BIBF Financial Advice Programme key terms

The gap between the interest a bank earns on loans and the interest it pays on deposits, expressed as a percentage of earning assets. It shows how profitably a bank turns its funding into income.

A measure comparing a bank's capital to its risk-weighted assets, showing how much cushion it holds against losses. Regulators set minimum levels to protect depositors and keep the banking system stable.

A bank's loans and other exposures adjusted for how risky they are, so safer assets count less than riskier ones. This adjusted total is used as the denominator when testing capital strength.

A rule requiring banks to hold enough easy-to-sell, high-quality assets to survive a thirty-day period of heavy cash outflows. It tests whether a bank can meet withdrawals under stress.

The danger that a borrower fails to repay interest or principal on time. Lenders assess it through credit checks, collateral, and pricing, and must hold capital against expected losses.

An asset a borrower pledges to a lender, which the lender may seize and sell if the loan is not repaid. It reduces the lender's loss and can lower the interest rate charged.

The size of a loan divided by the appraised value of the asset securing it. A high ratio signals greater lender exposure and usually triggers stricter terms or mortgage insurance.

Money a lender sets aside in its accounts to absorb loans it expects will not be fully repaid. It reduces reported profit and builds a buffer before losses actually occur.

A loan on which the borrower has stopped making payments for a set period, often ninety days. Banks must report these, provision against them, and pursue recovery or write-off.

The process of verifying a client's identity, understanding their financial activity, and assessing their risk before and during a business relationship. It is a core defence against money laundering and fraud.

Laws, rules, and internal controls that stop criminals from disguising the origin of illegal funds through the financial system. Firms must monitor transactions, train staff, and report suspicious behaviour.

A confidential filing a financial institution sends to the authorities when it detects transactions that may involve crime or money laundering. Filing is legally required and must not be disclosed to the client.

A legal obligation to act solely in another person's best interest, placing the client's welfare above the adviser's own. It demands loyalty, disclosure of conflicts, and care in giving advice.

The requirement that a recommended product or service matches a client's objectives, financial situation, knowledge, and tolerance for risk. Advisers must gather enough information before recommending anything.

How much investment loss or volatility a client is willing and financially able to accept. It shapes asset allocation and must be documented and reviewed as circumstances change.

Dividing a portfolio among asset classes such as cash, bonds, equities, and property to balance risk and return. The chosen mix reflects the client's goals, time horizon, and risk tolerance.

Spreading money across different assets, sectors, and regions so that one poor outcome does not ruin the whole portfolio. It reduces specific risk but cannot remove overall market risk.

The danger that a failure in one institution or market spreads through the financial system and disrupts the wider economy. Regulators watch it closely because it can affect even prudent firms.

The process an insurer uses to evaluate an applicant's risk, decide whether to accept it, and set the premium and terms. It balances fair pricing against the need to offer cover.

The amount a policyholder pays, usually monthly or annually, to keep an insurance policy in force. It reflects the risk insured, the sum assured, and the insurer's costs.

The fixed amount an insurer promises to pay when a specified insured event occurs, such as death or diagnosis of a critical illness. It is stated in the policy contract.

The person or entity named to receive policy proceeds when a claim is paid. Clear nomination helps ensure the money reaches the intended recipient without delay or dispute.

A formal request by a policyholder or beneficiary for payment after an insured event occurs. The insurer checks the request against the policy terms before approving or declining it.

A specific loss or circumstance that a policy does not cover, written into the contract. Advisers must explain exclusions clearly so clients understand the limits of their protection.

The principle that both insurer and applicant must disclose all material facts honestly when arranging a policy. Failing to disclose relevant information can let the insurer void the contract.

The tendency for people to take greater risks or act less carefully once they are insured against loss. Insurers counter it with deductibles, exclusions, and careful underwriting.

The amount a policyholder must pay out of pocket before the insurer covers the rest of a claim. A higher deductible usually lowers the premium but increases the client's share of loss.

An arrangement where an insurer transfers part of its risk to another insurer, called a reinsurer, in exchange for part of the premium. It protects the original insurer from very large or clustered claims.

A cooperative form of insurance where participants contribute to a shared pool used to pay claims, and risks are borne collectively rather than transferred to a commercial insurer.

Interest or any guaranteed increase charged on a loan of money, which Islamic finance prohibits. Wealth must instead be earned through trade, shared risk, or genuine service.

A sale contract where the financier buys an asset and resells it to the client at a disclosed cost plus an agreed profit, payable in instalments. The profit is tied to a real sale, not to interest on cash.

A leasing arrangement in which the financier owns an asset and leases its use to the client for agreed rent, often ending in a transfer of ownership. It suits equipment and property finance.

Certificates representing ownership in a tangible asset, project, or business venture, which pay returns from the underlying activity. They are a common Islamic alternative to conventional bonds.

A voluntary contribution made by takaful participants into a shared fund used to pay claims to members who suffer loss. It is given as a donation, not as a commercial premium.

A panel of scholars who review and approve financial products to confirm they comply with Islamic law. Their rulings guide product design, contracts, and ongoing monitoring.

A framework letting customers authorise third parties to access their bank account data through secure interfaces. It encourages competition and new services such as budgeting tools and payment apps.

A set of rules allowing two software systems to exchange data and instructions automatically. In finance it enables services such as account aggregation, payments, and real-time quotes.

A digital service that builds and manages investment portfolios using algorithms, usually with minimal human contact and low fees. Suitability checks and disclosures still apply to the advice it gives.

A shared, tamper-resistant record of transactions copied across many computers, so no single party controls it. Financial uses include settlement, trade finance, and asset tokenisation.

Self-executing code that automatically carries out agreed actions, such as releasing a payment, when defined conditions are met. It reduces manual processing but needs careful testing and legal review.

A verified electronic representation of a person or business used to prove who they are online. Strong digital identity supports faster onboarding and safer remote transactions.

The chance that hackers, malware, or human error compromise systems and data, causing financial loss and reputational harm. Firms must test defences, train staff, and plan incident response.