Why is it called a Chinese wall?

The phrase is often linked to the Great Wall of China, and it became common in United States securities markets during the twentieth century. It survives in some statutes and rulebooks, including the UK's and Australia's. Many firms now prefer "information barrier" or "ethical wall", partly because the older phrase is seen as out of date or insensitive. The terms describe the same arrangement: controls that keep one part of a firm from knowing what another part knows.

What is the difference between a watch list and a restricted list?

A watch list is confidential to compliance. It records names on which the bank holds sensitive information, so that dealing can be monitored quietly without warning anyone that something is happening. A restricted list is circulated within the firm and limits what staff may do in a name, such as dealing or publishing research. Putting a name on a restricted list can itself signal the bank's involvement, which is why a sensitive matter often starts on the watch list.

What is a wall crossing?

A controlled move of a person from the public side of a bank to the private side so that they can work on a confidential matter. Compliance approves it, records who crossed, why and when, and the person stops dealing, advising or publishing on the name for as long as the information remains non-public. In a market sounding, the same idea applies to investors outside the firm, who are asked to agree to receive inside information before they are given it.

Does an information barrier protect a bank from liability?

It can help, but only if it works. The UK, Australian and New Zealand insider dealing regimes each give some recognition to effective internal arrangements, on differing terms. A barrier does not protect an individual who actually deals on inside information, and it does not excuse a breach of the bank's duty of confidence or settle a conflict between two clients. A regulator or a court will look at what actually happened, including the logs.

// WORKED EXAMPLEHOW THE CONTROL WORKS

Information Barrier: How a Bank Keeps a Secret

Lists, logs, locked drives, and colleagues who say nothing.

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-09 · 6 MIN READ

// THE SHORT ANSWER

A bank's lending team and its dealers can work for one employer without sharing what they know, and the arrangement that makes this possible is an information barrier. It divides the bank into a private side, which holds client information, and a public side, which trades and advises on public information alone. A compliance team keeps the lists and controls the crossings between them. For a listed borrower, a working barrier can support a defence to insider dealing claims. For a private one, its main job is keeping the confidence the bank already owes its customer.

BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

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PART OF How Banks Work

// 01 — WHY ONE BANK NEEDS A WALL INSIDE IT

A business lender sees what the public does not: monthly accounts, forecasts, a covenant about to fail, a sale being planned. The same bank may deal in that borrower's shares, publish research on it, or advise a bidder for it. Two bodies of law pull on that position.

The first is the duty of confidence. The Court of Appeal of England and Wales set it out in 1924 ([1924] 1 KB 461), and banks in New Zealand and Australia owe a duty of the same kind: a bank keeps its customer's affairs private, subject to narrow exceptions. The second is insider dealing law, which restricts dealing on or passing on material non-public information. New Zealand's prohibition attaches to listed issuers and the UK's market abuse regime to instruments on recognised trading venues. Australia's is framed around a defined class of financial products and is not confined to listed entities.

// 02 — WHAT THE BARRIER IS MADE OF

Separation comes first. Private-side teams sit apart, on restricted systems, with access granted deal by deal and on a need-to-know basis. Live matters often run under a code name, so that a calendar entry gives nothing away.

Then the lists. A watch list is kept by compliance and is not shown to the dealers: it lets compliance monitor dealing in names where the bank holds sensitive information, without signalling that it does. A restricted list is circulated, and stops or limits dealing, research or advice on a name, usually once the bank's involvement could otherwise be inferred or is public.

Then the crossings. If a public-side analyst is needed on a private matter, compliance brings that person over for a recorded reason, and the analyst stops dealing or publishing on the name until the information is public or stale. A few senior people, along with legal and compliance staff, sit above the wall under their own rules. Personal account dealing is restricted and surveilled, and records show who knew what, and when.

// 03 — THE EXAMPLE

A listed poultry producer, constructed for this page like every figure in it, has a US$120m facility with a bank that also runs an equities desk. The covenant caps leverage at 3.50 times.

Day 1 Waiver request reaches the lending team: forecast 3.90× against the 3.50× test.

Compliance adds the name to the watch list. Dealers are told nothing.

Day 3 A dealer asks the credit analyst what he has heard about the sector.

He says he cannot discuss clients and reports the question.

Day 6 The lending team needs a view on feed costs. The bank's equity analyst

is brought over the wall, logged, and stops publishing on the name.

Day 9 A bidder approaches the bank's advisers about the same company.

Compliance moves the name to the restricted list. The firm decides

whether it can act at all.

Day 22 The company announces the waiver. The analyst is released; the lists

are updated.

