Candidate Update

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

The following update has been made to your workbook edition.

Chapter 5, Section 4.4.2 has been amended to read:

Caution is advised when using this model as its value is only as good as its inputs. The dividend per share will be known and the cost of equity or shareholders’ required return can be calculated using the capital asset pricing model (CAPM). The issue that many critics have of this model is in relation to the dividend growth rate. The model assumes that a constant dividend growth rate applies into perpetuity. This may not necessarily be the case. In addition, where the growth has been estimated using the historical growth rate in dividends, care must be taken to ensure that the sample used shows a stable trend in dividends. Further, historical growth may not necessarily apply to the future. Finally, what if the company is not paying a dividend? Does this imply that the share is worthless?
Share price (intrinsic value)=(£2.50 x 1.15)/((0.13 – 0.15) )= -£143.75
Obviously, this is unrealistic in practice, since a share cannot have a negative value.

Chapter 8, Section 2.2.1, the table’s second row, right column, first paragraph has been amended to read:

Spouse/civil partner takes £270,000 + half of the residue absolutely and all personal chattels, such as furniture, cars, pictures and clothes

Financial Plan Case Study Version 3 Addendum December 2021

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] 

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 updates have been made to your workbook edition.

Portfolio Construction Theory - Edition 10 - Addendum letter

Chapter 1, section 6.5, Table 1.9 – Example Stock Index Monthly Prices, Return and Risk Calculations, the Monthly Variance row amended to read:

313.51/12 = 26.13

Chapter 1, section 6.5, Annualised risk equation amended to read:
Chapter 1, section 6.9.2, under ‘Combining Assets and Calculating the Portfolio Standard Deviation’ Portfolio Value equation amended to read:

Chapter 7, section 6, Table 6.1 – The Benefits and Limitations of Active Management, Limitations column is amended to read:

Benefits

Limitations

Investors can tailor an active strategy to meet specific investment goals. Active investors have the potential to generate better performance relative to a benchmark index over time, even after fees. Investors have flexibility of choice and are free to choose assets that they believe will provide a strong return. This flexibility allows investors to reduce risk (eg, they may move between specific economic sectors, asset classes or individual securities as market conditions change, and/ or can use strategies such as put options to protect against losses). Many active managers are supported by teams of analysts, who carry out extensive research to identify attractive and suitable investment opportunities. Active investing can offer a challenge, which some may enjoy, and allows investors to be more involved in managing their money.

Better performance is not guaranteed. Active strategies can lag their benchmarks if market movements are misjudged, or poor investment decisions are made. Investors must be continuously vigilant about the performance of their investments, so active investing can be hard work and time consuming. Consequently, fees for professionally managed portfolios tend to be high, which has a compounding effect over time. Top managers can be selective as to which new clients they take on; eg, they may set minimum initial investment thresholds (typically £250,000), thus limiting access for some investors. Some actively managed funds may be ‘closet trackers’; in other words, they look like (and charge fees similar to) active funds, but behave like a passive fund.

The following update has been made to your workbook edition.

Chapter 2, Section 3.6.5, the first case study has been amended to read:

Tax on dividends:

After applying the dividend allowance, £1,000 of Sandra’s dividend is subject to income tax at the higher rate.

Higher rate band (next £1,000) @ 33.75%     £337.50

The total tax due is now £8,283.50. You can see, therefore, that saving into a pension has saved Sandra £1,135 (ie, £8,283.50 – £7,148.50) of income tax for the 2022–23 tax year, and she has benefitted from growing her pension fund for retirement in a tax-free environment.

Chapter 2, Section 3.4.5, first bullet list’s third bullet point has been amended to read:

• Their partner’s annual income is between £12,571 and £50,270 (ie, a basic rate taxpayer).

Addendum

The following updates have been made to your workbook edition.

Chapter 2, Section 3.4.4 Risk Descriptions, after Low-Mid Risk the table of Investor Risk Appetites added and amended to read:

Mid Risk	Understand that they have to take investment risk to meet their long-term goals. They are often more willing to take risks with at least part of their available assets and may have some experience of investment, including investing in products containing higher-risk assets such as equities and bonds. They can usually make up their minds on financial matters relatively quickly, but they still suffer from some feelings of regret when their decisions turn out badly. Investors with time horizons of ten years or more typically have portfolios with a mix of higher risk investments such as equities and lower risk investments, such as bonds and cash.
Mid-High Risk	Willing to take on investment risk and understand the nature of the long-term risk/return trade off. They are willing to take risk with most of their available assets, are typically experienced investors and have used a range of investment products in the past. They will usually be able to make up their minds on financial matters quite quickly. While they can suffer from regret when their decisions turn out badly, they can accept that occasional poor outcomes are a necessary part of long-term investment. Investors with time horizons of ten years or more typically have portfolios with a majority of higher risk investments such as equities, but that also contain bonds and cash.
High Risk	Want the highest possible return on their capital and are willing to take considerable amounts of risk to achieve this. They are usually willing to take risk with all of their available assets, and have substantial amounts of investment experience. High risk investors have firm investment views and will make up their minds on financial matters quickly. They do not suffer from regret to any great extent and can accept occasional poor outcomes without much difficulty. Investors with time horizons of ten years or more typically have portfolios made up primarily of higher-risk investments such as equities, with little in bonds and cash.

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.

 

The Financial Markets workbook edition 10 has been updated to reflect the following changes:

Chapter 1, section 3.1.2, p.39, Return on Equity (ROE) -

ROE (%) = Net income / Shareholders' equity

Chapter 1, Section 3.1.2, p.39-40, Asset Turnover -

An alternative way of calculating the asset turnover is as follows:

Asset turnover (x) = Revenue / Average total assets

where ‘average total assets’ is the average value of the assets at the beginning and the end of the period under analysis. This can be used instead of capital employed, since the value of the assets recorded on a company’s statement of financial position can change over time.

Chapter 1, Section 3.1.2, p.41, DuPont Analysis
 

Learning Outcome 2

2.3        Appy the following profitability ratios:

• Return on capital employed
• Gross and net profit margins
• Asset turnover and gearing
• Return on Equity