Chapter 1 Flashcards
Why do mutual organisations offer higher interest rates than proprietary companies?
Building societies have no shareholders to keep happy with dividends so can offer higher interest rates
What is the main way the government raise money?
Through issuing GILTS and promoting NS&I products
What is the PSNCR?
Deficit in monies - e.g. spent more on state benefits than taxation
What are the 3 European Supervisory Authorities?
1 - European Banking Authority - Banking
2 - European Securities & Markets
Authority - Stock Markets
3 - European Insurance & Occupational Pensions Authority - Life & Pensions
What is the role of the ECB?
Control monetary policy and interest rates across EU states
What is the ESRB & ESFS
1 - ESSR - European Systemic Risk Board - monitor and access the stability of the financial system - Macro
2 - ESFS - European System of Financial Supervision - individual financial institutions - Micro
What is the FSB & FATF?
1 - Financial Stability Board - worldwide stability of financial system
2 - Financial Action Task Force - worldwide anti-money laundering
What are the 4 key components of the UK financial sector?
FIRM
Firm
Infrastructure
Regulatory Authorities
Markets
What is the PSR?
Payments Systems Regulator - competition-focused regulator with the purpose of making payment systems work well for all that use
What are the 3 statutory objectives of the PSR?
1 - Ensuring payment systems consider and promote interests of all businesses and consumers
2 - Promote effective competition in markets
3 - Promote development and innovation of payments systems
What role does the BoE & FCA play in payment systems?
The Bank of England oversees the payments system
The Financial Conduct Authority regulates the BoE and recognised investment exchanged - can impose sanctions
What are the 2 basic ways of organising financial markets?
1 - On-exchange markets - FCA trading floors for stocks and shares
2 - Over the counter (OTC) markets - less transparent and less regulated - can take place without knowledge of transaction price
How do international markets operate?
They are interlinked with the UK as a major financial centre
Monies flow in and out and are unlikely to match
4 Types of Financial Firms
1 - Insurance
2 - Pension
3 - Reinsurance
4 - Investment houses
Core Activities of Financial Firms
1 - Current Accounts
2 - Savings Accounts
3 - Wills
4 - Mortgage and loans
Indirect Services of Financial Activities
1 - Portfolio Management
2 - DMS
3 - AMS
4 - Execution Only
5 - Stockbroking services
6 - Trusts & OEICs
What is a life insurance subsidiary set up by a banks or building society called?
Bancassurers
Since the RDR, there are 2 categories of advice. Name them
1 - Independent
2 - Restricted
a - multi-tied - limited range of providers
b - tied - one companies product range
What relationship did the EU have on UK regulation and the financial system?
UK financial system was subject to regulations imposed by both the EU and UK government.
We have had more fiscal control as did not use the EU currency.
However around 70% of the FCA’s policies were driven by EU initiatives.
What is the FSAP and the 3 objectives?
Financial Services Action Plan - improve single market for financial services
1 - create single market
2 - provide open and secure retail markets
3 - better prudential rules and supervision
Who is ultimately responsible for the regulation of UK financial services?
HM Treasury under direct authority of the Chancellor of the Exchequer
What did the FSMA 2000 do?
Simplified UK regulatory framework
1 - Financial Services Authority - sole regulator
2 - Financial Ombudsman Service - advice complaints
3 - Financial Services Compensation Scheme
What did the Financial Services Act 2012 do?
1 - Financial Policy Committee - part of BoE which is responsible for reducing and removing systematic risk (stability of system as a whole)
2 - Prudential Regulation Authority - regulates largest UK firms - regulated itself by PRC
3 - FCA - regulates all firms not covered by PRA
What roles does the UK government play in maintaining economic stability?
Fiscal policy - government control of taxation
Monetary policy - control of interest rates and money supplies
How does fiscal policy work?
Taxes - raise revenues to spend and re-distribute wealth
Influence public - higher taxes mean save especially into ISAs etc.
How does monetary policy work?
Sets out interest rates and uses quantitative easing (buy government securities) to lower inflation rates which is good for UK economy
Why has QE not caused inflation?
Doesn’t get passed to public as used to balance sheets as lots of debt from credit crunch
What is the Balance of Payments?
Statement of transactions between one country and the rest of the world
What is Industrial policy and give an example?
Strategic efforts and policies to encourage growth of manufacturing sector
Factory gate taxation - control indirect costs (tax) as raise tax revenues paid by customers rather than manufactures
What is the role of the MPC and what is the process?
Responsible for setting interest rates since May 1999 to try and meet government inflationary targets
The 9 MPC members fronted by the Governor of the BoE meet 8 times a year
