Mock Exam Weak Areas Flashcards
How does the FCA regulate exchanges & listing
1) FCA responsible for approving exchanges
2) To approve - assess systems and controls
3) Create listing rules, prospectus rules, Continuing obligations
4) Create standards (e.g. prospectus, reporting, transparency) to foster standards
5) Originally FSA before FCA
6) FCA operated as UKLA for some time,
Why would an investor buy value stocks?
1) Income from dividend
2) Prices are more stable
3) More immediate return
4) Inflationary Period
Why would an investor buy growth stocks?
1) Higher risk tolerance
2) Longer time horizon
3) Growth outperform in good economic conditions
How is FinTech Regulated?
1) KYC / AML (neobanks)
2) FCA Sandbox (limit market exposure)
3) GFIN (collaborate with regulators)
4) RegTech
Old regs struggle to adapt to new tech
Give examples of Green Fintech
1) Indo (neobank carbon footprint)
2) Planting trees for payments
3) Blockchain energy efficiency
4) Sun Exchange - crowdfund solar panels
5) Nori - sellable certificates for CO2 reduction
6) UK Green fintech challenge
Sun exchange sell sun tokens to give to projects
What does HSBC Orion allow?
Digitally issue a bond
Tokenize the bond to track ownership
T+0 Settlement (EIB Bonds)
HSBC orion issued multicurrency digitlal and largest digi bond ever
Why do pension fund trustees have responsibilities?
Under the Pensions Act they have a civil liability
What are the pension trustee responsiblities
1) Training and Skill to carry out role
2) Understanding of strucure and aim of fund
3) Monitor 3rd party delegation to ensure discharged effectively
4) Duty of loyalty - members best interests
5) avoid undue risk
What type of relationship must a fund have with its custodian
a direct one
What does legislation say about pension safekeeping
Assets should be kept with an effective and transparent custodian
What does the DuPont Analysis do?
Breaks down RoE into 3 distinct areas
Identify drivers behind RoE & Weak Points
What 3 areas does DuPont break RoE into?
Operating Efficiency
Asset Use Efficiency
Financial Leverage
What Ratio is used for Financial Leverage
How is it calculated?
Equity Multiplier
Total Assets / Shareholder Funds
It shows how much debt is used to buy assets
What ratio is used for asset use efficiency?
How is it calculated?
Asset Turnover
Revenue / Capital Employed
Revenue / Avg Assets
What ratio is used for operating efficiency?
Net Profit Margin
Net Profit / Revenue
How is RoE calculated using DuPont?
Net Profit Margin * Asset Turnover * Equity Multiplier
What two things are added to the extended DuPont?
Tax retention rate & Interest expense rate
How were QIs previously defined?
Legal entities authorised to operate in financial services
SMEs or Natural Persons who met criteria and registered
scrapped by MiFID
What three parties qualify as QIs post MiFID?
1) Eligible Counterparties
2) Professional Clients
3) Per-Se Professional Clients
What can “Qualified Investor” be taken to mean globally?
Sophisticated Investor
Someone with the knowledge to be excluded from certain regulations
What are the 4 ESG accounting standards organisations?
1) TCFD - Task force on climate related financial disclosures
2) GRI - Global reporting initiatives
3) SASB - Sustainability accounting standards board
4) ISSB - International sustainabiltiy standards board
What do the TCFD do?
- Recommendations on more effective disclosures to climate risk
- Helps market understand a firms exposure to climate risks
- voluntary standards but being incorporated into law
- 1,300 large UK firms now report based on these standards
What do the GRI do?
- Non-profit backed by UN environmental programme
- recently created Global reporting standards
- Best practice on reporting impact of different risks
- help better understand and communicate risks (biodiversity, waste, emissions)
- used by 10,000 firms, 100 countries & 70% of fortune 500
What do the SASB do?
- Provide industry specific standards
- understand each industry has more material risks
- e.g. Oil & Gas Greenhouse Gases or Agriculture and water use
- developed on market feedback
- Created a free to use materiality finder to help people understand most material risks
What do the ISSB do?
- Created by IFRS
- Allows the assesment of sust. risks and opportunities
- IFRS S1 - broad and applies to all
- IFRS S2 - applies to more specific topics.
What is the writing down allownace?
Expenditure on cars, tools and machinery cannot be deducted from profits.
Instead a capital allowance can be claimed for that expenditure to reduce profit that tax needs to be paid on.
Must be bought and owned for business use
In addition to cars, tools and machinery what can qualify for writing down?
1) Research and Development
2) Donating used business assets to charity
Who can use the capital allowances?
1) Sole Traders
2) Self Employed Person
3) Partnerships
4) Firms that pay corporation tax
What are the key provisions of the prospectus regulation (MiFID)
1) Requirements - what must be included and what is exempt
2) Approval and Publication - Process of approval and where to publish
3) 3rd Party - Non EU country prospectus acceptable if meets eqiv standards
4) Other - must update information annually
What post brexit FCA suggestions for PR are there?
prospectus regulation
1) FCA gain primary rule making authority
2) FCA discretion over when prospectus necessary
3) No longer mandattory for a public issue
these are just suggestions for now
Layout of prospectus / different types that can be issued
1) Max 7 Page summary - brief, clear, concise - no technical langauge
2) 10 risk categories max - only include most material risks in each
3) Frequent issuers can use universal document to streamline process
4) SME issuers can use growth prospectus to speed up process (<20m in issue)
5) Existing issuers can use simplified prospectus for secondary issues
What is an MTF?
Multilateral Trading Facility
Alternate Trading Venue - brings together buyers and sellers
trade equity, bonds, currencies etc…
What introduced MTFs?
MiFID
Increase transparency / improve competition
How is an MTF regulated?
not as an exchange
As a venue that brings parties together
How is an MTF operated?
Non-discretionary
Clear Rules
Systems and Controls
What are the benefits of using an MTF?
1) Lower costs / fees
2) Another liquidity pool
3) More transparency
4) Non-Discriminatory
5) Access to Dark pools
What are the drawbacks of using an MTF?
1) Market Fragmentation
2) HFTs cause information assymetry
What are the parts of an ISDA contract?
1) Master Agreement
2) Schedule
3) Defintions Booklet
4) Collateral Support Document
5) Confirmation
What does the master agreement do?
Sets out the standardised terms between two parties.
Will apply to all future contracts between parties
What does the schedule document do?
Allows parties to customise the master agreement
Don’t have to create an entirely new contract
What does the confirmation document do?
Confirms the commercial aspects of the trade
What does the definitions booklet do?
Defines terms in the agreement
What does the Collateral Support Document do?
Defines the terms of collateralisation if there is any
