R01 Chapter 1 Flashcards
Payment system regulator objectives
- developed in the interest of business’ and consumers that use them
- promote effective competition in market for payment systems
- create systems that work well
Payment systems regulator
Regulates £81 trillion payment system industry
Payment systems
- crucial to wider economy
- high values and volumes
- Bank of England monitors and facilitates GBP Markets and payment systems
- bacs chaps + faster payment scheme
Financial sector authorities
Bank of England
HM Treasury
Prudential Regulation Authority
Financial firms
Banks (retail + investment)
Pension funds
Insurance companies
Financial markets
On exchange
Over the counter
Financial infrastructure
Payment settling, clearing and trading systems
Fixed interest stocks
Allows money to be borrowed with pre defined terms, in exchange for interest payment.
The interest is higher as the risk is also higher
Shares
Buy a slice of a company
Benefit from dividend and stakeholder meetings
What are the capital markets 2 objectives
Allow investors to invest in assets that provide potential for real growth
Help companies raise funds without going through a bank
Transaction protection
More complex
Uses financial instruments called derivatives
What is a Re-insurance company?
Risks too big are spread between an insurance company and a reinsurance company. So one company isn’t solely responsible for the risk.
Employee benefits
Death benefit, sick benefit and pensions.
Usually paid for by employer
Can attract and retain employees
‘Key person’ insurance
Insure against seat or long term illness of individuals vital to the income stream to a company
Life assurance
In a family where 1 or 2 people provide for their family, without their income, there’s no food, no home etc.
Life assurance protects those earnings
What can be insured
Physical assets
Earnings
Profit potential
Financial transactions
What is NS&I premium bonds
No interest
Can win tax free cash prizes each month between £5-£1Million
Average return is roughly 4%
What is a green gilt
Investment money used in green/ecological/environmental projects
What is the most common form of government debt
Conventional gilts.
Pay interest in 6 month intervals
Paid back face value, could be worth more or less than original investment
What makes a building society different to a bank
No shareholders
Was created to lend money to buy houses
Money distributed as interest instead of dividends
How does a bank see loans and deposits
Loans = income generating asset
Deposits = Liability
What happened to Silicon Valley bank?
Invested too many deposits in government bonds
Their value dropped, and didn’t have enough liquidity to honour withdrawals
What do banks do with deposits?
Loan them out to borrowers to make a return
Can banks loans more than they have in reserve?
Yes.
Thanks so I interbank lending.
High risk
Contributing factor to the 2008 markets crash
What does a bank do with its return?
Cover cost and pay dividends
Short term savings
Keep peoples money safe but easily accessible
Bank generates a return from deposits from loaning the money
European systemic risk board
To monitor and assess risk to the stability of the financial system as a whole
International securities market association
Trade association, self regulating, supervising markets in international debt
International association of insurance supervisors
Supervise and sets common standards for banking supervisory matters
International swaps and derivatives association
Represents participants in the privately negotiated derivatives industry
International organisation of securities commissioners
Brings together the worlds securities regulators to set common standards
Financial action task force
Sets international standards on anti-money laundering and countering terrorist finance
Financial stability board
Co-ordinates national financial authorities and makes recommendations about global financial system
What does EIOPA stand for?
European insurance and occupational pensions authority
What does ESMA stand for?
European securities and markets authority
What does eba stand for?
European banking authority
What is the ‘friendly societies act 1992’
Friendly society’s can apply for corporate status.
Can expand to uni trusts OEICs and ISAs
What is a friendly society
A mutual self help group
Granted commented tax exemption
Only a few group left that still offer tax exempt endowment based savings plans
What does RDR stand for?
Retail distribution review
Life assurance companies can distribute their products via
Independent + restricted advisers
Their own financial services sales team
What are the three European supervisory authorities
European banking authority
European securities and markets authority
European insurance and occupational pensions authority
How much of the FCA policy making was driven by European initiatives
Around 70%
What is ‘on shoring’
Amending EU legislation and regulatory requirements that they work in a UK only context
Financial sector assessment programme objectives
Create a single EU wholesale market
Achieve open and secure retail markets
Create state of the art prudential rules and structures of supervision
Key legal instruments governing the regulation of business and the financial services industry are:
Financial services and markets act 2000
Financial services act 2012
Bank of England and financial services act 2016
Prudential regulation authority
A part of the Bank of England
Responsible for the authorisation and prudential regulation of certain larger firms such as banks and insurers
Prudential regulation committee
A committee of the Bank of England, operating alongside the financial policy committee and the monetary policy committee
Financial policy committee
A committee set up with the Bank of England to monitor the UK economy
Financial conduct authority
This regulator has market and conduct responsibilities. It also authorises smaller firms such as financial intermediaries and mortgage brokers
Banks, building societies, insurers and major investment firms have how many groups of supervisors?
2
What’s the aim of taxation?
Raise revenue for the government
What products have tax concessions?
- Pension schemes
- ISAs
- Some life assurance
- Friendly society savings plans
- Capital gains and directly held gilts
- investments into companies listed on the Alternative Investment Market
Fiscal policy
The control of taxation, borrowing and government spending.
Monetary policy
Actions involving interest rates and the supply of money
Chancellor of the exchequer
Defines level of government expenditure and borrowing
Monetary policy committee
Has control of the interest rates
How can the government stimulate the economy by spending?
Spend money on good and services provided by UK companies
Who issues new government gilts
Debt Management Office
Quantitative easing
BoE buys back gilts and corporate bonds from financial sector.
Gilt repo market
When a party sells gilts to another with a legally binding agreement to purchase equivalent gilts for an agreed price at a specified future date
What is the chancellors inflation target?
2% of consumer price inflation
How many times does the MPC meet?
8 times a year
Who are the 9 members of the MPC?
- The governor
- Three deputy governors
- BoE’s chief economist
- Four external members appointed by the chancellor
Who decides on the final interest rate?
The chancellor of exchequer and an independent committee
What are some of the welfare and benefits available?
NHS
Sickness and disability benefits
Tax credits
State pension
Pension credits
Universal credit
Are benefits likely to increase or decrease in value
Decrease
