“Chinese wall” Norms in Banking

The Securities and Exchange Board of India (SEBI) has accused a unit of Bank of America (BofA) of violating insider trading regulations and breaching internal “Chinese wall” (ethical wall) norms in connection with a March 2024 share sale.

Probe Linked to ABSL AMC Stake Sale
The allegations stem from SEBI’s investigation into the role of BofA’s domestic securities unit in managing a stock sale of Aditya Birla Sun Life Asset Management (ABSL AMC) in March 2024.

Unpublished Price-Sensitive Information Misused: SEBI
According to SEBI’s notice, the bank’s deal team was in possession of unpublished price-sensitive information (UPSI) related to the share sale. Despite this, the team allegedly contacted potential investors directly or indirectly, an act prohibited under insider trading norms.

Violation of ‘Chinese Wall’ Norms
SEBI found that the conduct amounted to a breach of internal Chinese walls, now commonly referred to as ethical walls. These are virtual barriers within financial institutions designed to prevent the flow of sensitive information between departments and avoid conflicts of interest.

What Is a Chinese (Ethical) Wall?
A Chinese wall is an internal compliance mechanism that restricts information sharing between different business units—such as investment banking and trading—to maintain confidentiality and prevent insider trading.