IBSL Diploma in Applied Banking and Finance (DABF) Exam key terms

The set of procedures a bank uses to verify the identity of a customer, understand the nature of their business, and assess the risk they present before and during the relationship.

Ongoing steps a bank takes to confirm who a customer is, what funds or transactions are expected, and whether the risk profile has changed, including enhanced checks for higher-risk clients.

Additional scrutiny applied to customers or transactions judged higher risk, such as politically exposed persons or clients in weak-governance jurisdictions, involving extra identity, source-of-funds, and monitoring checks.

The natural person who ultimately owns or controls a legal entity or the funds in an account, even where the account is held in another name or through layers of companies.

A person entrusted with a prominent public function, or a close associate or family member of such a person, who is treated as higher risk because of potential exposure to corruption and bribery.

A confidential report a bank files with the national financial intelligence unit when it knows, suspects, or has reasonable grounds to suspect that funds are the proceeds of crime or linked to terrorist financing.

The process of disguising the criminal origin of funds by moving them through placements, layering, and integration steps so they appear to come from a legitimate source.

Disclosing to a customer or third party that a suspicious transaction report has been or may be filed, which is itself a criminal offence in most anti-money-laundering regimes.

A national agency that receives, analyses, and disseminates suspicious transaction reports and other financial disclosures to law enforcement and supervisory authorities.

A measure of a bank's regulatory capital expressed as a percentage of its risk-weighted assets, showing how much loss-absorbing cushion it holds relative to the risk it carries.

A bank's on- and off-balance-sheet exposures multiplied by regulatory risk weights, so that riskier assets require more capital backing than safer ones such as government securities.

The highest-quality regulatory capital, mainly paid-up ordinary shares and retained earnings, which absorbs losses while a bank continues trading.

A regulatory ratio requiring a bank to hold enough high-quality liquid assets to survive a thirty-day stress scenario of net cash outflows.

Rules imposed on financial institutions to keep them financially sound and protect depositors and the system, covering capital, liquidity, large exposures, and governance.

The statutory body that licenses, supervises, and enforces rules against financial institutions, and may take corrective action such as fines, restrictions, or licence withdrawal.

A scheme that reimburses depositors up to a stated limit if their bank fails, helping to maintain public confidence and reduce the risk of bank runs.

A situation where many depositors withdraw funds at once because they fear the bank may fail, which can exhaust liquid reserves and turn fear into actual insolvency.

The risk that a bank cannot meet its payment obligations when they fall due because assets cannot be converted to cash quickly enough or only at a loss.

The structural gap in banking where deposits are typically short-term while loans are long-term, creating the need to manage refinancing and interest-rate exposure.

The exposure of a bank's earnings or capital to movements in interest rates, for example when assets reprice at different times or amounts than liabilities.

An account a bank holds with a correspondent bank in another country, usually in that country's currency, used to settle foreign payments and receipts.

An account held at a bank by another bank, typically a foreign correspondent, denominated in the host bank's currency and used to process payments for the foreign bank's clients.

An arrangement where one bank provides payment, settlement, and other services to another bank, often across borders, allowing the second bank to serve customers in markets where it has no branch.

The process of transmitting, reconciling, and confirming payment instructions between banks before final settlement, establishing what each party owes and is owed.

The final transfer of funds or securities between parties that discharges the underlying payment obligation, completing a transaction.

A payment system in which each transfer is settled individually and immediately through central bank money, used mainly for large-value and time-critical payments.

The risk that a borrower or counterparty fails to meet repayment or other contractual obligations, resulting in financial loss to the lender.

A statistical method that converts borrower characteristics and repayment history into a numeric score used to rank applicants by likelihood of default.

A traditional framework for assessing a borrower through character, capacity, capital, collateral, and conditions, used to judge willingness and ability to repay.

An asset pledged by a borrower that the lender may seize and sell if the loan is not repaid, reducing the lender's loss in the event of default.

The amount of a loan expressed as a percentage of the appraised value of the asset securing it, used to gauge how much cushion the lender has against a fall in value.

A loan on which the borrower has failed to make scheduled payments for a defined period, typically ninety days, and which is therefore treated as impaired.

An expense recognised in the income statement to build an allowance for loans expected not to be repaid, reducing reported profit and the carrying value of the loan book.

A legal right over a borrower's asset that lets the lender enforce against that asset if the borrower defaults, ranking the lender ahead of unsecured creditors.

The legal steps, such as registration or taking possession, that make a security interest enforceable against third parties and establish its priority.

A large facility provided by a group of lenders under one loan agreement, sharing the exposure and allowing each lender to fund an amount within its limits.

A promise in a loan agreement requiring the borrower to do or refrain from specified things, such as maintaining a minimum capital ratio or limiting further debt.

A specified circumstance, such as non-payment or breach of a covenant, that entitles the lender to demand immediate repayment and enforce its security.

The provision of small loans, savings, and other financial services to low-income households and microenterprises that are usually excluded from mainstream banking.

The state in which individuals and businesses have access to useful and affordable financial services, such as payments, credit, savings, and insurance, delivered responsibly.

A microfinance method in which borrowers form small groups whose members guarantee one another's repayments, using social pressure in place of conventional collateral.