1. The UK Financial Services Industry: An Overview Flashcards
What four essential functions are financial services said to perform?
- Provide access and protect consumer savings
- Facilitate lending and borrowing
- Provide protection against risk
- Disperse risk across investment products
What important function do banks and building societies perform?
Turning short-term savings into longer-term lending
What is a gilt?
A fixed-interest loan security issued by the UK government.
What is the principle of insurance and risk management?
To protect and safeguard assets from the financial effects of damage or loss.
Capital markets developed to meet two key objectives:
- Enable investors to invest in assets that provide the potential for real growth (growth over and above the general increase in prices)
- Help companies to raise money without necessarily having to borrow it from a bank
Define Shares
Shares are the means by which private investors and corporations can buy ownership of a percentage company.
Define a Dividend
A proportion of profits that are distributed to shareholders
Define Fixed-interest Stocks (Bonds)
A debt instrument that investors use to loan money to a company in exchange for interest payments
What are the four key components within the Financial Sector?
- Financial Infrastructure - the payment, settlement, clearing and trading systems
- Financial Markets - both on-exchange and over the counter (OTC)
- Financial Firms - Including banks (retail or investment), pension funds and insurance firms
- The financial Sector Authorities - the Bank of England, the Prudential Regulation Authority (PRA), the Financial Conduct Authority (FCA), and HM Treasury
PRA
Prudential Regulation Authority
FCA
Financial Conduct Authority
What are the three European Supervisory Authorities (ESAs)?
- The European Banking Authority
- The European Securities and Markets Authority (ESMA)
- The European Insurance and Occupational Pensions Authority (EIOPA)
What is the role of the European Central Bank (ECB)?
To coordinate and control monetary policy and interest rates in the EU states using the common euro currency
What does the Financial Stability Forum (FSF) do?
Coordinates national financial authorities and makes recommendations about the global financial system
What does the Financial Action Task Force (FATF) do?
Sets international standards on anti-money laundering
What does the International Organisation of Securities Commissioners (IOSCO) do?
Brings together the world’s securities regulators to set common standards
What does the International Association of Insurance Supervisors (IAIS) do?
Supervises and sets common standards for the international insurance sector
What does the Basel Committee on Banking Supervision (BCBS) do?
It is the primary standard setter for the prudential regulation of banks and provides a forum for banking supervisory matters
What does the International Swaps and Derivatives Association (ISDA) do?
Represents participants in the privately negotiated derivatives industry, including interest rate, currency, commodity, credit and equity swaps
What does The Bond Market Association (TBMA) do?
Represents firms trading fixed-income securities
What is the International Securities Market Association (ISMA)?
It is a trade association and self-regulating organisation, supervising markets in international debt
Which UK Government Department is responsible for the regulation of the Financial Services Market?
The Treasury
What is The Treasury?
The UK Government Department responsible for the regulation of the Financial Services Market
Who has direct authority of the Treasury?
The Chancellor of the Exchequer
What are the key legal instruments governing the regulation and conduct of business of the financial services industry?
Financial Services and Markets Act 2000 (FSMA)
Financial Services Act 2012
The Bank of England and Financial Services Act 2016
What is the Prudential Regulation Authority (PRA)?
A part of the Bank of England that has responsibility for the authorization and prudential regulation of certain larger firms, such as banks and insurers
NB: Prudential means issues such as levels of capital, insolvency and risk management
What is the Prudential Regulation Committee (PRC)?
A Committee of the Bank of England, operating alongside the other Financial Policy Committee and the Monetary Policy Committee
What is the Financial Policy Committee (FPC)?
A committee set up within the Bank of England to monitor the UK economy
What is the Financial Conduct Authority (FCA)?
A regulator with conduct and market responsibilities.
It authorizes smaller firms such as financial intermediaries and mortgage brokers
What is the fundamental role of the Government within the financial services industry?
To maintain the economic stability of the country and protect the interests of UK Citizens
What is the primary aim of Taxation?
To raise revenue for the Government
What is economic policy?
The set of actions a government proposes to take on expenditure, borrowing and the setting of interest rates to help control the country’s economy
What is fiscal policy?
The control of taxation, borrowing and government spending methods
What is monetary policy?
The control of interest rates and money supply
What is the responsibility of the Chancellor of the Exchequer?
To define the level of Government Expenditure and borrowing
What is the responsibility of the Monetary Policy Committee (MPC)?
To control interest rates (that enable the Chancellor’s inflation target to be met)
Define Quantitative Easing
The introduction of new money into the money supply by a central bank; usually through buying back gilts and corporate bonds
Give two instances where there has been Quantitative Easing in the UK?
- 2007/08 Banking Crisis (£435bn)
2. 2020 Covid-19 Pandemic (£200bn~)
What is the Chancellor’s inflation target?
2% of consumer price inflation
What are some of the different needs covered by the UK welfare and benefit system?
- The NHS
- Sickness and Disability Benefits
- Unemployment Benefit
- Tax Credits
- The State Pension
- Pension Credits
- NHS-funded Nursing Care
NEST
National Employment Savings Trust (NEST)
