Describe the possible consequences of breaching the GARP Code of Conduct.
The idea
A breach of the GARP Code of Conduct has consequences because the Code is a binding set of standards that members accept as a condition of membership, not optional guidance. GARP, as the professional body, may take disciplinary action. Following a formal determination, the sanctions it can apply include temporary suspension or permanent removal of membership, and temporary or permanent removal of the right to use or refer to the FRM or another GARP designation. These are professional consequences and are separate from anything an employer, regulator or court may do. A dismissal or a regulatory fine does not prevent GARP from acting, and GARP cannot impose criminal penalties. Sanctions are something GARP may impose, not an automatic result of any breach. Candidates should remember that actual harm to a client is not what makes conduct a breach, and that the possible outcomes reach both membership and the right to use a designation.
A practice question
Which of the following is a consequence GARP may impose for a breach of the Code of Conduct?
- Temporary or permanent removal from membership and of the right to use the FRM designation - correct
- A prison sentence imposed on the member through GARP's own disciplinary processWhy not: GARP is a professional body and cannot impose criminal penalties; this confuses professional sanctions with those of a court.
- Automatic dismissal of the member from his or her job as ordered by GARPWhy not: GARP does not control employment; dismissal is for the employer, not a sanction GARP itself imposes.
- A fine collected by GARP on behalf of the securities regulator of the member's countryWhy not: GARP does not collect regulatory fines; this mixes up a professional body with a regulator.
Following a formal determination, GARP can impose professional sanctions: temporary suspension or permanent removal of membership, and temporary or permanent removal of the right to use or refer to a GARP designation such as the FRM. It has no power to imprison, to dismiss someone from a job, or to levy regulatory fines.
A harder one
A GARP Member fails to disclose a conflict of interest to a client. No client money was lost and nobody complained. What is the best view of the consequences under the Code?
- No consequences, because a breach of the Code requires actual financial harm to a client of the memberWhy not: Makes harm a condition; the non-disclosure is itself the breach.
- Consequences arise only if the client complains to GARP in writing about the non-disclosureWhy not: Makes a complaint a precondition; the Code applies to the conduct, and GARP may act on it.
- Only a verbal warning is possible, since no loss occurred and nobody complained about itWhy not: Invents a cap on the response; GARP's possible sanctions extend to membership and designation status.
- The member breached the Code and may be sanctioned, including on membership and designation - correct
Failing to disclose a conflict is a breach by itself, so GARP may impose sanctions, which can include suspension or removal from membership and action against designations. No loss or complaint is needed for the conduct to be a breach.
The hardest tier
A member is accused of breaching the Code. Which statement about the possible consequences is most accurate?
- Any breach automatically leads to permanent loss of all designations, with no discretion allowedWhy not: Treats sanctions as automatic; the Code says violations may lead to sanctions, not that all breaches lead to one outcome.
- Sanctions can affect membership but cannot reach designations that the member holds, such as the FRMWhy not: Wrongly separates membership from designations; sanctions can include removing the right to use or refer to a designation.
- The only possible consequence is a private reprimand with no effect on membership or designation statusWhy not: Understates the range; GARP can suspend or remove membership and act against designations.
- GARP may sanction, up to removal from membership and of the right to use designations, but not automatically - correct
The Code provides that a breach may result in sanctions following a formal determination, which can extend to removal from membership and removal of the right to use a designation. The word may matters: outcomes are not automatic and are not limited to private warnings.
In the app: 6 practice questions on this outcome, spaced review that brings it back before you forget it.
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