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CISI Introduction to Securities & Investment (L4) > Chapter 1: The Financial Services Sector > Flashcards

Chapter 1: The Financial Services Sector Flashcards

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SIE Exam flashcards
1
Q

What does the financial services sector do?

A

Provides the link between organizations needing capital and those with capital available to invest.

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2
Q

What are the Top 5 Global Financial Centres?

A
  1. New York
  2. London
  3. Hong Kong
  4. Singapore
  5. San Francisco
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3
Q

What are the 2 areas within the financial sector?

A
  • Wholesale/Professional
  • Retail
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4
Q

What financial activities make up the Wholesale/Professional area?

A
  • Equity markets
  • Bond markets
  • Derivatives
  • Foreign Exchange
  • Insurance markets
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5
Q

What are Equity markets?

A

Financial market that facilitates the trading of shares in quoted or listed companies, e.g. Apple, Tesla, Netflix.

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6
Q

What are Bond markets?

A

Trading of government, supranational or corporate debt in order to raise capital. Compared to equity markets, bond markets are higher in size and value of trading, but lower in volume.

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7
Q

What is the Foreign Exchange market?

A

Facilitates the trading of currencies as well as the exchange rate. Largest of all markets; daily turnover of $6tn +. Traded OTC, and quote driven market.

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8
Q

What are Derivatives?

A

Trading of options, swaps, futures, and forwards.

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9
Q

What are Insurance Markets?

A

Major corporate insurance (inc professional indemnity), reinsurance, captive insurance and risk-sharing insurance.

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10
Q

What OTHER activities take place in the Wholesale/Professional area?

A
  • Fund Management
  • Investment Banking
  • Custodian Banking
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11
Q

What is Fund Management?

A

Managing investment portfolios of collective investment schemes, pension funds and insurance funds.

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12
Q

What is Investment Banking?

A

Banking services tailored to organisations, e.g. undertaking M&A, equity trading, fixed-income trading and private equity.

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13
Q

What is Custodian Banking?

A

Provision of services to asset managers involving the safekeeping of assets; the administration of the underlying investments; settlement; corporate actions and other specialised activities.

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14
Q

What does the Retail area do?

A

Provides services to personal customers.

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15
Q

Which financial activities take place within the Retail area?

A
  • Retail Banking
  • Insurance
  • Pensions
  • Investment services
  • Financial planning and advice
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16
Q

What is Retail Banking?

A

Provide traditional services to personal customers, e.g;
- Taking deposits (creating deposit accounts) from and lending funds to retail customers (giving loans and credit cards).
- Provide payment and money transmission services.

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17
Q

What is Insurance?

A

Provision of a range of life assurance and protection solutions for areas, e.g. medical insurance, critical illness cover, motor insurance, property insurance, income protection an mortgage protection.

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18
Q

What are Pensions?

A

Provision of investment accounts specifically designed to capture savings during someone’s working life and provide benefits on retirement.

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19
Q

What are Investment services?

A

Range of investment products and vehicles ranging from execution-only stockbroking to full wealth management services and private banking.

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20
Q

What is Financial planning and advice?

A

Helping individuals to understand and plan for their financial future.

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21
Q

What does OTC mean?

A

Over-the-counter means trading takes place between market participants, rather than through an exchange.

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22
Q

How are exchange rates determined?

A

Determined by supply and demand for a currency.

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23
Q

Which Insurance markets where the largest in 2020?

A
  1. USA
  2. China
  3. Japan
  4. UK
  5. Germany
  6. Taiwan
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24
Q

How have retail banks tended to operate historically?

A

By network of high street branches, but are closing due to increased move to online banking, e.g. Chase.

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25
Q

What other services do larger Retail Banks provide?

A
  • Investments
  • Pensions
  • Insurance
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26
Q

Who are the main participants in the financial services sector?

A
  • Retail Banks
  • Savings Institutions
  • Peer-to-Peer (P2P) and Crowdfunding
  • Investment Banks
  • Pension Funds
  • Insurance Companies
  • Fund Managers
  • Stockbrokers and Wealth Managers
  • Custodian Banks
  • Platforms
  • Third-Party Administrators (TPAs)
  • Trade and Professional Bodies
27
Q

What is the difference between traditional banking and P2P lending?

A

Traditional banks take deposits on which they pay interest and then lend it out at a higher interest, where the spread is profit.
P2P cut out banks so borrowers get better rates, and savers get better headline rates, and profit by taking a fee.

28
Q

What is Crowdfunding?

A

Practice of funding a project or venture by raising small amounts of money from a large number of people.

29
Q

What forms can Crowdfunding take?

A
  • Donation
  • Debt Crowdfunding
  • Equity Crowdfunding
30
Q

What are Pension Funds?

A

Large, long-term investors in shares, bonds and cash (sometimes physical assets, like property). Aim is to provide pension on retirement.

31
Q

What are TPAs?

A

Third-party administrators undertake investment administration on behalf of other firms, and specialise in this area of the investment industry.

32
Q

What are Saving Institutions?

A

Known as building societies, they specialise in services for retail customers, e.g. deposit accounts and mortgages.

