topic 3 Flashcards
Conduct of business
The way in which a business is run. In financial services, the FCA enforces conduct of business regulations, which include requirements for providers to carry out their operations with integrity, skill and diligence, treat customers fairly and communicate with them clearly
Deleveraging
Reducing the amount of debt in relation to assets. In personal terms, this might mean paying off loans, credit cards, etc.
Economic sustainability
Ensuring that economic activity is carried out in a way that ensures it can continue in the long term, eg by taking account of the capacity of natural and human resources to sustain it.
Environmental sustainability
Reducing the negative impacts of human activity on the environment so that natural resources can be sustained into the future, eg by reducing atmospheric pollution and making more use of renewable
resources
Equator Principles
A set of ethical benchmarks for banks to follow when taking decisions to finance infrastructure projects, such as dams or pipelines
Ethical lending
Lending money to, for example, companies that invest in green technology, or charging lower insurance premiums to people with more carbon-efficient cars
Financial contagion
a situation in which debt works its way through the global financial system; the problems of one group of institutions spread to other institutions, threatening confidence in and the sustainability of financial systems. See systemic risk
Leverage
The amount of borrowing a company has in relation to its assets
Liquid assets
Cash or assets that can be easily converted into cash without losing any of their value
Liquidation
The process by which a company (or part of a company) is brought to an end, and the assets and property of the company are redistributed
Moral hazard
A situation in which there is lack of incentive to guard against risk because the risk-taker believes that they will be protected from any negative consequences. For example, the banks believing that the
government would bail them out if they got into financial difficulty and so they would not have to face the consequences of imprudent actions
Mortgage Market Review (MMR)
Reforms made to the mortgage market in April 2014 to ensure it is sustainable and works better for consumers
Perilous debt
A situation in which someone is spending more than half of their monthly income on debt repayments
Provider sustainability
A company with a sustainable business model. For example, a bank that is willing to take less risk even if this means giving up the chance of making additional profits. If providers are run sustainably, they will be less likely to fail and, therefore, less likely to trigger a systemic failure.
Prudential regulation
Regulation that is designed to ensure financial services providers do not fail or, if they do, that their failure does not have an impact on the wider financial system. One of the ways that this is done is by requiring providers to hold a certain level of capital and also a certain level of liquid assets, so that they can meet demand from customers
seeking to withdraw funds.
Social sustainability
A concern with creating communities that foster well-being, peace,security and justice for the people who live in them
Speculators
People who buy and sell the shares of many companies in order to make quick profits on the deals
Stakeholder groups
The groups of people upon whom financial services providers have an impact – including employees, customers and shareholders.
Sustainable development
Development that meets the needs of the present without compromising the ability of future generations to meet their own needs
Sustainable financial product
A financial product that is designed to meet the long-term requirements of those who buy it
Sustainable financial system
A system in which financial services are delivered in a way that means they can continue to be delivered and meet the needs of customers over the long term
Systemic risk
Risk that affects an entire system. In financial services terms, it is risk that begins with one provider or group of providers and spreads because different parts of the financial system are interconnected.
Systemically important financial institutions
The large firms within the financial services sector that would cause serious problems for the whole economy if they were to fail.
‘Too big to fail’
Believing that the consequences of one or more of the big banks failing would be too great for any government to allow it to happen.
