1 - UK Financial Services in European & Global Context – Vocabulary Review

A comprehensive set of vocabulary flashcards covering key terms, institutions, instruments, and concepts from the lecture on the UK financial services industry, its structure, regulation, and interaction with global markets.

Financial Services (Four Functions)

Protection and management of savings, maturity transformation, risk transfer, and risk dispersion across investments.

Maturity Transformation

Matching savers’ short-term access needs with borrowers’ long-term funding needs via financial institutions.

Fractional Reserve Banking

System where banks lend out more money than they hold in reserves, relying on inter-bank lending and capital buffers.

Government Bonds (Gilts)

UK fixed-interest securities issued to fund government borrowing; traded on the London Stock Exchange.

Interest-Rate Risk

Risk that bond values fall when market interest rates rise, affecting long-dated gilts most.

Index-Linked Gilts

Gilts whose capital and coupon payments are linked to inflation (currently RPI, moving to CPIH by 2030).

Green Gilts

UK government bonds issued from 2021 to finance environmentally sustainable projects.

National Savings & Investments (NS&I)

Government-backed institution funding public borrowing through retail products such as Premium Bonds.

Premium Bonds

NS&I savings product where returns are paid as tax-free prize draws instead of interest.

Insurance

Contractual transfer of specific risks from insured to insurer in exchange for premium payments.

Risk Pooling

Combining many premiums so insurers can pay claims while investing reserves for growth.

Reinsurance

Insurance for insurers; transferring portions of large risks to other firms for part of the premium.

Derivatives

Financial instruments (e.g., swaps, futures) used to hedge or speculate on underlying asset price movements.

Capital Markets

Markets where long-term debt (bonds) and equity (shares) are issued and traded.

Shares (Equities)

Units of ownership in a company, providing capital growth, dividends, and voting rights.

Fixed-Interest Stocks (Corporate Bonds)

IOUs issued by companies paying predetermined coupons and returning principal at maturity.

Collective Investment Scheme

Pooled vehicle (unit trust, OEIC, pension fund) allowing investors diversified exposure managed by professionals.

Financial Infrastructure

Payment, clearing, settlement, and trading systems enabling transactions in the financial sector.

CHAPS

Clearing House Automated Payment System for same-day sterling high-value transfers.

BACS

Bankers’ Automated Clearing Services processing bulk direct debits and credits.

Faster Payments

UK near-real-time service for low-value retail payments.

Payment Systems Regulator (PSR)

UK economic regulator ensuring payment systems are accessible, competitive, innovative, and secure.

Clearing House

Entity that matches, nets, and guarantees trades before settlement in securities and derivatives markets.

Money Markets

Wholesale markets for short-term borrowing and lending of funds (typically under one year).

Commodity Markets

Venues for trading physical goods such as oil, metals, and agricultural products.

Foreign Exchange (FX) Market

Global marketplace for buying and selling currencies.

Building Society

Mutual institution lending primarily for mortgages, owned by members rather than shareholders.

Demutualisation

Process by which a mutual converts to a shareholder-owned company, often creating windfall shares for members.

Current Account

Highly liquid bank account offering payments services; pays little or no interest.

Deposit Account

Savings account offering interest on balances, often with notice periods or term restrictions.

Portfolio Management (Discretionary Service)

Professional management of a client’s investments, with decisions made on the client’s behalf.

Execution-Only Stockbroking

Service executing buy/sell orders without providing investment advice.

Life Assurance Company

Insurer providing life cover, investment, and pension products, often via multiple distribution channels.

Retail Distribution Review (RDR)

FCA reform banning investment commission and raising adviser professionalism from 2012.

Friendly Society

Mutual self-help insurer offering tax-exempt savings and small life policies, governed by the 1992 Act.

Multi-Distribution Organisation

Non-financial brand (e.g., Tesco, Virgin) selling standardised financial products leveraging CAT standards.

CAT Standards

Government benchmarks for Charges, Access, Terms applied initially to ISAs and stakeholder pensions.

Financial Stability Board (FSB)

Global body coordinating national authorities to enhance financial system stability.

Financial Action Task Force (FATF)

Inter-governmental body setting AML and counter-terrorist financing standards.

IOSCO

International Organization of Securities Commissions promoting global securities regulation consistency.

Basel Committee on Banking Supervision (BCBS)

Global standard-setter for bank prudential regulation (e.g., Basel III capital rules).

