CISI IISI flashcards

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

Integrity (ethics pillar)

The ethical pillar requiring honesty and adherence to principles even when unobserved. It means not misleading clients, not manipulating markets, and disclosing errors promptly rather than concealing them.

Conflicts of interest

Situations where the firm's or an employee's interest may harm a client's interest. Firms must identify, prevent or manage them, and disclose where management is insufficient.

Inducement rules

A fee or benefit paid or received is permitted only if it enhances service quality, is disclosed to the client, and does not impair the firm's duty to act in the client's best interests.

Insider dealing

Dealing on a regulated market using inside information obtained from an inside source. It is a criminal offence under the Criminal Justice Act 1993 and also market abuse.

Market manipulation

Transactions or orders that give false or misleading signals about supply, demand, or price, or that set an abnormal price. It is prohibited under the Market Abuse Regulation.

Bribery

Offering, promising, giving, requesting, or accepting a financial or other advantage intending to induce improper performance of a function. The Bribery Act 2010 applies to firms.

Whistleblowing protection

A worker who makes a protected disclosure in good faith about wrongdoing is protected from dismissal or detriment. Firms must provide internal reporting channels and handle reports fairly.

Personal account dealing

Employees trading for their own accounts. Firms usually require pre-clearance and prohibit dealing ahead of client orders or during restricted periods to prevent front-running.

FCA operational objectives

The FCA's three objectives are protecting consumers, protecting and enhancing market integrity, and promoting effective competition in consumers' interests. These guide all its rule-making and supervision.

PRA vs FCA

The PRA is the prudential regulator for banks, insurers, and major investment firms. The FCA regulates conduct for all authorised firms and prudentially regulates smaller firms.

FSCS limit

The Financial Services Compensation Scheme covers most investment claims up to £85,000 per eligible person per firm. The limit applies per firm, not per product or account.

Financial Ombudsman award limit

For complaints referred from 1 April 2024, the Financial Ombudsman Service can award up to £430,000. Awards are binding on the firm if accepted by the complainant.

General prohibition

Under FSMA 2000, no person may carry on a regulated activity in the UK unless authorised or exempt. Breaching the prohibition is a criminal offence and agreements may be unenforceable.

SM&CR

The Senior Managers and Certification Regime imposes a duty of responsibility on senior managers and requires firms to certify staff fitness and propriety annually for certified functions.

Consumer Duty

A duty requiring firms to act to deliver good outcomes for retail customers across products and services, price and value, consumer understanding, and consumer support.

Product governance

MiFID II requires firms to define a target market, review products periodically, and ensure distribution is compatible with that target market.

Complaint time limit

Firms must resolve complaints within eight weeks or issue a final response explaining the right to refer to the Financial Ombudsman Service within six months.

Equity ownership rights

Ordinary shares confer ownership, typically voting rights, and a residual claim on profits and assets. Preference shares usually rank ahead for dividends but often have restricted voting.

Bond price–yield relationship

Bond prices move inversely to yields. A 1% rise in required yield on a bond with modified duration of 5 reduces its price by approximately 5%.

Gilts

Gilts are UK government bonds. Conventional gilts pay fixed coupons; index-linked gilts adjust coupons and principal for inflation measured by the retail prices index.

OEIC vs investment trust

An OEIC is open-ended and prices once daily at net asset value. An investment trust is a closed-ended listed company whose shares can trade at a premium or discount to NAV.

UCITS diversification

UCITS funds may hold no more than 5% of net assets in transferable securities of one issuer, with a 10% limit permitted up to 40% of net assets.

Futures vs forwards

Futures are exchange-traded, standardised, and margined daily. Forwards are over-the-counter, customised, and carry counterparty risk because they are not cleared.

Settlement cycle

UK equities typically settle on a T+2 basis, two business days after the trade. A failed trade creates settlement risk and may trigger a buy-in.

Nominee custody

Assets held by a nominee are registered in the nominee's name but beneficially owned by the client. Client money must be segregated under the CASS rules.

Limit vs market order

A market order executes at the best available price. A limit order executes only at a specified price or better, and may not execute if the market does not reach it.

TCF outcomes

The Treating Customers Fairly outcomes include fair product design, clear information, suitable advice, and no unreasonable post-sale barriers. Firms must evidence these outcomes.

Suitability vs appropriateness

Suitability requires a recommendation to match the client's knowledge, experience, financial situation, and objectives. Appropriateness is a weaker test for execution-only services, checking knowledge and experience only.

KYC and enhanced due diligence

Know Your Client requires identity verification, source of funds, risk tolerance, and capacity for loss. Enhanced due diligence applies to politically exposed persons and high-risk jurisdictions.

Client categorisation

Retail clients receive the highest protection. Elective professional clients can opt up but lose certain protections, and the firm must warn them in writing.

Best execution

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

Financial promotions

Communications inviting or inducing investment must be fair, clear, and not misleading. Firms must be able to demonstrate compliance before the promotion is communicated.