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IMC Unit 1 > Chapter 8 > Flashcards

Chapter 8 Flashcards

1
Q

which funds aim to maximise returns

A

DC schemes
CIS
Investment trusts

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2
Q

which funds aim to meet liablities

A

DB schemes
Life assurance companies
General insurance companies

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3
Q

what type of investment do funds that meet liabilities do

A

liability driven investment

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4
Q

what are the 2 types of liability

A

real - ones that are affected by inflation
nominal

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5
Q

what do fund regulations apply to

A

open ended investment schemes in the UK
- unit trusts
- OICs / ICVCs

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6
Q

what function does a depositary for an OIEC have

A

the same as a trustee in a unit trust

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7
Q

what are the 2 different types of CIS schemes in the UK

A

authorised - UK firms, authorised by the FCA to advertise to retail client
recognised - UCITs (europe), can sell to retail clients through passporting

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8
Q

examples of unregulated CIS schemes

A

ones who are not marketable to retail investors
e.g. hedge funds

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9
Q

who can unregulated CIS schemes advertise to

A

sophisticated and institutional investors

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10
Q

what are the 2 different types of CIS schemes in the UK

A

authorised - UK firms, authorised by the FCA to advertise to retail client
recognised - UCITs (Europe), can sell to retail clients through passporting

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11
Q

what is the UCITS directive

A

a directive used to form the single market

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12
Q

how are CIS’s in the EU regulated

A

they are regulated by a directive known as the Undertakings for Collective Investments in Transferable Securities UCITS

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13
Q

before a CIS can promote itself across the EU what must they do

A

Obtain a UCITS passport from it’s home regulator
Be open ended
Follow all UCITS regulations

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14
Q

what 2 parts is the UCITs directive split into

A

management directive
product directive

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15
Q

what is the purpose of the management directive

A

it increases the scope of management companies’ activities that can be passported to include discretionary management, safekeeping and admin
aims to protect investors by ensuring that management companies have sufficient risk controls in place

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16
Q

what is the product directive

A

it expands the range and type of financial instruments that are permitted within the UCITS fund

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16
Q

what is the product directive

A

it expands the range and type of financial instruments that are permitted within the UCITS fund

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17
Q

what is the purpose of the new UCITS IV directive

A

to promote greater efficiency in pan-European management of funds

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18
Q

what is a management company passport

A

a management company located in one country will be able to set up and run a fund in another

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19
Q

what is the aim of the alternative investment fund managers directive

A

it aims to regulate fund managers rather than the fund to encourage tax transparency and compliance
it does not regulate the funds chosen

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20
Q

what does AIFMD allow

A

allow the cross border EEA selling of fund by either
- being authorised by a regulator in the EU
- outside the EU if they meet certain fiscal and regulatory requirements

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21
Q

what does the AIFMD require in terms of reporting

A

fund managers must submit quarterly, semi annual or annual reports to their respective member state regulators

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22
Q

what must the annual report contain

A

funds financial statements
activities
info about the total remuneration paid to staff

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23
Q

what is the value for money assessment

A

where authorised fund managers are required to
- assess the value for money for each fund
- take corrective action if it does not offer good value for money
- explain the assessment annually in a public report

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24
Q

what are the criteria needs to be considered for the value for money assessment

A
  • quality of service
  • fund performance
  • authorised fund manager costs
  • economies of scale
  • comparable market rates
  • comparable services
  • classes of units
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25
Q

when are pensioners subject to income tax

A

once the pension fund starts paying the recipient

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26
Q

what are the different types of pension scheme

A

personal private pension plan
occupational pension scheme

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27
Q

what is a stake holder pension

A

aimed at lower income people
low monthly payments

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28
Q

what does the pensions act 2008 mean for pensions

A

auto enrollment for eligible employees - above 22 and earning over £10,000
employers have to enroll them in DC or something else
national employment savings trust

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29
Q

who approves DB schemes

A

the HMRC

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30
Q

what do you have to ensure there is when setting up an occupational pension scheme

A

a statement of principles

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31
Q

what is the SIP

A

it is similar to the investment policy statement but instead of for client its for funds
it sets out the principles governing how decisions about investments must be made

32
Q

what does an SIP include

A
  • type of investments
  • risks and how they will be managed
  • realising investment
  • whether and how any rights will be used
33
Q

how often does the SIP need to be updated

A

at least every 3 years
scheme specific funding requirements have to be check annually

34
Q

what is the scheme specific funding requirements

A

it is included in the SIP as an appendix
it is the numerical part that describes how each particular part of funding will be met