ISDA

International Swaps and Derivatives Association representing participants in the OTC derivatives market.

ESMA

European Securities and Markets Authority overseeing EU securities markets and investor protection.

Passporting Rights

Pre-Brexit ability for UK firms to serve EU clients under home regulation without separate licences.

Regulatory Divergence

Process where UK rules evolve away from EU frameworks after Brexit.

Financial Services Action Plan (FSAP)

EU initiative (1999-2005) harmonising financial regulation to create a single market.

Treasury (HM Treasury)

UK government department responsible for economic policy, expenditure, and financial services legislation.

Financial Services and Markets Act 2000 (FSMA)

Primary UK statute setting regulatory framework for financial services.

Prudential Regulation Authority (PRA)

Part of Bank of England overseeing safety and soundness of banks, insurers, and major investment firms.

Financial Conduct Authority (FCA)

UK regulator focused on consumer protection, market integrity, and competition.

Dual Regulation

System where firms are supervised by both PRA (prudential) and FCA (conduct).

Memorandum of Understanding (MoU)

Agreement outlining cooperation between FCA, PRA, and Bank of England on supervision and data sharing.

Tax Concession

Government tax relief aimed at encouraging certain savings or investment behaviours (e.g., ISAs, pensions).

Individual Savings Account (ISA)

Tax-advantaged UK wrapper allowing income and gains to accrue free of personal tax.

Junior ISA (JISA)

Tax-free savings account for minors, replacing Child Trust Funds.

Pension Freedoms

2015 reforms granting defined contribution savers flexible access to their pension pots from age 55.

Auto-Enrolment

Mandatory workplace pension scheme enrolment for eligible employees, phased in from 2012.

National Employment Savings Trust (NEST)

Government-established, low-cost pension scheme for auto-enrolment contributions.

Quantitative Easing (QE)

Central bank asset purchases (primarily gilts) to inject liquidity and lower interest rates.

Repo (Repurchase Agreement)

Short-term collateralised loan where gilts are sold with an agreement to repurchase later at a higher price.

Monetary Policy Committee (MPC)

Bank of England body setting the Bank Rate to meet the 2% CPI inflation target.

Interest-Rate Policy

Use of central-bank rates to influence inflation, growth, and economic activity.

Capital Gains Tax (CGT) Exemption on Gilts

UK rule making gains on directly-held government bonds free of CGT for individuals.

Benefit Cap

Limit on total state benefits a household can receive, encouraging employment or private provision.

State Pension (Post-2016)

Flat-rate pension payable based on 10–35 qualifying years of NICs, with rising state pension age.

Social Care Funding Gap

Shortfall between increasing elderly care costs and limited state provision, driving need for private funding.

Prudential Regulation Committee (PRC)

Bank of England committee governing PRA strategy and rules.

Financial Policy Committee (FPC)

Bank of England body overseeing macro-prudential stability and systemic risk.

European Systemic Risk Board (ESRB)

EU body conducting macro-prudential oversight of the European financial system.

European System of Financial Supervision (ESFS)

Network of EU supervisors combining ESRB and the three ESAs for micro- and macro-prudential tasks.

Onshored Legislation

EU directives and regulations transposed into UK law post-Brexit to ensure continuity.

Consumer Prices Index including Housing (CPIH)

UK inflation measure set to replace RPI for index-linked gilts by 2030.

Clearing (Securities)

Post-trade process of matching and netting obligations before settlement.

Settlement

Final exchange of cash and securities fulfilling a trade contract.

OTC Market

Over-the-counter trading directly between parties without a central exchange.

Market Abuse

Illegal behaviours such as insider dealing or manipulation undermining market integrity.

Anti-Money Laundering (AML)

Laws and controls preventing placement, layering, and integration of illicit funds.

Counter-Terrorist Financing (CTF)

Measures to detect and deter funding of terrorism.

Suitability Assessment

Regulatory requirement for firms to ensure investments match clients’ objectives and risk tolerance.

Prudential Requirements

Capital, liquidity, and risk management standards imposed on financial institutions.

Passporting Loss (Post-Brexit)

Requirement for UK firms to obtain local licences or subsidiaries to serve EU clients.

Economic Policy (Fiscal)

Government actions on spending, taxation, and borrowing influencing economic activity.

Currency Control

Regime imposing fixed exchange rates and restrictions on capital flows, limiting interest-rate autonomy.

CAT-Standard ISA

Low-cost, access-friendly ISA meeting government-set maximum charges and terms.