What is a Chinese Wall
A Chinese Wall is a term that is employed to describe the ethical barrier adopted between different divisions of a financial institution. The purpose of a Chinese Wall is to avoid an internal conflict of interest to the greatest degree possible.
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Chinese Wall explained
A Chinese wall definition is commonly used within investment banks, however it is also a term that is used within the forex industry. A Chinese wall is used to describe the prevention of sensitive information flowing from one department of a forex company to another, by creating a written document addressing the rules of operation and practice. Many employees are required to sign a written document confirming that they will not spread inside information.
The term ‘Chinese Walls’ is particularly relevant within forex companies that feature a number of departments and have several financial services available. Chinese walls are particularly important in restricting the flow of confidential, inside information within a company, and can be achieved both literally and figuratively.
There are a number of reasons for adopting Chinese walls. In particular, they are used for the protection of the forex company’s clients, as they aim to reduce the circulation of important, sensitive and confidential information. In addition to protecting the client, Chinese walls also ensure that there is minimal inter-departmental discussion about particular financial activity. Firms will therefore implement Chinese walls, in order to restrict the flow of information from one department to another.
It has been disputed that Chinese walls are merely a figurative term, however if a firm wishes to respect the customer’s needs and comply with regulatory standards, then employing Chinese walls can be highly effective.
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