4 - Laws, Legal Concepts, and Financial-Services Regulation

Vocabulary flashcards covering key legal, taxation, contract, trust, insolvency, property and regulatory terms relevant to UK financial advice.

Sole trader

An individual who solely controls a business, is self-employed and personally liable for all business debts.

Partnership

A business owned by two or more self-employed persons who share profits and have unlimited joint and several liability.

Limited Liability Partnership (LLP)

A partnership with separate legal personality under the LLP Act 2000; partners’ liability is limited but they are taxed like traditional partners.

Limited Company (Ltd)

A private company with separate legal identity; shareholders’ liability limited to company assets; pays corporation tax.

Public Limited Company (PLC)

A company that can offer shares to the public; must meet stricter capital, disclosure and governance requirements.

Legal person

An entity (individual or body corporate) recognised by law as having rights and duties.

Insurable interest

A financial interest in the subject insured; necessary for a valid insurance contract.

Good faith

Duty to disclose fully and accurately all material facts relevant to an insurance risk.

Grant of Probate

Court authority enabling executors to administer an estate where a valid will exists.

Letters of Administration

Court authority appointing administrators to handle an estate when there is no valid will or no executors.

Grant of Representation

Collective term for Grants of Probate and Letters of Administration.

Lasting Power of Attorney (LPA)

Legal instrument under the Mental Capacity Act 2005 authorising an attorney to make decisions even after donor loses capacity.

Enduring Power of Attorney (EPA)

Pre-2007 power of attorney that continues after mental incapacity and must be registered with the OPG.

Ordinary Power of Attorney

Authority to act on someone’s behalf that ceases when the donor loses mental capacity.

Mental Capacity Act 2005

Legislation defining capacity rules and introducing LPAs and deputies.

Trustee

Person or body holding legal title to trust property and managing it for beneficiaries.

Beneficiary

Person entitled to the equitable or beneficial interest under a trust or will.

Bare (absolute) trust

Trust where beneficiaries are fixed and entitled to both income and capital.

Interest in possession trust

Trust giving a beneficiary an immediate right to income or enjoyment of trust property.

Discretionary trust

Trust where trustees decide which beneficiaries receive income or capital and when.

Power of appointment trust

Trust allowing trustees to vary or appoint beneficiaries within a specified class.

Constructive trust

Trust imposed by law to prevent unjust enrichment, irrespective of parties’ intentions.

Resulting trust

Trust arising when an express trust fails; property reverts to the settlor.

Express trust

Intentionally created trust, usually by deed or will, with stated terms.

Joint tenancy

Co-ownership with equal shares and right of survivorship; share passes automatically to surviving owners.

Tenancy in common

Co-ownership where each owner holds a distinct share that passes via will or intestacy.

Freehold

Ownership of land and buildings indefinitely.

Leasehold

Right to occupy land/building for a fixed term under a lease; land remains with freeholder.

Commonhold

Ownership model where unit owners own their property freehold and collectively manage common areas.

Shared ownership

Housing scheme where buyer purchases a share (e.g., 25–75 %) and pays rent on the rest, with option to staircase to 100 %.

First Homes Scheme

Government programme offering 30–50 % discount to eligible first-time buyers, with resale restrictions and price caps.

Mortgage Guarantee Scheme

Government guarantee supporting 91–95 % LTV mortgages by covering the portion above 80 %.

Bankruptcy

Legal process where an insolvent individual’s assets vest in a trustee for distribution to creditors.

Individual Voluntary Arrangement (IVA)

Court-supervised agreement with creditors, approved by 75 % of debt value, as an alternative to bankruptcy.

Official Receiver (OR)

Government officer acting as initial liquidator or trustee in bankruptcy and compulsory liquidation.

Trustee in Bankruptcy (TIB)

Person administering a bankrupt’s estate for creditors.

Preferential debts

Debts paid after costs of bankruptcy but before unsecured creditors (e.g., certain wages).

Administration (insolvency)

Corporate procedure aiming to rescue a company or achieve better outcome than liquidation.

Winding-up (liquidation)

Process of dissolving a company by realising assets, paying debts and distributing surplus.

Laws of succession

Rules governing distribution of a deceased’s estate via will or intestacy.

Intestacy

Situation where a person dies without a valid will; estate is distributed by statute.

Statutory legacy

Fixed sum (£322,000) payable to surviving spouse/civil partner when estate also goes to issue under intestacy.

Personal chattels

Movable personal items (e.g., furniture, vehicles) inherited by spouse/civil partner on intestacy.

Executor

Person named in a will to administer the deceased’s estate.

Administrator (estate)

Person appointed to manage an intestate estate or when executors cannot act.

Consideration (contract)

Something of value exchanged; in insurance, premium for the insurer’s promise to pay claims.

Offer and acceptance

Key elements creating a binding contract when one party’s offer is accepted by the other.

Cooling-off period

Statutory 14- or 30-day period allowing policyholders to cancel without penalty.

Law of agency

Relationship where an agent acts on behalf of a principal, binding the principal in dealings with third parties.

