Candidate Update

For the March and September 2023 Advanced Financial Planning exams, questions will be based on the 2022-2023 tax rates.

Financial Plan Case Study Version 3 Addendum December 2021

For the November/December 2022 and the June 2023 narrative exams, questions will be based on the 2022-2023 tax rates.

The following update has been made to your workbook edition. 

Chapter 6, End of Chapter Questions – the following text has been removed:

End of Chapter Questions

Think of an answer to each question and refer to the appropriate section for confirmation.

1. What is the meaning of ‘compliance risk’?
            Answer Reference: Section 1
2. What is meant by the compliance function being independent?
            Answer Reference: Section 1.3, 1.5 and Guideline 8
3. Why should a firm have a compliance monitoring programme, what is its purpose and aim?
            Answer Reference: Section 1.5 and Guideline 2
4. What is the purpose of mandatory compliance reports?
            Answer Reference: Section 1.5 and Guideline 3
5. What CISI Code of Conduct principle is where the key stakeholder is the client?
            Answer Reference: Section 2.4.1
Chapter 2, Section 15.4.12 – this text has been amended to include:

Cryptoassets 
A cryptoasset is understood to be a digital representation of value or contractual rights that can be transferred, stored or traded electronically, and which may (though does not necessarily) utilise cryptography, distributed ledger technology or similar technology. The term ‘token’ is used interchangeably with ‘cryptoasset’ hereafter.

Cryptoassets could fulfil a diverse set of functions, ranging from the trading of digital collectibles to raising capital for new projects. No internationally agreed taxonomy or classification of cryptoassets exists. In 2019, the Financial Conduct Authority (FCA) published its ‘Guidance on Cryptoassets’ which described the following broad categories of token in relation to how they fit within existing FCA regulation: e-money tokens, security tokens and unregulated tokens.

• e-money tokens meet the definition of electronic money in the Electronic Money Regulations 2011 (EMRs) – broadly, digital payment instruments that store value, can be redeemed at par value, at any time and offer holders a direct claim on the issuer 
• security tokens have characteristics akin to specified investments, like a share or a debt instrument, as set out in UK legislation. Broadly, these are likely to be tokenised, digital forms of traditional securities. As with e-money tokens, these are already within the UK’s regulatory perimeter and therefore subject to FCA regulation 
• unregulated tokens are neither e-money tokens nor security tokens and include: 
 utility tokens – tokens used to buy a service, or access a DLT platform – this could, for example, include access to online cloud storage, and 
 exchange tokens – tokens that are primarily used as a means of exchange – this includes widely known cryptoassets such as Bitcoin, Ether and XRP.

The term ‘stablecoins’ is an evolution of cryptoassets, which seek to minimise volatility in value. Depending on design, stablecoins currently fall into any of the categories set out above – though are currently more likely to be unregulated exchange tokens or e-money tokens. Stablecoins aim to maintain stability in their price, typically in relation to stable assets such as fiat currency. Examples include Tether, Paxos or USD coin.

In 2019, the FCA published a consultation on prohibiting the sale to retail clients in investment products that references cryptoassets. 

The FCA published a policy statement with final rules in October 2020, prohibiting the marketing, distribution and sale in or from the UK to retail clients, of derivatives and exchange-traded notes (ETNs) that reference certain types of unregulated transferable cryptoassets. 

In July 2020, HM Treasury published a consultation on the promotion of cryptoassets. The consultation sought industry views on a proposal to bring the promotion of certain types of cryptoassets within the scope of financial promotions regulation. The intention being to enhance consumer protection, while continuing to promote responsible innovation. This consultation closed in October 2020.

The government has identified that many of the unregulated cryptoassets expose consumers to unacceptable levels of risk. The following are three areas that they see as priority for action to be taken: 

• consumer protection
• financial crime. and
• market integrity.

The HM Treasury made a statement on 18 January 2022 that they are planning to strengthen the rules on cryptocurrency advertisements and protect consumers from misleading claims. The statement lists the following:
• the government plans to legislate to address misleading cryptoassets promotions
• adverts will be brought into line with other financial advertising, ensuring they are fair and clear
• new rules will increase consumer protection while encouraging innovation.

The Chancellor of the Exchequer stated:

‘Cryptoassets can provide exciting new opportunities, offering people new ways to transact and invest – but it’s important that consumers are not being sold products with misleading claims. We are ensuring consumers are protected, while also supporting innovation of the cryptoasset market.’

The Advertising Standards Authority (ASA) recently published a webpage with advice on adverts for ‘Cryptosassets’. The webpage provides advice for advertisers, and includes recent case law examples:

• Regulation of cryptoassets
 clearly stating that they are not regulated by the FCA and do not fall under the FSCS or the FOS
 including recent case law where adverts did not make it clear that the product was not regulated in the UK, ruling that these adverts should have included a statement to the effect that made this clear.
• Do not take advantage of consumers’ inexperience or credulity.
• Include all relevant material.
• Make clear that the value can go down as well as up.
• State the basis used to calculate any projections or forecasts.
• Make clear that past performance is not a guide for future performance.

