topic 3 key words

Question 1

Conduct of
business

Answer 1

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.

Question 2

Deleveraging

Answer 2

Reducing the amount of debt in relation to assets. In personal terms,
this might mean paying off loans, credit cards, etc.

Question 3

Economic
sustainability

Answer 3

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.

Question 4

Environmental
sustainability

Answer 4

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.

Question 5

Equator Principles

Answer 5

a set of ethical benchmarks for banks to follow when taking decisions to finance infrastructure projects, such as dams or pipelines.

Question 6

Financial contagion

Answer 6

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.

Question 7

Leverage

Answer 7

The amount of borrowing a company has in relation to its assets.

Question 8

Liquidation

Answer 8

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

Question 9

Moral hazard

Answer 9

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.

Question 10

Mortgage Market
Review (MMR)

Answer 10

Reforms made to the mortgage market in April 2014 to ensure it is sustainable and works better for consumers.

Question 11

Perilous debt

Answer 11

A situation in which someone is spending more than half of their monthly income on debt repayments

Question 12

Provider
sustainability

Answer 12

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.

Question 13

Prudential
regulation

Answer 13

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.

Question 14

Social sustainability

Answer 14

A concern with creating communities that foster well-being, peace, security and justice for the people who live in them.

Question 15

speculators

Answer 15

People who buy and sell the shares of many companies in order to make quick profits on the deals.

Question 16

Stakeholder groups

Answer 16

The groups of people upon whom financial services providers have an impact – including employees, customers and shareholders.

Question 17

Sustainable
development

Answer 17

Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

Question 18

Sustainable
financial product

Answer 18

A financial product that is designed to meet the long-term
requirements of those who buy it.

Question 19

Sustainable
financial system

Answer 19

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

Question 20

Systemically
important financial
institutions

Answer 20

The large firms within the financial services sector that would cause serious problems for the whole economy if they were to fail.

Question 21

Systemic risk

Answer 21

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.