Independent Financial Adviser (IFA)

Agent of the client providing whole-of-market advice and owing duty of care to the client.

Binding

Having legal force; must be obeyed unless lawfully revoked.

Binding unless repudiated

Effective until explicitly rejected by the entitled party.

Power to contract

Legal capacity of a person or entity to enter into enforceable agreements.

Financial Services and Markets Act 2000 (FSMA)

Core legislation establishing the UK regulatory framework, FOS and FSCS.

Financial Services Act 2012

Act that replaced the FSA with the FCA and PRA and created the FPC.

Bank of England and Financial Services Act 2016

Law integrating the PRA into the Bank of England and creating the PRC.

Financial Policy Committee (FPC)

Bank of England committee tasked with spotting systemic risks and safeguarding financial stability.

Prudential Regulation Authority (PRA)

Bank of England body supervising prudential soundness of banks, insurers and major investment firms.

Prudential Regulation Committee (PRC)

Governing body of the PRA, replacing the PRA Board.

Financial Conduct Authority (FCA)

Independent regulator overseeing conduct, market integrity and prudential aspects of many UK financial firms.

Financial Services Compensation Scheme (FSCS)

Statutory fund paying compensation to consumers if authorised firms fail.

Financial Ombudsman Service (FOS)

Independent body resolving consumer complaints about financial services.

Competition and Markets Authority (CMA)

UK agency promoting competition and protecting consumers through investigations and enforcement.

Bank of England

UK central bank responsible for monetary and financial stability and lender of last resort.

European Securities and Markets Authority (ESMA)

EU authority coordinating securities regulation and investor protection.

Passporting rights

Ability of an EEA-authorised firm to provide services in other EEA states without additional authorisation.

Insurance Distribution Directive (IDD)

EU directive setting minimum standards for selling and administrating insurance products.

Markets in Financial Instruments Directive II (MiFID II)

EU legislation governing investment services, market structure, transparency and investor protection.

Capital Requirements Directive (CRD)

EU directive implementing Basel standards for capital adequacy of banks and investment firms.

Solvency II Directive

EU framework for capital and risk management of insurers.

Basel III

Global banking standards enhancing capital, leverage and liquidity; implemented in EU via CRD IV/CRR.

Senior Managers and Certification Regime (SM&CR)

FCA framework assigning accountability to senior managers and certifying key staff.

Joint Money Laundering Steering Group (JMLSG)

Industry body issuing guidance on UK anti-money-laundering compliance.

Money Laundering Regulations 2017 (MLR)

UK rules implementing 4MLD, requiring risk-based customer due diligence.

Fifth Money Laundering Directive (5MLD)

EU directive adding controls such as public UBO registers and crypto-asset regulation.

Financial Action Task Force (FATF)

International body setting global standards to combat money laundering and terrorist financing.

Professional Indemnity Insurance (PII)

Insurance covering professionals for liability arising from negligence; required for intermediaries under IDD.

Insurance Product Information Document (IPID)

Standard summary providing key facts about general insurance products.

Key Information Document (KID)

Short document outlining risks, costs and performance of PRIIPs for retail investors.

Packaged Retail and Insurance-based Investment Products (PRIIPs)

Regulatory category of investment products requiring KIDs for retail sales.

Undertakings for Collective Investment in Transferable Securities (UCITS)

EU framework allowing authorised mutual funds to market across member states.

Alternative Investment Fund Managers Directive (AIFMD)

Directive regulating managers of hedge funds, private equity and other alternative funds.

Market Abuse Directive

EU legislation banning insider dealing and market manipulation.

Distance Marketing Directive

EU rules on selling financial services to consumers at a distance.

Minimum capital requirement (Basel Pillar 1)

Regulatory capital firms must hold against credit, market and operational risks.

Enhanced due diligence

Additional AML checks required for higher-risk customers or situations.

Simplified due diligence

Reduced AML checks allowed for lower-risk customers.

Ultimate Beneficial Owner (UBO)

Natural person who ultimately owns or controls a customer; identity must be verified.

Ancillary Insurance Intermediary

Firm whose main business is not insurance but sells related cover (e.g., car rental).

Trustee Act 1925

Statute detailing trustees’ powers and duties, including maintenance and advancement powers.

Trustee Act 2000

Law updating trustees’ investment duties and standard of care.

Section 31 power

Trustee Act 1925 power to apply income for maintenance or education of minors.

Section 32 power

Trustee Act 1925 power to advance up to half a beneficiary’s presumptive capital share.

Trust deed

Formal document setting out the terms, trustees and beneficiaries of a trust.

Settlor

Person who creates a trust by transferring property to trustees.

Life tenant

Beneficiary entitled to income or use of trust assets for life.

Remainderman

Beneficiary entitled to trust capital after the life tenant’s interest ends.

Contingent interest

Beneficial interest arising only if a specified event occurs.

Trustee duty of care

Obligation to act with the skill and prudence of a reasonable person managing another’s assets.

Power of attorney

Legal authority to act on someone else’s behalf in specified or general matters.