[source of information: ASA website www.asa.org.uk]

In February 2022, the Financial Stability board (FSB) published a paper titled “Assessment of risk to Financial stability from Crypto-assets”, providing an updated assessment on the risks from cryptoassets to financial stability.

The report focuses on vulnerabilities relating to three segments of the cryptoasset markets:

• unbacked cryptoassets (such as Bitcoin),
• stablecoins, and
• decentralised finance (DeFi) and cryptoasset trading platforms.

The FSB concluded that cryptoassest markets are fast evolving and that, at some point in the future, they could pose a threat to global financial stability. In addition, due to their evolution and international nature of these markets, they could bring about the potential for regulatory gaps, fragmentation or arbitrage. 

Areas the FSB identified for ongoing vigilance include:

• Potential increasing bank sector involvement in the cryptoasset eco-system, especially where activities give rise to balance sheet exposure to cryptoassets, not captured by (or not in compliance with) appropriate regulatory treatment. 
• Institutional investors increasing their exposures to cryptoassets relative to the size of their portfolios. Risks could increase further if such exposures employ high levels of leverage, including through the use of derivatives referencing cryptoassets. 
• Acceleration in adoption of cryptoassets for payments. This could happen via partnerships with established payment firms or retailers/social networks. 
• The growth, role and risks associated with cryptoasset trading platforms. Losses in cryptoassets, where accompanied by leverage, liquidity mismatch and interconnections with the traditional financial system, may amplify systemic risk arising from wealth effects. Loss of confidence in stablecoins could also trigger sales of their reserve assets, potentially affecting the functioning of short-term funding markets.
• A rapid growth of DeFi, in the absence of clearly identifiable intermediaries or parties responsible for governance, challenges core financial (stability) regulatory and supervisory disciplines and doctrines. Differing regulatory approaches could lead to regulatory arbitrage, thus increasing potential systemic risks. 
• Data gaps impeding risk assessment and calibration of policy options.

The FSB noted that they will continue to monitor developments and risks in cryptoasset markets, explore potential regulatory and supervisory implications of unbacked cryptoassets, including actions jurisdictions have taken, or plan to take, to address financial stability during 2022. 

They will also continue to monitor and share information on regulatory and supervisory approaches to ensure effective implementation of their high-level recommendations for the regulation, supervision and oversight of “global stablecoin” arrangements.

[source of information – FSB website www.fsb.org] 

Chapter 3 Section 7.5 (p.151)
Text amended to read “Let’s assume that an individual wants to buy a car worth £20,000 and the interest rate is 3% pa.”

Chapter 4 Section 1.2 (p.165)
PPR exemption period amended from 18 months to 9 months.

Chapter 4 Section 1.12 (pp.180-81)
1.    Child Benefit 2020-2021 amended to £1,094.60
2.    Child Benefit income tax charge (1% × £1,094.60 × 20) = £218.92

Chapter 5 Section 2.2.4 (p.221)
Formula amended to read:

Solution
Expected portfolio return = (0.4 × 10%) + (0.6 × 12%) = 11.2%
Variance = (0.4)² x (0.08)² + (0.6)² x (0.1)² + (2 x 0.4 x 0.6 x 0.08 x 0.1) x 0.87
= (0.16 x 0.0064) + (0.36 x 0.01) + 0.00384 x 0.87
= 0.001024 + 0.0036 + 0.0033408
= 0.0079648
Standard deviation = √0.0079648
= 0.08924

We are withdrawing our Bond and Fixed Interest Markets exam in the winter 2023 session. It is strongly recommended the final sitting on 28 November 2023 is for resits only and not for first time candidates. If you have any questions, please contact our Customer Support Team. 

We are withdrawing our Financial Derivatives exam in the summer 2023 session. It is strongly recommended the final sitting on 6 June 2023 is for resits only and not for first time candidates. If you have any questions, please contact our Customer Support Team. 

We are withdrawing our Advanced Global Securities Operations exam in the winter 2023 session. It is strongly recommended the final sitting on 30 November 2023 is for resits only and not for first time candidates. If you have any questions, please contact our Customer Support Team. 

The following update has been made to your workbook edition.

Chapter 7, Section 6.1.2’s example has been amended to read:

Example

A portfolio was worth £30,000 at the start of the calendar year and £34,000 at the end of the calendar year. During that year, an additional £4,000 had been invested at the end of April and £1,000 withdrawn at the end of October.  There was an income payment of £150 during the year. The MWR would be:

D + V1 – V0 – C
V0 + (C1 x n/12) + (C2 x n/12)

Addendum

Applied Wealth Management Edition 5 Workbook

Chapter 10, section 1.8.4

The rules regarding dying intestate have been amended as below and differ from what appears in the Applied Wealth Management Edition 5 workbook.

