CISI Global Financial Compliance flashcards

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

IOSCO Objectives and Principles

A soft-law framework from the International Organization of Securities Commissions setting three aims: investor protection, fair efficient transparent markets, and reduction of systemic risk, implemented through national regulation.

Equivalence decision

A unilateral determination by one jurisdiction that another's regulatory regime is comparable, allowing third-country firms limited market access without full local authorisation. It can be withdrawn.

FATF Recommendations

Forty recommendations setting the international anti-money-laundering and counter-terrorist-financing standard. They are not directly enforceable and bind only when transposed into national law.

Extraterritorial application

Assertion of a regulator's rules over conduct occurring outside its territory, typically via a nexus such as listing, territorial act, or use of its currency for clearing.

Regulatory perimeter

The boundary defining which activities and instruments require authorisation. It is set by reference to the activity performed and the instrument, not the firm's name.

Proportionality in regulation

Calibration of rules and supervisory intensity to a firm's size, complexity and risk profile, so smaller or simpler firms face lighter, but still adequate, requirements.

Three lines model

Governance structure: the business owns and manages risk; risk and compliance provide independent oversight and challenge; internal audit gives independent assurance to the board.

Senior Managers Regime

A UK regime requiring senior individuals to hold prescribed responsibilities under documented Statements of Responsibilities, with regulatory approval and clear accountability for failures.

Certification Regime

Requires firms to assess fitness and propriety of certain staff annually and certify them as fit, rather than seeking individual regulatory approval for each person.

Compliance monitoring plan

A risk-based annual programme specifying the areas, scope, frequency and depth of compliance testing, derived from the firm's risk assessment rather than a fixed cycle.

Compliance independence

The compliance function must report to the board or its committee, have remuneration not tied to revenue, and have unrestricted access to records and personnel.

Principles-based regulation

A regime stating high-level outcomes rather than detailed rules, requiring firms to exercise judgement and evidence how they achieve the regulatory purpose.

Money laundering stages

Placement of criminal proceeds into the financial system, layering through transactions to obscure origin, and integration as apparently legitimate assets.

Beneficial ownership threshold

The ownership or control level at which a natural person must be identified and verified, commonly 25% of shares or voting rights, or control by other means.

Politically exposed person

An individual entrusted with prominent public functions, plus family members and close associates, requiring enhanced due diligence including source of funds and wealth.

Suspicious activity report

A disclosure to the financial intelligence unit when a firm knows or suspects money laundering or terrorist financing; tipping off the customer about it is an offence.

Inside information test

Information is inside information if it is precise, not generally available, and if made public would likely significantly affect the price of the instrument or related derivatives.

Market manipulation

Conduct giving false or misleading signals about supply, demand or price, or securing an abnormal price, including benchmark manipulation and attempted manipulation.

Market sounding

Pre-announcement communication of a potential transaction to gauge investor interest, requiring consent, an assessment of whether recipients become insiders, and record-keeping.

Sanctions screening

Checking customers, payments and counterparties against designated-persons lists; a match must be blocked or frozen and reported, typically on a strict-liability basis.

Suitability assessment

A client-specific evaluation of knowledge, experience, financial situation and investment objectives before recommending or managing an investment, with documented evidence.

Appropriateness test

An execution-only check of a client's knowledge and experience for complex products; it does not assess financial situation or objectives and is not a suitability test.

Inducements test

A payment or benefit must enhance the service and not impair the duty to act in the client's best interests, and must be disclosed to the client.

Target market definition

Product governance requirement for manufacturers to specify the client types, needs and risk profile the product is designed for, and for distributors to ensure it reaches them.

Client categorisation

Classification as eligible counterparty, professional or retail, which determines the level of protection; opting up to professional requires a documented, warned election.

Financial promotion rules

Promotions must be fair, clear and not misleading, with balanced presentation of risks and benefits and a risk warning where directed at retail clients.

Best execution

The duty to take all sufficient steps to obtain the best result for clients considering price, cost, speed, likelihood of execution and settlement, evidenced by a policy and monitoring.

Residual risk calculation

Residual risk equals inherent risk reduced by the effect of controls; controls can only be credited where their design and operation are evidenced and tested.

Breach management cycle

Identify, log, assess impact and root cause, remediate, notify the regulator where required, and report to the board, then feed lessons into risk assessment.

Root cause analysis

Investigation distinguishing control design failure from control operating failure, and identifying the wider population of similar exposures needing remediation.

Key risk indicator

A forward-looking metric, such as overdue KYC reviews or upheld complaint rates, that signals rising compliance risk before losses occur; loss events are lagging indicators.

Risk appetite statement

A board-approved expression of the compliance risk the firm will accept, supported by tolerances and metrics whose breach triggers escalation.