1. The UK Financial Services Industry: An Overview

Question 1

What four essential functions are financial services said to perform?

Answer 1

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

Question 2

What important function do banks and building societies perform?

Answer 2

Turning short-term savings into longer-term lending

Question 3

What is a gilt?

Answer 3

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

Question 4

What is the principle of insurance and risk management?

Answer 4

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

Question 5

Capital markets developed to meet two key objectives:

Answer 5

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

Question 6

Define Shares

Answer 6

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

Question 7

Define a Dividend

Answer 7

A proportion of profits that are distributed to shareholders

Question 8

Define Fixed-interest Stocks (Bonds)

Answer 8

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

Question 9

What are the four key components within the Financial Sector?

Answer 9

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

Question 10

PRA

Answer 10

Prudential Regulation Authority

Question 11

FCA

Answer 11

Financial Conduct Authority

Question 12

What are the three European Supervisory Authorities (ESAs)?

Answer 12

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

Question 13

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

Answer 13

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

Question 14

What does the Financial Stability Forum (FSF) do?

Answer 14

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

Question 15

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

Answer 15

Sets international standards on anti-money laundering

Question 16

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

Answer 16

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

Question 17

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

Answer 17

Supervises and sets common standards for the international insurance sector

Question 18

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

Answer 18

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

Question 19

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

Answer 19

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

Question 20

What does The Bond Market Association (TBMA) do?

Answer 20

Represents firms trading fixed-income securities

Question 21

What is the International Securities Market Association (ISMA)?

Answer 21

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

Question 22

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

Answer 22

The Treasury

Question 23

What is The Treasury?

Answer 23

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

Question 24

Who has direct authority of the Treasury?

Answer 24

The Chancellor of the Exchequer

Question 25

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

Answer 25

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

Question 26

What is the Prudential Regulation Authority (PRA)?

Answer 26

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

Question 27

What is the Prudential Regulation Committee (PRC)?

Answer 27

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

Question 28

What is the Financial Policy Committee (FPC)?

Answer 28

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

Question 29

What is the Financial Conduct Authority (FCA)?

Answer 29

A regulator with conduct and market responsibilities. It authorizes smaller firms such as financial intermediaries and mortgage brokers

Question 30

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

Answer 30

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

Question 31

What is the primary aim of Taxation?

Answer 31

To raise revenue for the Government

Question 32

What is economic policy?

Answer 32

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

Question 33

What is fiscal policy?

Answer 33

The control of taxation, borrowing and government spending methods

Question 34

What is monetary policy?

Answer 34

The control of interest rates and money supply

Question 35

What is the responsibility of the Chancellor of the Exchequer?

Answer 35

To define the level of Government Expenditure and borrowing

Question 36

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

Answer 36

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

Question 37

Define Quantitative Easing

Answer 37

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

Question 38

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

Answer 38

1. 2007/08 Banking Crisis (£435bn) | 2. 2020 Covid-19 Pandemic (£200bn~)

Question 39

What is the Chancellor's inflation target?

Answer 39

2% of consumer price inflation

Question 40

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

Answer 40

* The NHS * Sickness and Disability Benefits * Unemployment Benefit * Tax Credits * The State Pension * Pension Credits * NHS-funded Nursing Care

Question 41

NEST

Answer 41

National Employment Savings Trust (NEST)