (hereinafter collectively referred to as “GARP Members”) in support of the advancement of the financial risk management profession. These principles promote the highest ethical conduct and disclosure levels and provide direction and support for both the individual practitioner and the risk management profession.

The pursuit of high ethical standards goes beyond following the letter of applicable rules and regulations and behaving in accordance with the intentions of those laws and regulations, it is about pursuing a universal ethical culture.

All individuals, firms, and associations have an ethical character. Some of the biggest risks faced by firms today do not involve legal or compliance violations but rest on decisions involving ethical considerations and the application of appropriate standards of conduct to business decision-making.

There is no single prescriptive ethical standard that can be globally applied. We can only expect that GARP Members will continuously consider ethical issues and adjust their conduct accordingly as they engage in their daily activities. This document makes references to professional standards and generally accepted risk management practices. Risk practitioners should understand these as concepts that reflect an evolving shared body of professional standards and practices. In considering the issues this raises, ethical behavior must weigh the circumstances and the culture of the applicable global community in which the practitioner resides.

Code of Conduct

The Code is comprised of the following Principles, Professional Standards, and Rules of Conduct, which GARP Members agree to uphold and implement.

1. Principles

1.1 Professional Integrity and Ethical Conduct

GARP Members shall act with honesty, integrity, and competence to fulfill the risk professional’s responsibilities and to uphold the reputation of the risk management profession. GARP Members must avoid disguised contrivances in assessments, measurements, and processes that are intended to provide a business advantage at the expense of honesty and truthfulness.

1.2 Conflicts of Interest

GARP Members have a responsibility to promote the interests of all relevant constituencies and will not knowingly perform risk management services directly or indirectly involving an actual or potential conflict of interest unless full disclosure has been provided to all affected parties of any actual or apparent conflict of interest. Where conflicts are unavoidable, GARP Members commit to their full disclosure and management.

1.3 Confidentiality

GARP Members will take all reasonable precautionary measures to prevent intentional and unintentional disclosure of confidential information.

2. Professional Standards

2.1 Fundamental Responsibilities

• GARP Members must endeavor, and encourage others, to operate at the highest level of professional skill.
• GARP Members should always continue to perfect their expertise.
• GARP Members have a personal ethical responsibility and cannot out-source or delegate that responsibility to others.

2.2 Best Practices

• GARP Members will promote and adhere to applicable “best practice standards,” and will ensure that risk management activities performed under his/her direct supervision or management satisfies these applicable standards.
• GARP Members recognize that risk management does not exist in a vacuum.
• GARP Members commit to considering the wider impact of their assessments and actions on their colleagues and the wider community and environment in which they work.

2.3 Communication and Disclosure

GARP Members issuing any communications on behalf of their firm will ensure that the communications are clear, appropriate to the circumstances and their intended audience, and satisfy applicable standards of conduct.

Rules of Conduct

1. Professional Integrity and Ethical Conduct

GARP Members:

1.1 Shall act professionally, ethically, and with integrity in all dealings with employers, existing or potential clients, the public, and other practitioners in the financial services industry.

1.2 Shall exercise reasonable judgment in the provision of risk services while maintaining the independence of thought and direction. GARP Members must not offer, solicit, or accept any gift, benefit, compensation, or consideration that could be reasonably expected to compromise their own or another’s independence and objectivity.

1.3 Must take reasonable precautions to ensure that the Member’s services are not used for improper, fraudulent, or illegal purposes.

1.4 Shall not knowingly misrepresent details relating to analysis, recommendations, actions, or other professional activities.

1.5 Shall not engage in any professional conduct involving dishonesty or deception or engage in any act that reflects negatively on their integrity, character, trustworthiness, or professional ability or on the risk management profession.

1.6 Shall not engage in any conduct or commit any act that compromises the integrity of GARP, the (Financial Risk Manager) FRM designation or the integrity or validity of the examinations leading to the award of the right to use the FRM designation or any other credentials that may be offered by GARP.