33
Q

Why do people Donate?

A

Believe in cause or innovation.

34
Q

What’s Debt Crowdfunding?

A

Investors receive money back with interest.

35
Q

Whats Equity Crowdfunding?

A

Investors receive equity/share in their venture.

36
Q

What are Insurance Companies?

A

Companies who provide a range of different covers in exchange for a premium.

37
Q

What do Insurance Companies do with their premium?

A

It’s income used to invest in shares and bonds, etc.

38
Q

What are Fund Managers?

A

(Asset Management) Run portfolios of investments for others, e.g. pension funds or insurance companies, and for collective investment schemes (e.g. Unit Trusts).

39
Q

What is a Unit Trust?

A

System whereby money from investors is pooled together and invested collectively on their behalf into an open-ended trust.

40
Q

What do Stockbrokers do?

A

Arrange trades in financial instruments on behalf of their clients. They earn a profit through commission.

41
Q

What do Wealth Managers do?

A

Offer wealth management services to clients, and earn profits by charging fees for advice and commissions on transactions.

42
Q

What do Custodian Banks do?

A

Specialise in safe custody services, looking after portfolios of shares and bonds on behalf of others, e.g. fund managers, pension funds and insurance companies.

43
Q

What are Platforms?

A

Online services used by intermediaries, e.g. IFAs, to view and administer their clients’ investment portfolios.

44
Q

What are IFAs?

A

Independent Financial Advisers are not tied to the products of any one product provider and is duty-bound to give clients bets advice and offer them the option of paying for advice. IFAs must establish financial planning needs of their clients through a personal fact-find, and satisfy these needs with the most appropriate products offered in the marketplace.

45
Q

What do Trade/Professional Bodies do?

A

Enables cross-firm developments to take place to create an efficient market in which firms can operate. Also ensures views of industry sections are represented.

46
Q

Examples of Trade Bodies

A
  • Bonds: International Capital Market Association (ICMA)
  • Derivatives: FIA Europe; International Swaps and Derivatives Association (ISDA)
  • Fund Managers: Investment Association (IA)
  • Insurance companies: Association of British Insurers (ABI)
47
Q

What is Financial Planning?

A

Professional service available to individuals, their families and businesses, who need objective assistance in organising their financial affairs to achieve their financial and lifestyle objectives more easily (all about meeting clients needs, not advisers).

48
Q

What are Financial Advisers?

A

Professionals who offer advice on financial matters to their clients. Some recommend suitable financial products from the whole of the market and others from a narrower range of products.

49
Q

What is Fact Find?

A

Adviser conduct a detailed survey of a client’s financial position, preferences and objectives. Then suggests appropriate action to meet client’s objectives and recommend a suitable product to match client’s needs.

50
Q

What must Investment Firms do?

A

Clearly describe their services as independent advice or restricted advice - must make recommendations on fair analysis of all products on market and be unbiased. Regulated by FCA.

51
Q

What is Execution-Only?

A

If customer asks form to buy or sell specific investment products without hvaing been prompted or advised by the firm - customer responsible for their own decision.

52
Q

What must a firm do to ensure it operates within regulatory guidelines?

A

Record and evidence of:
- Gave no advice
- Made it clear, at the time of sale, that it’s not responsible for assessing products suitability.

53
Q

What is Robo-Advice?

A

Application of tech to the process of providing financial advice, without the involvement of a financial adviser.

54
Q

How does Robo-Advice work?

A

Prospective investor enters data and financial info about themselves, and the system uses an algorithm t score info and decide what investments should be chosen. The system then presents investment strategy, usually passively focused index funds or ETF’s, and implements.

55
Q

How automated is Robo-Advice?

A

Fully automated, or provide guidance to enable investors to choose their own solutions - approach uses asset and risk model, as well as construciton of risk-targeted portfolios or funds to achieve a client’s objectives, then ongoing monitoring and rebalancing against those objectives.

56
Q

What is FinTech?

A

Use of tech to enhance and deliver superior financial service product offerings, e.g. internet banking.

57
Q

How has FinTech been useful?

A

Mobile pay during COVID-19 pandemic very important for stopping spread.

58
Q

How has FinTech led to businesses innovating?

A

Emergence of FT seen firms rebrand offering from purely financial firm to one that offers a product via the most tech advanced methods. Important for keeping pace of ever-changing market and winning business and being the first to market with new product offerings.

59
Q

How can FinTech be useful for organisations?

A
  • Data collection
  • Faster Client onboarding
  • Data aggregation in portfolio construction
  • Real-time pricing updates
60
Q

What did the FPSB find in 2015-16?

A

Financial Planning Standard examined how FT platforms and tools automated advice could shape future of financial planing. Found FT was emerging as a trend which complimented existing service and product offerings.

61
Q

What is ESG?

A

Environmental, Social and Governance

62
Q

How has ESG changed investing?

A

Investors take into account ESG factors to determine if an investment suits their objectives.

63
Q

What are ESG factors?

A

Environmental:
- Sustainability
- Climate change

Social:

CISI Introduction to Securities & Investment (L4) (12 decks)

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