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Ro1 Regulations And Ethics Of The Finanacial System > The Context for The UK Financial Services > Flashcards

The Context for The UK Financial Services Flashcards

1
Q

What are the 4 roles of financial services in the UK?

A

Savings and investments for the future.

Transfer of savings to the economy through lending and investing.

Risk transfer. (Insurance)

Allows organisations to transfer risk.

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2
Q

How does the financial service allow savings to be transferred to the wider economy?

A

Taking savers funds to generate lending or investment into companies. I.e. shares or bonds.

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3
Q

How does the financial service allow people to transfer risk?

A

Through insurance and diversification of investments.

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4
Q

How does the financial service allow organisations to transfer risk?

A

Reinsurance - one insurer passes some of their risks to another insurer or through the Loyds of London Market. (A syndicate of wealthy investors who put up their own wealth for specialist risks.)

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5
Q

What might companies and individuals choose to do to protect against risk associated with share sale or purchase?

A

Secure prices with derivatives to help minimise losses as a consequence.

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6
Q

What are the 5 elements of the financial services?

A

Firms
Markets
Regulator’s
Competition and Markets Authority
Infastructure

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7
Q

What are the 5 different types of firms?

A

Banks and building societies
Life insurance companies
Friendly Societies
Financial intermediaries
Multi-distribution organisations

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8
Q

What is the difference between banks and building societies?

A

Banks are owned by share holders
Building societies are mutual organisations owned by their members.

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9
Q

What are the core banking services?

A

Core services-
Current accounts
Instant access
Deposit accounts (better interest and limited access)

The CII also maintains that the provision of wills and exectutorship services are core services, though this is debatable.

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10
Q

How do life insurance companies work?

A

Offer life products through intermediaries, their own in-house sales team, or both.

Both genuine insurance and policies for investment are available.

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11
Q

What are friendly societies?

A

Small mutual (owned by policyholders) organisations that offer tax-free savings and investments.

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12
Q

How do financial intermediaries work?

A

Independent financial advisory firms can offer all products in all sectors, both packaged and beyond.

Restricted advisors offer products from the whole market but not necessarily in all areas of financial planning.

Some are tied to products of a limited number. (Multi-tied)

Some are tied to one provider. (Tied)

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13
Q

What are multi-distrbution organisations?

A

Larger companies that have branched out into the financial services. (Tescos)

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14
Q

What are the two primary forms of market?

A

Over the counter, where buyers and sellers deal directly with each other with no formal mechanism. (Many have formed informal committees)

On exchange (exchange traded) where the market is run by intermediaries. (London stock exchange, the alternative investment market)

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15
Q

Who are the 4 UK regulators?

A

The Financial Policy Committee (FPC) of the Bank of England.

The Finacial Conduct Authority (FCA), which broadly concerns the sales and marketing of financial products and conduct.

The Prudential Regulatory Authority (PRA)- a division of the Bank of England that covers prudencial regulation (capital and solvency) of the industry’s largest players.

The Pensions Regulator (TPR)

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16
Q

What are the 3 core responsibilities of the competition and market authority?

A

Investigate mergers between organisations to make sure they don’t reduce competition

Take action against businesses and individuals that take take part in anti-competative behaviour.

Protect consumers from unfair trading practices.

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17
Q

How is the payment infrastructure handled in the UK?

A

Payment systems - BOE

Transactions - CHAPS and BACS.

Clients of the UK payments Administion (UKPA) who support and provide services to these providers.

They are regulated by the Payment System Regulator. (PSR)

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18
Q

How much is the financial infrastructure market worth?

A

81trn

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19
Q

Was the Isle of Man ever in the EU?

A

No

20
Q

Who is responsible for coordinating and setting interest rates for EU member states?

A

The European Central Bank. (ECB)

21
Q

What are the 3 European Supervisory Bodies?

A

European Banking Authority. (EBA)
European Securities and Markets Authority. (ESMA)
European Insurance and Occupational Pensions Authority. (EIOPA)

22
Q

What are the European higher versions of the PRA and FCA?

A

PRA- European Systemic Risk Board(ESRB)
FCA- European System of Finacial Supervision. (ESFS)

These work with the member states to ensure consistent protection for consumers.

23
Q

What European laws still affect the UK?

A

European Finacial Services Action Plan (FSAP).

Markets in Finacial Instruments Directive. (MiFID)

24
Q

What is a potential concern for negotiations?

A

The loss of passporting rights.

25
Q

How are financial markets in EU states regulated?

A

Independent markets regulated by bodies in each member state where capital can flow in and out without restriction.

26
Q

What organisation is important for the global context of financial services?

A

The Finacial Action Task Force (FATF) deals with money laundering.

27
Q

What actions are generically available to the UK government?

A

Fiscal policy - spending/borrowing and taxation.

Monetary policy - control interest rates and money supply.

28
Q

Is monetary policy in the government’s control?

A

No

29
Q

Who sets interest rates?

A

The Monetary Policy Committee (MPC) of the Bank of England.

30
Q

What controls exchange rates?

A

Supply and demand

31
Q

What is the Bank of England’s core responsibility?

A

Maintain monetary satablity

32
Q

What happens when interest rates are increased?

A

People are encouraged to save more as banks and building societies change theirs to follow suit.

The flipside is in reverse.

33
Q

What is the primary tool for controlling the economy?

A

Raise/ lower the interest rate.

34
Q

What happens when sterling becomes less attractive?

A

The value of the currency relative to others falls.

35
Q

What can the UK government control?

A

Fiscal policy.

36
Q

What are the 5 elements of fiscal policy?

A

Spending.
Borrowing.
Taxation.
The ‘Welfare State’.
Regulation and law making.

37
Q

What is the most direct way the government can stimulate the economy?

A

Spending money into the economy infrastructure, which creates jobs and demand for goods.

Tax cuts would create some demand, but people may save, so it does not stimulate as much.

38
Q

What products does the government provide for its borrowing requirement.

A

National savings and investments
Gilts

Both are backed by the government, so they are seen as secure.

39
Q

What is ‘Quantative Easing’

A

Where the government buys back Gilts and financial sector bonds to inject cash into the system.

40
Q

What are the uses of taxation?

A

It is how the government raises funds.

Control of behaviour

41
Q

What 4 tax incentives and concesions does the government offer to encourage behaviour?

A

ISAs
Pensions
VCT/EIS
Friendly Societies.

42
Q

Name 2 tax concessions?

A

Income tax personal allowance
Capital Gains Tax annual exempt amount.

43
Q

What are the two elements of the welfare state?

A

Benefits
Welfare services

44
Q

What acts did the government create for financial regulation?

A

The Financial Services Act 2012
The Financial Services and Markets Act (FSMA) 2000

45
Q

Which official is responsible for financial service regulation in the UK?

A

The Chancellor.

46
Q

What is the purpose of the FSAP?

A

Create and enhance a single European-wide market for financial services and consistent prudential regulation.

47
Q

What are 4 indirect services?

A

Stockbroking services
Portfolio management
Insurance
Pensions.

Ro1 Regulations And Ethics Of The Finanacial System (14 decks)

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