SIDC Module 16 flashcards

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

Regulatory pyramid

A layered structure in which primary legislation sits at the base, regulator rules and guidance above it, and self-regulatory organisation rules at the top. Binding legal force generally decreases as you move upward.

Inside information

Information that is specific, not generally available and, if published, likely to materially affect the price of the relevant securities. All three elements must usually be satisfied.

Market manipulation

Conduct creating a false or misleading impression of supply, demand or price, such as wash trades, spoofing or false rumour spreading, or conduct that distorts the market price artificially.

Regulated activity

A specified business such as dealing, arranging, advising or managing investments that may only be carried out by a firm holding the appropriate licence or authorisation.

Client money segregation

A rule requiring client funds to be held in separate designated accounts, not mixed with firm assets, so they remain identifiable and returnable if the firm fails.

Tipping off

Disclosing to a suspect that a suspicious transaction report has been made, or that an investigation is underway, which is itself an offence in most anti-money-laundering regimes.

Comply or explain

A governance code approach allowing a company to depart from a provision provided it publicly discloses the departure and gives reasoned explanation. Disclosure is the binding obligation.

Suitability obligation

The duty to ensure a recommendation or transaction is consistent with the client's knowledge, experience, financial situation, investment objectives and tolerance for loss.

Situational leadership

A model in which leaders adjust between directing, coaching, supporting and delegating according to followers' competence and commitment on the specific task at hand.

Transformational leadership

Leadership built on idealised influence, inspirational motivation, intellectual stimulation and individualised consideration, aiming to raise followers' commitment beyond simple reward-for-performance exchange.

Psychological safety

A shared team belief that raising concerns, admitting errors or asking questions will not be punished or humiliated. It predicts learning behaviour and honest error reporting.

Tuckman stages

The sequence forming, storming, norming, performing and adjourning that groups typically pass through. Conflict is most likely during storming, when roles and norms are contested.

Transactional leadership

A leadership approach based on contingent reward and management by exception, where performance is exchanged for agreed rewards and deviations are corrected after they appear.

Behavioural feedback

Feedback describing a specific observed action and its impact, rather than labelling the person. It is more actionable and less likely to provoke defensiveness than trait-based judgements.

Tone at the top

The signal sent by senior leaders' actual decisions and incentives about acceptable conduct. Where stated values conflict with reward structures, employees follow the rewards.

Effective delegation

Transferring a task together with authority, resources, a clear outcome and an agreed check-in point. Accountability for the result normally remains with the delegating manager.

Duty of care

A director's obligation to act with the diligence, skill and judgement a reasonably prudent person would apply, including being properly informed before making decisions.

Duty of loyalty

A director's obligation to act in the company's best interests, avoid unauthorised conflicts and not misuse position or corporate information for personal advantage.

Business judgement rule

A legal protection for directors whose decisions were informed, disinterested and made in good faith, even if the outcome later proved poor. Courts do not second-guess business merits.

Director independence

Absence of relationships that could materially influence judgement, such as recent employment, close family ties to executives, significant advisory fees or material supplier or customer relationships.

Audit committee role

A board committee, normally of independent directors, overseeing financial reporting integrity, external auditor appointment and independence, internal audit and the internal control framework.

Remuneration committee

A board committee setting executive pay and incentives, aligning reward with long-term performance and risk, and avoiding conflicts where executives influence their own remuneration.

Three lines model

A governance structure separating management ownership of risk (first line), independent risk and compliance oversight (second line) and independent internal audit assurance (third line).

Related-party transaction

A transaction between the company and a director, senior executive or connected party, requiring identification, independent review, disclosure and sometimes shareholder approval.

Board effectiveness review

A structured assessment of board composition, dynamics, information quality, committee performance and succession planning, conducted internally each year and externally periodically.

Target market definition

A product governance requirement identifying which client types, needs and risk profiles a product is designed for, so distribution can be checked for consistency after sale.

Risk tolerance assessment

The process of establishing how much loss a client can financially bear and is psychologically willing to accept, informing which products may be recommended.

Total expense ratio

An annual measure of a fund's ongoing charges, including management and administration fees, expressed as a percentage of net asset value. It excludes some transaction costs.

Liquidity risk

The risk that an investor cannot sell or redeem at the expected time or price, arising from dealing frequency, notice periods, lock-ups, gates or market conditions.

Structured product

An instrument combining a deposit or bond component with derivative exposure. Capital protection typically applies only at maturity, depends on issuer credit, and requires holding to term.

Key information document

A short, standardised, plain-language disclosure giving a product's objectives, risk indicator, costs and past performance, with a warning that past performance does not predict future returns.

Product mis-selling

Selling a product that does not match the client's needs, risk profile or understanding, or misrepresenting its features, costs or guarantees, typically through unsuitable advice.