Subject 11. Standard III (E) Preservation of Confidentiality

III. DUTIES TO CLIENTS

E. Preservation of Confidentiality.

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.
  • The client or prospective client permits disclosure of the information.

The analyst must preserve confidentiality when the following two criteria are met:

  • The analyst must be in a relationship of trust with the client who has engaged him or her.
  • The information received must result from or be relevant to the portion of the client's business that is the subject of the confidential relationship.

You are required to:

  • Avoid discussing any information received from a client, except to fellow employees working with the same client.
  • Ask yourself if the disclosure is necessary and beneficial to the client in cases where you have to disclose information.
  • Forward confidential information to the PCP (CFA Institute's Professional Conduct Program) if the PCP requests, even if the client and you have a settlement agreement with confidentiality clauses. This is because any information turned over to the PCP is kept in the strictest confidence. Members and candidates who will not provide necessary information because of confidentiality will be seen as failing to co-operate with the investigation and will be subject to summary suspension of membership under CFA Institute's bylaws.

However, if the information concerns illegal activities by the client, the analyst may be required to consult with his supervisor and with legal counsel before deciding whether to report the activities to the appropriate governmental organization.

Procedures for compliance

The simplest, most conservative, and most effective way to comply with this standard is to avoid disclosing any information received from a client except to authorized fellow employees who are also working for the client. In some instances, however, a member may want to disclose information received from clients that is outside the scope of the confidential relationship and does not involve illegal activities. Before making such a disclosure, a member should ask the following questions:

  • In what context was the information disclosed?
  • If disclosed in a discussion of work being performed for the client, is the information relevant to the work?
  • Is the information background material that, if disclosed, will enable the member to improve service to the client?

Example 1

You work in the trust department of a large bank. A client tells you that she must sell a significant portion of her personal stock portfolio in order to generate cash to meet the payroll of her small business. Shortly after the meeting, a colleague in the commercial lending department of the bank mentions seeing you with the client. She has applied for a large business loan. He asks you if you have any information that could help the bank with the loan decision. You cannot disclose the content of your meeting with the client. If the colleague wants additional information, he should contact your client directly.

Example 2

The employer of a client asks to meet with you. The employer suspects your client of embezzling funds from his place of work. You are aware that the client has made several substantial additions into his discretionary account during the past two months. It may be appropriate to provide information if it pertains to illegal activities. However, you are expected to preserve client confidentiality unless there is a clear indication of these activities. Contact your supervisor or legal counsel before providing information about your client.

Example 3

A financial advisor learns that a client plans to make a charity donation. He tells a charity to solicit donation from the client. The financial advisor violates the standard for revealing confidential client information.

Example 4

An analyst claims that he cannot disclose client trading information to CFA Institute's PCP committee. He therefore violates the standard for not providing confidential client information to the PCP.

Example 5

A member receives a request from a government department to review a client's records on account of some suspicion. The member may have to disclose the information to the government department.

User Contributed Comments 16

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Slothrop: I don't think that Example 4 is correct. The CFA goes across countries. Imagine that this is in Switzerland. Just because CFA Institute's PCP committee will preserve confidentiality does not mean that it is LEGAL to disclose the client's trade information. Also, I(A) means you have to apply Swiss law because it is stricter on confidentiality. Therefore, in Switzerland, you would be violating the Standard if you did disclose client trade information to the PCP committee.
cfataker: I understand your logic Slothrop. However, the exam is administered by CFAI and we should answer what CFAI asks to do. If it wants the info, you have to disclose the info. At least you should answer so although in reality who would really do so to violate a country-specific law.
godz: I think , iam fully behind ya cfataker the exam is adminstered by cfa , na time to confront cfa , give them what they ask and u will get the mark back
CliftonLoo: Example #1 seems a little on the fence. It says above you can discuss clients with fellow employees of the same client. But I can see discussing the negative aspects of the client would not be a benefit to the client.
Challs: To CliftonLoo

Now in the previous standards...not sure which one...cross departmental disclosures were in violation of the standard...so it follows that a colleage in the "commercial lending department" ought not to be given information from the "investment department"...
bobert: Answer it as is concerning #4. If the situation does arise, you will have to communicate with the CFAI PCP. Being as I am not fully aware of switzerland's laws, I am sure they would know what to do in the situation, especially if you explain it like that. There will either be a good explanation why they should be able to receive the documents, or there won't be. I think it is a simple as that... simple hah
Seemorr: More important, the standards say you're permitted to cooperate with a PCP investigation even if it involves divulging confidential information ... nowhere does it say you HAVE to.
rhardin: Yes you do, you MUST comply with the CFA's investigation, which is maybe the most hypocritical thing I have ever heard (though expected from the CFA!) They say "Never disclose confidential information! Unless we ask for it, and then you are required to give it to us."
riouxcf: If you keep your nose clean, the PCP won't be investigating your illegal activities in Switzerland. Jeez guys, if you don't believe in the ethical standards being established by the CFA, then go get some other credential...
rhardin: So riouxcf, you think it's ethical to violate the confidentiality agreement you signed with your client because the CFA says you must give them any and all confidential info to cooperate with a PCP investigation? I think that's incredibly unethical, and I think it's very hypoctrical of the CFA to ask us to do that. If I were a client, I would be VERY unhappy to learn that my money manager gave my confidential info to anyone, whether it by the CFA or anyone else.

Also, the PCP investigates all kinds of stupid stuff... if you use the CFA designation wrong after your name, they can investigate you for that. Any and all rules are up for investigations.
cleopatraliao: PCP-Professional Conduct Program?
johntan1979: Agree with riouxcf. rhardin, if you don't trust the CFA PCP to maintain confidentiality, and think that this request is hypocritical and unethical, why don't you voice your opinion directly to the CFA Institute? I'm sure they will be very eager to learn of your opinion on their "stupid" investigations before conferring the CFA designation to you.
mahendra: Regarding Example 5..Why PCP has to ask for client's trading data..I think PCP come into picture only when their is a complaint raised against the member/candidate about the management of the client's portfolio..so PCP require the data to conduct the enquiry.
BB465: Why would the CFA be asking for confidential client information? Clients are not CFA members and the CFA is not a law enforcement organization.
namuhama: If you have nothing to hide and had not taken part in any illegal or lawful activity, then why would you not consent to having your information reported to the PCP?
Reason why people would normally want to conceal and avoid revealing their transactions be because they have something to hide.
And PCP would normally request for confidential info when they have reasonable basis to suspect illegal, unethical trasnsactions
Gdunne11: Example 5 is complete hokum
The member may have to disclose,
May
May is not black or white, yes or no