BICA Qualification flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Fiduciary duty

A duty of loyalty, care, and good faith owed to a client, requiring the adviser to act in the client's best interest and to avoid or disclose conflicts.

Material non-public information

Information a reasonable investor would consider important that has not been broadly disseminated; dealing or tipping on it is prohibited.

Front-running

Trading for a personal or firm account ahead of a known client order to profit from the expected price impact, which is prohibited market abuse.

Gifts and entertainment register

A log recording benefits received or given, used to test whether hospitality exceeds de minimis limits and compromises independence.

Conflicts of interest hierarchy

The management sequence: avoid the conflict first, then disclose and obtain consent, then apply controls to mitigate it.

Politically exposed person

An individual entrusted with a prominent public function, plus family and close associates, subject to enhanced due diligence and senior approval.

Beneficial ownership threshold

The ownership level, commonly 25 percent of shares or voting rights, at which a natural person must be identified and verified.

Source of funds

Evidence explaining the origin of the specific money used in a transaction, such as salary, sale proceeds, or an inheritance.

Source of wealth

Evidence explaining how the client's total net worth was accumulated over time, required for higher-risk relationships and enhanced due diligence.

Enhanced due diligence

Additional identification, verification, and monitoring measures applied to higher-risk clients such as PEPs, complex structures, and high-risk jurisdictions.

Ongoing monitoring

Risk-based periodic review of the client relationship plus transaction surveillance, refreshed when triggers such as adverse media arise.

Sanctions screening

Checking clients and payments against designated lists; a match requires freezing and reporting, with no risk-based exemption available.

Modified duration

A measure of bond price sensitivity to yield; approximate percentage price change equals modified duration times the yield change, adjusted by convexity.

Beta

A measure of a security's sensitivity to market movements; the systematic risk that remains after diversification and is priced by CAPM.

Option buyer versus writer

The buyer pays a premium and holds a right with loss limited to that premium; the writer receives the premium and bears the obligation.

Net asset value

Total fund assets minus liabilities divided by units outstanding; open-ended funds transact at forward NAV at the next valuation point.

Real return

Return after inflation, approximated as nominal return minus inflation, or exactly as (1+nominal)/(1+inflation) minus one.

Diversification limit

Spreading exposure reduces unsystematic risk specific to issuers or sectors but cannot remove systematic market risk.

Risk tolerance versus capacity

Tolerance is the client's willingness to accept risk; capacity is the financial ability to bear loss. Where they differ, the lower governs.

Investment policy statement

A written document recording objectives, constraints, permitted assets, benchmark, and review frequency, used to judge portfolio deviations.

Strategic asset allocation

The long-run target mix of asset classes set from objectives and risk tolerance, and the main driver of return variability.

Threshold rebalancing

Restoring target weights when an allocation drifts beyond a set band, such as plus or minus five percent, rather than on fixed dates.

Sharpe ratio

Excess return over the risk-free rate divided by standard deviation of returns; a risk-adjusted performance measure using total risk.

Loss aversion

A behavioural bias in which losses are felt more strongly than equivalent gains, often causing clients to hold losing positions too long.

Segregation of duties

Separating execution, settlement, and reconciliation so no single individual can both create and conceal an error or fraud.

Client money segregation

Holding client assets in designated accounts, reconciled at prescribed frequency, and never using them to fund firm operations.

Best execution

Taking all sufficient steps to obtain the best result for clients, considering price, cost, speed, execution likelihood, size, and settlement.

Reconciliation break

A difference between internal records and custodian or counterparty statements that must be investigated, escalated, and logged with ageing.

Residual risk

The risk remaining after controls are applied; it equals inherent risk reduced by the mitigating effect of the control environment.

Three lines model

Business units own and manage risk, a risk and compliance function oversees it, and internal audit provides independent assurance.

Data minimisation

A data protection principle requiring collection of only personal data that is adequate, relevant, and necessary for the stated purpose.

Phishing red flag

Unexpected urgency, changed payment details by email, or requests for credentials, indicating possible social engineering fraud requiring verification.