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Jan 19Doug Smith

Buzzword of the Week: Chinese Wall

Jan 19Doug Smith

[This is starting to look like China week on my blog]

Over the years, I’ve heard the term in business to “erect a Chinese wall.” I thought it had to do with avoiding potential conflicts of interest and, according to Investopedia, I was correct.

A Chinese Wall is the ethical barrier between different divisions of a financial (or other) institution to avoid conflict of interest. A Chinese Wall is said to exist, for example, between the corporate-advisory area and the brokering department of a financial services firm to separate those giving corporate advice on takeovers from those advising clients about buying shares. The “wall” is thrown up to prevent leaks of corporate inside information, which could influence the advice given to clients making investments, and allow staff to take advantage of facts that are not yet known to the general public.

Maintaining client confidentiality is crucial to any firm, but particularly large multiservice businesses. Where firms are providing a wide range of services, clients must be able to trust that information about themselves will not be exploited for the benefit of other clients with different interests. And that means clients must be able to trust in Chinese Walls. Some Wall Street scandals in recent years, however, have made some people doubt the effectiveness of Chinese Walls, as well placed executives

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