For the June 2018 exam, both what appears in the workbook and the new rules will be accepted.
Married partners or civil partners inherit under the rules of intestacy only if they are actually married or in a civil partnership at the time of death. So if you are divorced or if your civil partnership has been legally ended, you can’t inherit under the rules of intestacy.
Partners who separated informally can still inherit under the rules of intestacy. Cohabiting partners (sometimes wrongly called `common-law` partners) who were neither married nor in a civil partnership cannot inherit under the rules of intestacy.
If there are surviving children, grandchildren or great grandchildren of the person who died and the estate is valued at more than £250,000, the partner will inherit:
• all the personal property and belongings of the person who has died, and
• the first £250,000 of the estate, and
• half of the remaining estate.
If there are no surviving children, grandchildren or great-grandchildren, the partner will inherit:
• all the personal property and belongings of the person who has died and
• the whole of the estate with interest from the date of death.

Corporate Finance Strategy & Advice

Please note the following change to the exam rubric for this paper applicable from the December 2013 sitting onwards.

The December exam will start at 13:00 and candidates will receive both the Information Booklet and the Question Paper. They will not receive the Answer Book.

At 13:55 Answer Books will be circulated, then from 14:00, once candidates have been instructed to do so, candidates may open their answer books and begin writing. They will then have 3 hours to complete the exam and will finish at 17:00.

This change will be reflected on the examination paper as follows:
Part 1: Time allowed: 1 Hour

Candidates will be provided with an Information Booklet and the examination question paper. Candidates have one hour in which to review the information booklet and questions. During this time, candidates may annotate the information book. The examination has been prepared on the assumption that candidates will not have any detailed knowledge of the type of company or sector to which it refers. No additional merit will be accorded to those candidates displaying such knowledge.
Part 2: Time allowed: 3 Hours

The Answer Book will be distributed at 1.55 pm and candidates should open and begin writing in the answer book when instructed at 2.00 pm.
The syllabus has now been updated for 2014.

Corporate Finance Strategy and Advice Ed1 Addendum October 2021

Corporate Finance Techniques & Theory

Please note the following change to the examination rubric for this paper applicable from the December 2013 sitting onwards.
There has been an adjustment to the number of question options between the June 2013 sitting and the December 2013 sitting. For the December 2013 Sitting paper onwards:
SECTION A – FIVE questions in this section are to be answered (Same as June 2013)
SECTION B – BOTH questions in this section are to be answered (rather than TWO out of THREE Questions)
The syllabus has now been updated for 2014.

Financial Markets

The following update has been made to your workbook edition.

Syllabus Learning Map – Reading List – this text has been amended to read:

1. ISE Essentials of Investments (IRWIN FINANCE) – 2021 by Zvi Bodie Professor, Alex Kane, et al. 4 Jan 2021

2. Navigating the Street: A Better Approach to Investing 2021 by Guy Davis & David Shahrestani, Indep Published

3. Essential Economics for Business – 2019 by John Sloman – Pearson

4. Analysing Financial Performance: Using Integrated Ratio Analysis, 1st Ed, Nic La Rosa , Routledge

5. Ratio Analysis: Financial Ratios, Kindle Edition, 2020 Raj Kumar Sharma – Indep Published

6. Financial Shenanigans, 4th Ed: How to Detect Accounting Gimmicks and Fraud in Financial Reports  – 2018 – McGraw Hill – 2018 by Howard Schilit, Jeremy Perler, Yoni Engelhart

7. Bond Markets, Analysis, and Strategies, 10th edition 2021 Frank J. Fabozzi and Francesco A. Fabozzi – MIT Press

8. Options, Futures, and Other Derivatives, Global Edition by John Hull 17 Jun 2021 – Pearson

9. Derivatives: Theory and Practice of Trading, Valuation, and Risk Management (Springer Texts in Business and Economics) – 2020 Jiří Witzany

10. Green Investment: A comprehensive Guide, Kindle Edition, 2020 Urs Markwalder – MAM Media

11. Inefficient Markets ‘an Introduction to Behavioral Finance‘ (C.L.E.): An Introduction to Behavioural Finance (Clarendon Lectures in Economics) 2000 Andrei Shleifer

12. Understanding Financial Risk Management – 2019 by Angelo Corelli – Emerald Publishing

13. Fundamentals of Financial Instruments: An Introduction to Stocks, Bonds, Foreign Exchange, and Derivatives (Wiley Finance) by Sunil K. Parameswaran, 28 Mar 2022

14. The Structure and Regulation of Financial Markets, 14 December 2000 by Peter D. Spencer – Oxford Press