35
Q

when is the pensions regulator allowed to act

A

when it believes that an employer is deliberately avoiding their pensions

36
Q

what are the objectives of the pension regulator

A
  • protect the members of work based schemes
  • reduce the risk of compensation claims
  • promote good admin in schemes
  • maximise employer compliance
37
Q

what act set up the pensions regulator

A

the Pensions Act 2004

38
Q

what are the powers of the pensions regulator

A
  • can give firms a contribution notice
  • give restoration orders
  • give forced financial support directions
39
Q

what is a contribution notice

A

a statutory requirement for the employer to make a payment into the fund to cover debt

40
Q

what is a restoration order

A

if there has been a transaction that undervalues the schemes asset then the regulator can put in place an order to get assets revalued and restored to the scheme correctly

41
Q

when are forced financial support directions required

A

for an underfunded scheme

42
Q

what is the purpose of the Pension Protection Fund

A

to provide compensation to members of eligible DB schemes on insolvency

43
Q

What pension schemes does the pension protection fund apply to

A

DB schemes

44
Q

what happens when a pension fund becomes insolvent

A

the assets of the fund are put into the pension protection fund

45
Q

when a scheme is insolvent what will the PPF provide to pensioners / those not yet retired

A

100% benefits to existing pensioners
90% those not yet retired

46
Q

how is the PPF funded

A

levies on all eligible schemes

47
Q

what are the different products that insurance companies provide

A

term assurance
whole of life
endowment
with profits

48
Q

what does term assurance provide

A

provides pure protection
doesn’t provide a payment if you die during the period
covers the life of an individual over a specific period

49
Q

what is a whole of life insurance product

A

pays a fixed capital sum and gives money on death regardless of when you die
doesn’t have a set term

50
Q

what is an endowment insurance policy

A

it has a basic sum assured on death or on maturity
it is similar to a bond
if you die during the term then you get a lump sum if you don’t die then you get a maturity lump sum

51
Q

what is a with profits insurance policy

A

aims to pay a fixed return

52
Q

what is a life assurance companies attitude to short term risk

A

positive

53
Q

what is a life assurance company’s liquidity

A

low

54
Q

what is a life assurance company’s liablity

A

nominal

55
Q

what is a life assurance company’s asset choice

A

equities
bonds
mutual fund

56
Q

what is a general insurance companies attitude to short term tisk

A

very negative

57
Q

what would be the asset choice for a general insurance company

A

cash
money market instruments

58
Q

to what pension schemes does the minimum funding requirement apply (from the Scheme specific funding requirement)

A

DB pension schemes
to ensure that they remain adequately funded

59
Q

AIFMDs require fund managers to only select brokers and counterparties that

A

are financially sound
are subject to regulatory supervision
have the necessary organizational structure to provide the services

60
Q

what are the benefits of investing into indirect investment?

A
  • a reduction in transaction costs
  • ability for a small investor to invest into large properties
61
Q

what type of financial investment would the warning you might lose more than you invested suitable

A

future

62
Q

what financial instrument would the warning - the value may go up and down apply

A

income and growth fund

63
Q

do pension funds pay tax

A

no

64
Q

if risk of inflation increases are you more likely to invest in equities or bonds

A

equities

65
Q

who authorises ICVCs

A

FCAs

66
Q

who authorizes Unit Trusts

A

FCAs

67
Q

who is responsible for the SIP

A

the trustees

68
Q

what must the trustee do when preparing the SIP

A
  • written advice from a person considered to have appropriate knowledge of investment matters
  • consult with the scheme sponsor
69
Q

members of which pension scheme does the pensions regulator aim to protect

A

work based pension scheme members

70
Q

when must a fund seek authorisation with AIFM

A

If they have assets under management above
- 100 mill euros if AIF uses leverage
- 500 mill euros if AIF doesn’t give investors right of redemption within 5 years of investment

71
Q

which pension does the pensions act 2004 regulate

A

work based pensions

72
Q

what are examples of CIS

A

unit trust
OEIC
ICVC

73
Q

what are examples of Investment trust companies

A

VCT
REITs

74
Q

what are the 2 types of regulated CIS schemes

A

authorised - trade in UK
recognised - trade inEEA

75
Q

what is AIFMMD relationship to UCITs directive

A

the AIFMD allows fund managers to crossborder sell
the UCITS directive allows open ended schemes to cross border sell

76
Q

how often must the SIP be reviewed

A

3 years

77
Q

whos complaints does the pension ombudsman consider

A

complaints relating to personal or occupational pension scheme

IMC Unit 1 (11 decks)

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