Mixed Deck — All CFP Topics Flashcards

In wealthtech, what is 'direct indexing'?

Answer: Owning the individual securities that constitute an index directly, enabling tax-loss harvesting at the security level

Direct indexing involves holding individual stocks of an index in a separately managed account, allowing personalized tax-loss harvesting and ESG customization impossible with ETFs.

A robo-advisory platform generates automated investment recommendations. From an audit perspective, which risk deserves the highest attention?

Answer: Algorithm bias or errors causing systematically unsuitable recommendations to clients

Algorithmic errors or bias can cause widespread harm at scale, creating material misstatement risk in disclosures and regulatory compliance failures across the entire client base.

A fintech lender operating across multiple countries faces FX risk on cross-border loans. Which hedging instrument is MOST directly applicable to managing this risk?

Answer: Currency forward contract

Currency forward contracts lock in an exchange rate for a future date, directly offsetting FX exposure on cross-border loan repayments.

What is 'Dynamic Client Registration' (DCR) in an open banking authorization context?

Answer: A mechanism allowing third-party providers to programmatically register as authorized API clients with an authorization server without manual provisioning

DCR enables Third Party Providers (TPPs) to automatically and securely register themselves as clients with Open Banking authorization servers, enabling scalable API onboarding without manual approval processes.

Which technology allows InsurTech companies to use real-time driving data to price auto insurance policies?

Answer: Telematics and IoT devices

Telematics devices collect real-time data on driving behavior (speed, braking, mileage) to enable usage-based insurance pricing models.

Under IFRS 9, a fintech lender must move a loan from Stage 1 to Stage 2 when:

Answer: There is a significant increase in credit risk since initial recognition

IFRS 9 Stage 2 classification is triggered by a significant increase in credit risk, not necessarily a missed payment.

A fintech advisor working with a newly immigrated client must pay special attention to which aspect of digital financial planning?

Answer: FATCA reporting obligations, foreign account disclosures, and cross-border tax implications that affect financial recommendations

Immigrants often have foreign accounts and income subject to FATCA, FBAR, and treaty provisions that significantly affect financial planning strategies.

What is the purpose of multi-factor authentication (MFA) in fintech applications?

Answer: To verify user identity using two or more independent factors

MFA adds layers of security by requiring users to verify their identity through multiple independent factors such as a password plus a one-time code.

Which payment card data security standard must fintech companies handling card transactions comply with?

Answer: PCI DSS

The Payment Card Industry Data Security Standard (PCI DSS) sets requirements for all entities that store, process, or transmit cardholder data.

In a fintech IPO valuation model, the EV/Revenue multiple is preferred over P/E ratio because:

Answer: High-growth fintechs often have negative earnings but positive revenue

Pre-profit growth fintechs lack meaningful earnings, making EV/Revenue the practical valuation benchmark against comparable public companies.

Which fraud type involves criminals manipulating victims via phone or text into authorizing bank transfers to fraudster-controlled accounts?

Answer: Authorized push payment (APP) fraud

APP fraud occurs when a victim is socially engineered into willingly sending a payment to a fraudster, making recovery difficult since the transfer was technically authorized.

What is 'algorithmic bias' risk in fintech lending?

Answer: When AI/ML models systematically disadvantage protected groups in credit decisions

Algorithmic bias occurs when lending models trained on historical data perpetuate or amplify existing discrimination, potentially violating ECOA and Fair Housing Act standards.

What is a compliance audit in CFP practice?

Answer: A systematic review verifying adherence to requirements and policies

A compliance audit examines adherence to regulations, policies, and standards, identifying gaps and recommending corrective actions.

A fintech auditor finds that a key system developer also has production database write access. This represents which type of internal control weakness?

Answer: A segregation of duties deficiency

Allowing developers write access to production databases violates segregation of duties because the same person who can modify code can also directly alter live data, enabling undetected fraud or error.

Which consensus mechanism is used by Ethereum after 'The Merge' in September 2022?

Answer: Proof of Stake (PoS)

Ethereum transitioned from Proof of Work to Proof of Stake with 'The Merge,' reducing energy consumption by approximately 99.95%.

In a peer-to-peer lending platform's financial statements, provisions for loan losses are recorded to account for:

Answer: Estimated credit losses on the current loan portfolio

Loan loss provisions estimate the expected credit losses on the outstanding portfolio under CECL or similar frameworks.

In decentralized finance (DeFi), what is an 'automated market maker' (AMM)?

Answer: A smart-contract-based protocol that uses liquidity pools to price and execute trades

AMMs use smart contracts and liquidity pools with mathematical pricing formulas (e.g., x*y=k) to enable decentralized token swaps without an order book.

How do regulations differ from standards in CFP practice?

Answer: Regulations are legally binding; standards are typically voluntary

Regulations are legally enforceable government rules; standards are industry-developed guidelines that may become requirements through adoption.

Which machine learning technique is most commonly used in fintech underwriting to detect non-linear relationships between borrower attributes and default probability?

Answer: Gradient boosting

Gradient boosting models (e.g., XGBoost, LightGBM) excel at capturing complex non-linear patterns in credit risk data.

What is blockchain technology?

Answer: A decentralized ledger for tracking transactions

Blockchain technology is fundamentally a decentralized, distributed ledger system. It records transactions across a network of computers, ensuring that data is transparent, immutable, and resistant to tampering without relying on a central authority. This makes it a secure and efficient way to track and verify information.