Each step is someone doing something, and a record showing that they did. The dealer on day 3 gets nothing, and the question goes on file because a pattern of questions can matter. The analyst on day 6 pays for the access with several weeks of silence. Day 9 is the point where the barrier reaches its limit: it can keep the waiver from the advisory team, but it cannot answer whether a bank should advise a bidder for a company it is lending to through a covenant waiver. That is a conflict of interest, and the firm has to decide it on its own terms.

// 04 — WHAT THE LAW GIVES A BANK THAT KEEPS ONE

In the UK, article 9 of UK MAR provides that a legal person holding inside information is not treated as having dealt on it merely because it holds it, where adequate and effective internal arrangements kept the information from the person who made the decision. The FCA's Handbook has its own section on Chinese walls, SYSC 10.2. In Australia, section 1043F of the Corporations Act provides a Chinese wall defence for bodies corporate, and ASIC's 2025 guidance for licensees (RG 181) lists information barriers among measures for managing conflicts. In New Zealand, the Financial Markets Authority's stated view is that a barrier that works can support a defence under section 261 of the Financial Markets Conduct Act.

Each of these depends on the barrier working. An arrangement on paper that people walked through protects nobody. And none of them relieves the bank of its duty of confidence to the customer, or makes a conflict disappear.

DEFINED IN ONE PARAGRAPH → · MATERIAL NON-PUBLIC INFORMATION → · CONFLICT OF INTEREST →

// 05 — WHERE IT DECIDES A FILE

A barrier shapes who can sit on a credit committee, who sees which paper, and what a syndicate receives. In a syndicated loan, lenders often choose to be private-side or public-side, and the agent splits information accordingly, so that a lender that also trades the borrower's securities can stay clean. A bank selling down a loan has to think about what a buyer sees in the data room. A smaller bank without the structure for a real wall may have to decline one of two mandates.

For a borrower, the practical point is to know where its information goes. A request to share management accounts with another part of the group for a separate purpose turns on its consent, which the facility terms may already give, and not on internal courtesy.

HOW BANKS READ YOU → · THE FOUR-EYES PRINCIPLE →

// SOURCES

The documents the statements on this page rest on. Each was opened and checked when cited.

UK Market Abuse Regulation (Regulation (EU) No 596/2014 as assimilated), article 9 — A legal person is not deemed to have used inside information where adequate and effective internal arrangements kept it from the decision-maker — section 04.
Financial Markets Authority (New Zealand), Information sheet on insider trading (shadow insider trading), November 2025 — States that effective information barriers may give rise to a defence under section 261 of the Financial Markets Conduct Act — section 04.
Corporations Act 2001 (Australia), sections 1042A and 1043F (compilation of 10 July 2024) — Defines Division 3 financial products, which are not confined to listed entities, and gives bodies corporate the Chinese wall exception — sections 01 and 04.

// QUESTIONS PEOPLE ASK

Why is it called a Chinese wall?: The phrase is often linked to the Great Wall of China, and it became common in United States securities markets during the twentieth century. It survives in some statutes and rulebooks, including the UK's and Australia's. Many firms now prefer "information barrier" or "ethical wall", partly because the older phrase is seen as out of date or insensitive. The terms describe the same arrangement: controls that keep one part of a firm from knowing what another part knows.
What is the difference between a watch list and a restricted list?: A watch list is confidential to compliance. It records names on which the bank holds sensitive information, so that dealing can be monitored quietly without warning anyone that something is happening. A restricted list is circulated within the firm and limits what staff may do in a name, such as dealing or publishing research. Putting a name on a restricted list can itself signal the bank's involvement, which is why a sensitive matter often starts on the watch list.
What is a wall crossing?: A controlled move of a person from the public side of a bank to the private side so that they can work on a confidential matter. Compliance approves it, records who crossed, why and when, and the person stops dealing, advising or publishing on the name for as long as the information remains non-public. In a market sounding, the same idea applies to investors outside the firm, who are asked to agree to receive inside information before they are given it.
Does an information barrier protect a bank from liability?: It can help, but only if it works. The UK, Australian and New Zealand insider dealing regimes each give some recognition to effective internal arrangements, on differing terms. A barrier does not protect an individual who actually deals on inside information, and it does not excuse a breach of the bank's duty of confidence or settle a conflict between two clients. A regulator or a court will look at what actually happened, including the logs.

// NEXT TO IT

// ON WHOSE DESK

The seats that read this term in an ordinary week. Each page says what the seat is for, who arrives in it, and the shape of the round it runs.

Compliance officerTranslates the rules the bank operates under into things the business can actually do, and checks that it does them.
Internal auditorThe third line: checks independently that the first two did what they said they did, and reports to the board when they did not.
Financial crime analystDetects and investigates money laundering, sanctions breaches and fraud moving through the bank.

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THE READING ROOMIN ONE PARAGRAPHInformation barrier What is an information barrier in a bank, and what does it protect?