- crucial to wider economy - high values and volumes - Bank of England monitors and facilitates GBP Markets and payment systems - bacs chaps + faster payment scheme

R01 Chapter 1 Flashcards by zak usowicz

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

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Payment systems regulator

Regulates £81 trillion payment system industry

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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

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Financial sector authorities

Bank of England
HM Treasury
Prudential Regulation Authority

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Financial firms

Banks (retail + investment)
Pension funds
Insurance companies

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Financial markets

On exchange
Over the counter

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Financial infrastructure

Payment settling, clearing and trading systems

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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

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Buy a slice of a company
Benefit from dividend and stakeholder meetings

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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

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Transaction protection

More complex
Uses financial instruments called derivatives

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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.

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Employee benefits

Death benefit, sick benefit and pensions.
Usually paid for by employer
Can attract and retain employees

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‘Key person’ insurance

Insure against seat or long term illness of individuals vital to the income stream to a company

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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

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What can be insured

Physical assets
Earnings
Profit potential
Financial transactions

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What is NS&I premium bonds

No interest
Can win tax free cash prizes each month between £5-£1Million
Average return is roughly 4%

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What is a green gilt

Investment money used in green/ecological/environmental projects

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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

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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

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How does a bank see loans and deposits

Loans = income generating asset
Deposits = Liability

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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

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What do banks do with deposits?

Loan them out to borrowers to make a return

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Can banks loans more than they have in reserve?

Yes.
Thanks so I interbank lending.
High risk
Contributing factor to the 2008 markets crash

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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?

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

R01 Chapter 1 Flashcards

(66 cards)