Knowledge Base
Establish information barriers (Chinese walls) to prevent conflicts of interest
Which internal document governs the wall-crossing procedure?
Internal compliance policies of major French institutions document the wall-crossing procedure. This procedure requires prior authorisation from the compliance officer, a formal reminder of confidentiality obligations, and the signing of a confidentiality letter.
Which article of Delegated Regulation 2017/565 requires procedures to prevent the exchange of information between persons engaged in activities with a risk of conflict of interest?
Article 34(2)(a) of Delegated Regulation 2017/565 specifically requires effective procedures to prevent or control the exchange of information between persons engaged in activities involving a risk of conflict of interest. This is essential for establishing information barriers.
Which activities are typically positioned on the private side of the Chinese wall?
According to the text, corporate finance, mergers and acquisitions, and equity research departments hold confidential or inside information and are therefore positioned on the private side of the wall. Client sales and proprietary trading teams, on the other hand, operate on the basis of public information and are on the public side.
What is the consequence for persons positioned 'above the wall'?
Persons above the wall, typically members of senior management, receive all inside information. In return, they are subject to enhanced trading restrictions and increased monitoring of their personal transactions.
'Need-to-know' principle
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This principle involves configuring database access rights so that each person only has access to the information strictly necessary for performing their duties. This minimises the risk of leaking sensitive information.
Categorize items by dragging them to the appropriate zones
Items to categorize:
Private side
Public side
Departments that hold confidential information (corporate finance, mergers and acquisitions, equity research) are on the private side. Those that operate on the basis of public information (client sales, proprietary trading) are on the public side.
A simple glass partition is sufficient to ensure the physical separation of conflicting activities according to the AMF Sanctions Committee.
The AMF Sanctions Committee ruled a simple glass partition insufficient in a decision dated 8 January 2009. Premises housing conflicting activities must be physically distinct, with badge-controlled access systems. This demonstrates that separation must be more robust than simple partitions.
An accidental breach of information barriers does not need to be reported immediately.
Any accidental breach must be immediately reported to the compliance function. The compliance function then assesses the appropriate corrective measures to prevent any risk of conflict of interest.