{"id":11323,"date":"2021-02-18T04:58:26","date_gmt":"2021-02-18T04:58:26","guid":{"rendered":"https:\/\/analystprep.com\/study-notes\/?p=11323"},"modified":"2024-04-12T10:28:54","modified_gmt":"2024-04-12T10:28:54","slug":"standard-iii-e-preservation-confidentiality","status":"publish","type":"post","link":"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/standard-iii-e-preservation-confidentiality\/","title":{"rendered":"Standard III (E) \u2013 Preservation of Confidentiality"},"content":{"rendered":"<p><iframe loading=\"lazy\" src=\"\/\/www.youtube.com\/embed\/49q4XUzEqNw\" width=\"611\" height=\"343\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>Members and Candidates must keep information about current, former, and prospective clients confidential unless:<\/p>\n<ol>\n<li>The information concerns illegal activities on the part of the client or prospective client;<\/li>\n<li>Disclosure is required by law; or<\/li>\n<li>The client or prospective client permits disclosure of the information.<\/li>\n<\/ol>\n<p>Members and Candidates <strong><em>must<\/em><\/strong> preserve the confidentiality of all potential, current, and former clients. Members or Candidates may be required by law to disclose client information or if they are concerned about any illegal activity. These disclosures would not violate Standard III(E) \u2013 Preservation of Confidentiality.<\/p>\n<h2>Status of Client<\/h2>\n<p>This standard extends the preservation of confidentiality to all former clients and entities. A former client can permit a Member or Candidate to disclose information. However, the terms of the disclosure are at the discretion of the former client.<\/p>\n<h2>Compliance with Laws<\/h2>\n<p>In general, Members and Candidates <strong><em>must<\/em><\/strong> comply with all applicable laws. If the applicable laws require Members or Candidates to disclose client information, or on the contrary, to maintain confidentiality in the face of illegal activity \u2013 the Member or Candidate must adhere to the law.<\/p>\n<h2>Electronic Information and Security<\/h2>\n<p>Members and Candidates are required to have an understanding of their firm\u2019s confidentiality policies concerning electronic communications and client records. Additionally, Members and Candidates should encourage their firm to implement training programs on the firm\u2019s confidentiality procedures.<\/p>\n<h2>Professional Conduct Investigations by CFA Institute<\/h2>\n<p>The requirements set by Standard III(E) \u2013 Preservation of Confidentiality does not prevent members from participating or cooperating with a CFA Institute Professional Conduct Program (PCP) investigation.<\/p>\n<h2>Compliance Recommendations<\/h2>\n<p>Members and Candidates should:<\/p>\n<ul>\n<li>Refrain from disclosing client information except to approved employees.<\/li>\n<li>Understand and comply with their firm\u2019s electronic communication and data storage procedures.<\/li>\n<li>Make reasonable attempts to ensure compliance procedures on client privacy and electronic communications are followed to prevent the accidental dissemination of client information.<\/li>\n<\/ul>\n<blockquote>\n<h3>Application 1: Disclosing Confidential Information<\/h3>\n<p>Michelle Antalaya, a financial advisor, has just finished a meeting with one of her clients. Michael Brown wants to make a charity donation worth USD 250,000 to reduce his income tax liability. Brown has permitted Antalaya to offer suggestions of different charities and hold discussions with various charities on his behalf. She is allowed to disclose the size of the donation. Brown mentions that if he is satisfied with the charity selected, he will make recurring donations in the future \u2013 this information is not to be disclosed. Antalaya holds a meeting with her close friend and CFO of GirlTalk and discloses the size and the possibility of recurring donations. Brown decides to donate the proceeds to a different charity.<\/p>\n<p>Which of Antalaya\u2019s action(s) violate Standard III(E) \u2013 Preservation of Confidentiality?<\/p>\n<p>\u00a0 \u00a0 \u00a0A. None<\/p>\n<p>\u00a0 \u00a0 \u00a0B. Disclosing details about the size of the donation.<\/p>\n<p>\u00a0 \u00a0 \u00a0C. Disclosing details about the possibility of recurring donations in the future.<\/p>\n<h4>Solution<\/h4>\n<p><strong><em>The correct answer is C.<\/em><\/strong><\/p>\n<p>Antalaya has violated Standard III(E) \u2013 Preservation of Confidentiality by disclosing the possibility of recurring donations. Brown gave Antalaya permission to disclose the size of the donation \u2013 this in itself would not have been a violation.<\/p>\n<h3>Application 2: Disclosing Possible Illegal Activity<\/h3>\n<p>Jason McCartney manages the investment portfolio of a wealthy businessman \u2013 Carlo Nunes. His client is under informal investigation due to suspected illegal drug activity. McCartney has noted a large increase in money coming into his Nunes\u2019 investment accounts. When he asks Nunes about the uncharacteristic increases in his cash inflows, he is unable to share any details about the source of the funds. The laws stipulate that client confidentiality can be broken in light of any illegal activity<\/p>\n<p>What is the <em>most<\/em> appropriate course of action for McCartney to take to comply with Standard III(E) \u2013 Preservation of Confidentiality?<\/p>\n<p>\u00a0 \u00a0 \u00a0 \u00a0 A. McCartney should disclose to the relevant authorities any information that could assist in their investigation.<\/p>\n<p>\u00a0 \u00a0 \u00a0 \u00a0 B. McCartney should maintain client confidentiality even if it is required by law.<\/p>\n<p>\u00a0 \u00a0 \u00a0 \u00a0 C. McCartney should consult his firm\u2019s compliance department to determine the relevant policies on the disclosure of confidential information.<\/p>\n<h4>Solution<\/h4>\n<p><strong><em>The correct answer is C.<\/em><\/strong><\/p>\n<p>McCartney should check with his compliance department before taking any actions. Additionally, if the relevant authorities seek Nunes\u2019 information, McCartney is required by law to make the required disclosures. Under Standard III(E) \u2013 Preservation of Confidentiality, McCartney does not have the authority to make any disclosures without Nunes\u2019 permission or a requirement by law.<\/p>\n<\/blockquote>\n<p>Reading 46: Guidance for The Standards of Professional Conduct (I-VII)<\/p>\n<p><em>LOS 46 (a) <\/em><em>Demonstrate a thorough knowledge of the CFA Institute Code of Ethics and Standards of Professional Conduct by applying the Code and Standards to specific situation.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Members and Candidates must keep information about current, former, and prospective clients confidential unless: The information concerns illegal activities on the part of the client or prospective client; Disclosure is required by law; or The client or prospective client permits&#8230;<\/p>\n","protected":false},"author":5,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[102,196],"tags":[216,197,203],"class_list":["post-11323","post","type-post","status-publish","format-standard","hentry","category-cfa-level-2","category-ethical-and-professional-standards","tag-cfa-level-2","tag-ethical-and-professional-standards","tag-standard-iii-e-preservation-of-confidentiality","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - 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