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R01: Financial Services, Regulation and Ethics > 1. The UK Financial Services Industry: An Overview > Flashcards

1. The UK Financial Services Industry: An Overview Flashcards

1
Q

What four essential functions are financial services said to perform?

A
  1. Provide access and protect consumer savings
  2. Facilitate lending and borrowing
  3. Provide protection against risk
  4. Disperse risk across investment products
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2
Q

What important function do banks and building societies perform?

A

Turning short-term savings into longer-term lending

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3
Q

What is a gilt?

A

A fixed-interest loan security issued by the UK government.

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4
Q

What is the principle of insurance and risk management?

A

To protect and safeguard assets from the financial effects of damage or loss.

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5
Q

Capital markets developed to meet two key objectives:

A
  1. Enable investors to invest in assets that provide the potential for real growth (growth over and above the general increase in prices)
  2. Help companies to raise money without necessarily having to borrow it from a bank
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6
Q

Define Shares

A

Shares are the means by which private investors and corporations can buy ownership of a percentage company.

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7
Q

Define a Dividend

A

A proportion of profits that are distributed to shareholders

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8
Q

Define Fixed-interest Stocks (Bonds)

A

A debt instrument that investors use to loan money to a company in exchange for interest payments

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9
Q

What are the four key components within the Financial Sector?

A
  1. Financial Infrastructure - the payment, settlement, clearing and trading systems
  2. Financial Markets - both on-exchange and over the counter (OTC)
  3. Financial Firms - Including banks (retail or investment), pension funds and insurance firms
  4. The financial Sector Authorities - the Bank of England, the Prudential Regulation Authority (PRA), the Financial Conduct Authority (FCA), and HM Treasury
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10
Q

PRA

A

Prudential Regulation Authority

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11
Q

FCA

A

Financial Conduct Authority

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12
Q

What are the three European Supervisory Authorities (ESAs)?

A
  1. The European Banking Authority
  2. The European Securities and Markets Authority (ESMA)
  3. The European Insurance and Occupational Pensions Authority (EIOPA)
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13
Q

What is the role of the European Central Bank (ECB)?

A

To coordinate and control monetary policy and interest rates in the EU states using the common euro currency

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14
Q

What does the Financial Stability Forum (FSF) do?

A

Coordinates national financial authorities and makes recommendations about the global financial system

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15
Q

What does the Financial Action Task Force (FATF) do?

A

Sets international standards on anti-money laundering

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16
Q

What does the International Organisation of Securities Commissioners (IOSCO) do?

A

Brings together the world’s securities regulators to set common standards

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17
Q

What does the International Association of Insurance Supervisors (IAIS) do?

A

Supervises and sets common standards for the international insurance sector

18
Q

What does the Basel Committee on Banking Supervision (BCBS) do?

A

It is the primary standard setter for the prudential regulation of banks and provides a forum for banking supervisory matters

19
Q

What does the International Swaps and Derivatives Association (ISDA) do?

A

Represents participants in the privately negotiated derivatives industry, including interest rate, currency, commodity, credit and equity swaps

20
Q

What does The Bond Market Association (TBMA) do?

A

Represents firms trading fixed-income securities

21
Q

What is the International Securities Market Association (ISMA)?

A

It is a trade association and self-regulating organisation, supervising markets in international debt

22
Q

Which UK Government Department is responsible for the regulation of the Financial Services Market?

A

The Treasury

23
Q

What is The Treasury?

A

The UK Government Department responsible for the regulation of the Financial Services Market

24
Q

Who has direct authority of the Treasury?

A

The Chancellor of the Exchequer

25
Q

What are the key legal instruments governing the regulation and conduct of business of the financial services industry?

A

Financial Services and Markets Act 2000 (FSMA)
Financial Services Act 2012
The Bank of England and Financial Services Act 2016

26
Q

What is the Prudential Regulation Authority (PRA)?

A

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

27
Q

What is the Prudential Regulation Committee (PRC)?

A

A Committee of the Bank of England, operating alongside the other Financial Policy Committee and the Monetary Policy Committee

28
Q

What is the Financial Policy Committee (FPC)?

A

A committee set up within the Bank of England to monitor the UK economy

29
Q

What is the Financial Conduct Authority (FCA)?

A

A regulator with conduct and market responsibilities.

It authorizes smaller firms such as financial intermediaries and mortgage brokers

30
Q

What is the fundamental role of the Government within the financial services industry?

A

To maintain the economic stability of the country and protect the interests of UK Citizens

31
Q

What is the primary aim of Taxation?

A

To raise revenue for the Government

32
Q

What is economic policy?

A

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

33
Q

What is fiscal policy?

A

The control of taxation, borrowing and government spending methods

34
Q

What is monetary policy?

A

The control of interest rates and money supply

35
Q

What is the responsibility of the Chancellor of the Exchequer?

A

To define the level of Government Expenditure and borrowing

36
Q

What is the responsibility of the Monetary Policy Committee (MPC)?

A

To control interest rates (that enable the Chancellor’s inflation target to be met)

37
Q

Define Quantitative Easing

A

The introduction of new money into the money supply by a central bank; usually through buying back gilts and corporate bonds

38
Q

Give two instances where there has been Quantitative Easing in the UK?

A
  1. 2007/08 Banking Crisis (£435bn)

2. 2020 Covid-19 Pandemic (£200bn~)

39
Q

What is the Chancellor’s inflation target?

A

2% of consumer price inflation

40
Q

What are some of the different needs covered by the UK welfare and benefit system?

A
  • The NHS
  • Sickness and Disability Benefits
  • Unemployment Benefit
  • Tax Credits
  • The State Pension
  • Pension Credits
  • NHS-funded Nursing Care
41
Q

NEST

A

National Employment Savings Trust (NEST)

R01: Financial Services, Regulation and Ethics (9 decks)

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