1.7 Shall endeavor to be mindful of cultural differences regarding ethical behavior and customs, and to avoid any actions that are, or may have the appearance of being unethical according to local customs. If there appears to be a conflict or overlap of standards, the GARP member should always seek to apply the higher standard.

2. Conflict of Interest

GARP Members:

2.1 Shall act fairly in all situations and must fully disclose any actual or potential conflict to all affected parties.

2.2 Shall make full and fair disclosure of all matters that could reasonably be expected to impair their independence and objectivity or interfere with their respective duties to their employer, clients, and prospective clients.

3. Confidentiality

GARP Members:

3.1 Shall not make use of confidential information for inappropriate purposes, and unless having received prior consent shall maintain the confidentiality of their work, their employer or client.

3.2 Must not use confidential information to benefit personally.

4. Fundamental Responsibilities

GARP Members:

4.1 Shall comply with all applicable laws, rules, and regulations (including this Code) governing the GARP Members’ professional activities and shall not knowingly participate or assist in any violation of such laws, rules, or regulations.

4.2 Shall have ethical responsibilities and cannot out-source or delegate those responsibilities to others.

4.3 Shall understand the needs and complexity of their employer or client and should provide appropriate and suitable risk management services and advice.

4.4 Shall be diligent about not overstating the accuracy or certainty of results or conclusions.

4.5 Shall clearly disclose the relevant limits of their specific knowledge and expertise concerning risk assessment, industry practices, and applicable laws and regulations.

5. General Accepted Practices

GARP Members:

5.1 Shall execute all services with diligence and perform all work in a manner that is independent of interested parties. GARP Members should collect, analyze and distribute risk information with the highest level of professional objectivity.

5.2 Shall be familiar with current generally accepted risk management practices and shall clearly indicate any departure from their use.

5.3 Shall ensure that communications include factual data and do not contain false information.

5.4 Shall make a distinction between fact and opinion in the presentation of analysis and recommendations.

Applicability and Enforcement

Every GARP Member should know and abide by this Code. Local laws and regulations may also impose obligations on GARP Members. Where local requirements conflict with the Code, such requirements will have precedence.

Violation(s) of this Code may result in, among other things, the temporary suspension or permanent removal of the GARP Member from GARP’s Membership roles, and may also include temporarily or permanently removing from the violator the right to use or refer to having earned the FRM designation or any other GARP granted designation, following a formal determination that such a violation has occurred.

Practice Question

Romney Muriuki, FRM, works as an analyst for an African Insurance firm that has 8 branches in Central Africa. In a recent report, Muriuki makes the following statements:

“Based on the fact that the firm has recorded steady growth in customer numbers over the last decade, and that the insurance penetration currently stands at 3%, I expect the trend to continue for the next 10 years. I also expect that the company will be able to translate the continually increasing revenue into significant profits.”

The report goes on to describe in detail the risks facing the firm, particularly geopolitical risks associated with African countries. Muriuki’s report:

A. Violated the Code by failing to distinguish factual details from his opinion

B. Did not violate the Code

C. Violated the code by giving a shallow professional assessment of the insurance market in Africa

D. Violated the Code by failing to properly identify all the risks related to operations in African countries

The correct answer is B.

Historical growth can be presented as a fact since it actually happened. Muriuki states that the firm should expect further growth in revenue and profits, which is an opinion. He does not claim that these are facts. Therefore, he does not violate the standard regarding the separation of facts from opinions.

A Is incorrect because Muriuki’s report seems to be a combination of fact-based observation (steady growth in customer numbers, 3% insurance penetration) and a professional forecast or opinion about future growth and profitability. It doesn’t appear that he has failed to distinguish between these two elements.

C Is incorrect because there is no evidence in the scenario that Muriuki’s assessment of the African insurance market is shallow. He may very well have based his opinion on thorough research and understanding.

D Is incorrect because the question explicitly states that the report goes on to describe the risks facing the firm, including geopolitical risks. This would seem to indicate that Muriuki has indeed identified risks related to operations in African countries.