UK Financial Services: Industry, Regulation & Key Parties

Comprehensive vocabulary flashcards covering money functions, financial markets, assets, institutions, taxation, economics, and regulation in the UK financial services industry.

Medium of Exchange

A role of money providing a separate commodity that people will accept in exchange for products to facilitate trade.

Unit of Account

A function of money serving as a common denominator to value various products and services.

Store of Value

The ability of money to be saved and exchanged for goods or services at a later date.

Legal Tender

A form of payment which must be accepted by law in the settlement of a debt.

Central Bank Digital Currency (CBDC)

Digital money issued by a country's central bank, such as the 'digital pound' proposed by the Bank of England in $2020$.

Asset Class

A category of assets chosen by investors that share similar characteristics and behave in a similar way in the market.

Liquidity

The ease with which an asset can be converted into cash without significant loss of value.

Nominal Value

The face value of an asset, which in the case of cash, is not subject to market forces.

Fixed Interest Securities (Bonds)

Debt instruments issued by governments or corporations for terms typically over $5$ years, offering a fixed rate of interest.

Coupon

The fixed rate of interest paid annually to the holder of a bond.

Par Value

The 'face' value of a bond, representing the specific amount that will be repaid to the investor on the redemption date.

Equities

A company's share capital, representing money available for the company to invest in its activities via shareholder contributions.

Lender of Last Resort

The Bank of England's role in making funds available when the banking system is short of liquidity to maintain financial confidence.

Equilibrium Price

Also known as the 'compromise price,' it is the point where the supply of a product and the demand for it are balanced.

Intermediation

The process where a financial institution borrows money from the surplus sector at one rate and lends it to the deficit sector at a higher rate.

Maturity Transformation

An intermediary service where the borrower is provided funds for a longer period than an individual lender is willing to agree to.

Disintermediation

The process where lenders and borrowers interact directly without a third-party intermediary taking a profit margin.

Proprietary Organisation

A financial institution owned by shareholders who have the right to share in profits via dividends.

Mutual Organisation

A financial institution owned by its members, such as a building society or credit union, run for their collective benefit.

Money Laundering

The process of filtering proceeds of criminal activity through accounts to give them apparent legitimacy, governed by the Proceeds of Crime Act $2002$.

Systematic Risk

Also called market or non-diversifiable risk, it affects the whole market and cannot be removed by diversification (e.g., inflation, war, interest rates).

Unsystematic Risk

Risk specific to a company or sector that can be reduced by diversifying an investment portfolio.

Nominal Return

The headline interest earned on an investment before adjusting for the effects of inflation.

Real Return

The return on an investment after adjusting for inflation, representing the actual change in purchasing power (Nominal Return $-$ Inflation).

London Stock Exchange (LSE)

The UK's principal venue for raising equity and debt capital and for secondary trading of securities, operated by LSEG.

Alternative Investment Market (AIM)

A market launched in $1995$ for smaller, growing companies to access capital with more flexible admission requirements than the Main Market.

Gross Domestic Product (GDP)

A measurement of a country's overall economic activity representing the monetary value of all goods and services produced in a given period.

Recession

An economic phase defined by two consecutive quarters of falling Gross Domestic Product (GDP).

Fiscal Policy

The process by which the government influences economic activity through spending, taxation, and borrowing, as outlined in the annual Budget.

Monetary Policy

Actions taken by the government or central bank, primarily through interest rate adjustments, to affect the supply and price of money.

Personal Allowance

The amount of income an individual can receive before income tax becomes payable, currently set at $£12,570$ for the $2026/27$ tax year.

National Insurance Contributions (NICs)

An additional tax on earned employment or self-employment income used to fund state benefits and pensions.

Capital Gains Tax (CGT)

A tax payable on profits made from the disposal of certain assets, such as shares or second properties, exceeding the annual exemption of $£3,000$.

Inheritance Tax (IHT)

A tax payable on the value of an individual's estate at death, generally charged at $40\%$ above the Nil-Rate Band of $£325,000$.

Potentially Exempt Transfer (PET)

A lifetime gift to an individual that becomes exempt from Inheritance Tax if the donor survives for at least $7$ years after the gift.

Quantitative Easing (QE)

A monetary policy where the central bank creates electronic money to purchase assets like government bonds (gilts) to stimulate the economy.

Consumer Prices Index (CPI)

The official government measure for inflation targets based on a 'basket of goods and services' reflecting average household expenditure.

Stagflation

An economic condition characterized by a combination of slow growth, high unemployment, and high inflation.

Prudential Regulation Authority (PRA)

A body within the Bank of England responsible for the prudential regulation of larger, systemically significant firms like banks and insurers.

Financial Conduct Authority (FCA)

The regulator responsible for the conduct of wholesale and retail financial markets and the prudential supervision of smaller firms.

Consumer Duty

An FCA principle requiring firms to act to deliver good outcomes for retail clients, covering communication, products, service, and price.

Insurable Interest

The legal principle that an applicant must suffer a direct financial loss from an insured event for a life assurance policy to be valid.

Whole-of-Life Assurance

A life policy designed to pay out the sum assured whenever death occurs, provided premiums are maintained, with no fixed term.

Income Protection Insurance (IPI)

Policy providing replacement income (usually $50-65\%$ of earnings) for individuals unable to work due to long-term disability or illness.

Indemnity

A general insurance principle aiming to restore the claimant to the financial position they were in before the loss occurred, without profit.

Averaging Clause

A condition in insurance policies where the payout is reduced in proportion to the degree of underinsurance at the time of a claim.

Individual Savings Account (ISA)

A 'tax wrapper' that allows individuals to hold savings and investments, such as cash or shares, free from income tax and CGT.

Venture Capital Trust (VCT)

A form of investment trust specializing in small start-up companies, offering income tax relief of $20\%$ to investors.

Senior Managers and Certification Regime (SM&CR)

A regulatory framework designed to ensure individual accountability for senior staff and conduct standards for employees in financial services.

Power of Attorney (PoA)

A legal document granting an attorney authority to handle a donor's financial affairs while the donor still has mental capacity.

Lasting Power of Attorney (LPA)

A legal arrangement replacing EPAs in $2007$, allowing an attorney to make decisions after a donor loses mental capacity.

Tenancy in Common

A form of joint property ownership where each owner has a defined share that does not automatically pass to the survivor on death.

Discretionary Trust

A trust where trustees have the power to decide which beneficiaries receive income or capital and in what proportions.