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.