SIDC Module 14 flashcards
SIDC Module 14 · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- FinSA full name
- The Swiss Financial Services Act, in force since 1 January 2020, regulates the provision of financial services and the offering of financial instruments in Switzerland.
- FinIA full name
- The Swiss Financial Institutions Act, in force since 1 January 2020, sets authorisation and supervision requirements for institutions including portfolio managers, trustees, and managers of collective assets.
- AMLA purpose
- The Swiss Anti-Money Laundering Act imposes due-diligence and reporting duties on financial intermediaries to prevent money laundering, terrorist financing, and predicate offences.
- Beneficial owner threshold
- Under AMLA, the beneficial owner is the natural person holding at least 25 percent of capital or voting rights, or otherwise exercising controlling influence over the entity.
- MROS role
- The Money Laundering Reporting Office Switzerland receives suspicious activity reports from financial intermediaries and forwards findings to prosecution authorities when warranted.
- FINMA mandate
- The Swiss Financial Market Supervisory Authority supervises banks, insurers, exchanges, and other financial intermediaries, issuing circulars and enforcing financial-market legislation.
- Client advisor registration
- Under FinSA, client advisors must be registered with a supervisory body and demonstrate adequate knowledge and experience to advise on financial instruments.
- Key information document
- A short FinSA-mandated document disclosing the financial instrument's nature, risks, costs, and past performance, provided to retail clients before the transaction.
- Suitability assessment
- Required when advice is given or a portfolio is managed; it evaluates the client's financial situation, investment objectives, knowledge, experience, and risk tolerance.
- Appropriateness assessment
- Required for execution-only services; it evaluates only the client's knowledge and experience to determine whether the instrument is appropriate for that client.
- Execution-only exemption
- Under FinSA, appropriateness need not be assessed where the client initiates the transaction and is informed of the reduced protection, subject to statutory conditions.
- Risk tolerance versus capacity
- Willingness to bear risk is the client's stated preference; capacity is the objectively sustainable loss given income, assets, and liabilities. Both must be assessed.
- Rule of 72
- An approximation: divide 72 by the annual percentage return to estimate the number of years required for an investment to double in value.
- Compound future value
- FV = PV × (1 + r)^n, where PV is present value, r the periodic rate, and n the number of periods; compounding increases returns over time.
- Real return approximation
- Real return approximately equals nominal return minus inflation; it measures the change in purchasing power rather than nominal growth.
- Annualised volatility
- Periodic standard deviation multiplied by the square root of periods per year; monthly volatility is annualised by multiplying by the square root of twelve.
- Diversification effect
- Combining assets whose returns are imperfectly correlated reduces portfolio-specific risk without necessarily lowering expected return; systematic risk remains.
- Systematic risk
- Market-wide risk that cannot be eliminated by diversification, arising from macroeconomic factors such as interest rates, inflation, and economic cycles.
- Correlation coefficient range
- Correlation ranges from −1 to +1; a value of +1 means perfect co-movement, −1 perfect opposition, and 0 statistical independence.
- Duration and interest rates
- Bond duration measures sensitivity to rate changes; price change is approximately minus duration times the change in yield, with convexity refining the estimate.
- Yield to maturity
- The discount rate equating a bond's future cash flows to its current price, assuming coupons are reinvested at that same rate until maturity.
- Liquidity risk
- The risk that a position cannot be sold quickly at a fair price, widening bid-ask spreads and possibly forcing a discount on disposal.
- Currency risk
- The risk that exchange-rate movements reduce the domestic-currency value of foreign-currency holdings or the return on foreign investments.
- Risk-return relationship
- Higher expected return generally requires accepting higher uncertainty; past returns do not guarantee future returns and risk must always be disclosed.
- Conflict of interest management
- Identify conflicts, avoid them where feasible, otherwise disclose them before the transaction and manage them through controls such as inducement registers.
- Inducement disclosure
- Third-party payments or benefits must be disclosed to the client and must not impair the duty to act in the client's best interest.
- Best execution factors
- Price, cost, speed, likelihood of execution and settlement, order size, and instrument nature determine whether execution is in the client's best interest.
- Record retention period
- AML and financial-services record-keeping obligations generally require retention of client identification and transaction documents for at least ten years.
- Client asset segregation
- Client securities and cash must be held separately from the firm's own assets, protecting clients in the event of insolvency proceedings.
- Cross-border licensing risk
- Providing financial services to clients in another jurisdiction may require local authorisation; Swiss authorisation does not passport into other countries.
- Know-your-client principle
- Collecting and documenting a client's identity, financial situation, objectives, and risk profile before providing advice or executing transactions.
- Complaint handling
- Firms must maintain a documented process for client complaints, ensure fair and timely resolution, and retain related records for audit purposes.