Learning Material Sample

Financial services, regulation and ethics Demo

1. The UK financial services industry in its European and global context

Learning outcome 1: Understand the UK financial services industry in its European and global context.

The course material consists of:

11 chapters of study text including test your knowledge questions in most sections

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After taking a chapter assessment if you go to the CPD certificate link you can produce a CPD certificate. By selecting the date filter you can c...

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...F Level 4 qualification.

If an SPS is removed from an adviser, the FCA could levy a fine on them, suspend them or even decide to remove their approved person status, although it could also agree to an action plan to be undertaken before reinstatement.

FCA monitoring

Firms are obliged to inform the FCA if any of their advisers fall below its competence or ethical standards.

The FCA collects information about individual advisers, such as the qualifications they hold and which accredited body they use. The FCA uses this database to help identify the highest risk individuals.

The first 3 chapters also contain audiovisual presentati...

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In this chapter we will be examining how the UK ...

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... the overall service and the products available.
In a modern economy, the financial services industry performs four main functions. It:

Provides a channel through which savings are channelled into capital management

Provides a means by which savers’ desire for access to their savings (liquidity) can match the needs of borrowers of long-term funds

Allows people and companies to insure against the risks that they do not wish to take, but that others are prepared to assume in return for payment

Allows investors to diversify risks across a number of different investment products.

Short-term savings

Banks and building societies have developed, due to the need of individuals, to keep their money safe and also readily accessible. The organisation provides the safety while simultaneously benefitting from being able to use the money deposited with it to make a return for itself. The organisation lends money it receives from one individual to another and charges interest to the borrower to cover its costs and generate a profit for shareholders. Some of the profit is distributed back to its account holders in the form of interest. It may also use the funds it receives to make its own longer term i...

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...p>Companies needed to raise money without borrowing it from banks.

For these reasons, two different types of investment exist.

Shares are the way by which individual investors and companies can buy ownership of a part of a company. By buying shares, the investor is able to benefit from any increase in the value of the company and receive some of the profits in the form of a dividend. They are also able to vote on some of the company’s key decisions.

Fixed interest stocks (bonds) allow individual investors and companies to lend money to companies in exchange for a payment of interest. The interest received by the investors will be higher than that available from a bank or building society, due to the higher risk on the money invested. This is a similar principle to lending to the Government through the purchase of gilts.

Although these investments can be purchased directly, they are also available through collective investments for savings, investment and pensions.

Test your knowledge - question: How does the Government use the savings of individuals to meet some of its’ borrowing needs?


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The UK is an international financial centre, playing host to many overseas firms and being home to financial markets that are an integral part of the global economy. London is the world’s largest and most diverse international marketplace and this means it is closely involved with the financial bodies of many other countries.

Key participants in the international markets

There are a number of European Union (EU) bodies and international committees that set regulatory standards for the financial services industry.

From January 2011 there are three new European Supervisory Authorities (ESAs):

The European Banking Authority (EBA) formerly the Committee of European Banking Supervisors (CEBS)

The European Securities and Markets Authority (ESMA) formerly the Committee of European Securities Regulators (CESR)

The European Insurance and Occupational Pensions Authority (EIOPA) formerly the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS).

There is also the European Central Bank (ECB), which co-ordinates and controls monetary policy and interest rates in the EU states which use the Euro as their currency.

Globally, there is:

The Financial Stability Forum (FSF)

The Financial Action Task Force (FATF) which acts against money laundering

The International Organisation of Securities Commissioners (IOSCO)

The International Organisation of Insurance Supervisors (IOIS)

The Basel Committee on Banking Supervision (BCBS)

The International Swaps and Derivatives Association (ISDA) represents the participants in the privately negotiated derivatives industry

The Bond Market Association (TBMA) which represents firms active in the fixed interest securities markets

The International Securities Market Association (ISMA) which is a trade and self-regulating organisation supervising markets in international debt and debt management.

The EU has also established a European Systematic Risk Board (ESRB) to monitor and assess risks to the stability of the financial system as a whole and a European System of Financial Supervisors (ESFS) for the supervision of individual institutions, consisting of a network of national financial supervisors, of which the Financial  ...

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...ucts from a limited number of providers or an arm offering fully independent advice across the whole market. If they are able to do both they will be in the best position to secure business and profit from being both a provider and an adviser.

Life assurance companies

Life assurance companies sell their products either through intermediaries (independent, multi-tied or tied) or their own sales teams. Some companies adopt specific policies to support one element of the advice sector.

Friendly societies

These organisations were established in the 19th Century as mutual self-help groups with all the profits after expenses deducted being distributed to the groups’ members. Their self-help status was assisted by being granted an exemption from taxation. This allows them to offer tax-efficient savings plans to investors, although the nature and size of investments available are restricted by legislation.

Although still a part of the overall financial services industry, most societies are small and only a few actively sell tax exempt endowment-type savings plans, distributed either by independent advisers or the society’s own sales staff. They are also able to offer a small range of home service-type small industrial life policies.

The Friendly Societies Act 1992 has allowed them to apply for corporate status and extend their range of products to include unit trusts/OEICs and ISAs.

Multi-distribution organisations

Many large organisations, for example Marks and Spencer, with a well established customer base, have in recent years taken advantage of this by starting to offer their own limited range of financial services products, which frequently includes life assurance, unit trust/OEICs, ISAs and sometimes also pensions. The introduction of CAT standards (Charges, Access, Terms) on ISAs in 1999 and the pension changes in 2001, allowed these organisations to expand their impact into the financial services market without the requirement for a qualified sales team. The simplified advice regime coming from the Retail Distribution Review will provide further opportunities.

Explain any differences between Whole of Market and Independent advice.


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The UK joined the European Economic Community (EEC) on 1 January 1973. It is now known as the European Union (EU). The aims of the EU are to promote peace, prosperity and freedom in a fairer and safer world.

There are a number of benefits that come from being an EU member. These include: Free trade between member states which removes the barriers of import duties, quotas and levies;

The ability to move freely between EU countries to live, work or study;

A single currency for countries that have adopted the Euro meaning there is no need to exchange currency and competitive prices.

EU regulation of financial services

The EU is concerned with many aspects of life within Europe and you are probably familiar with their influence in farming, agriculture, employment legislation and the new family friendly legislation. However, the EU is now movin...

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... a Prudential Regulation Authority (PRA) as a subsidiary of the Bank of England which will have responsibility for the prudential regulation of certain larger firms and a new Financial Conduct Authority (FCA) that assumed the conduct and market responsibilities previously undertaken by the FSA. 

These changes came into effect on 1 April 2013, and it now means that Banks, Building societies, insurers and major investment firms will have two groups of supervisors.  One group will focus on prudential factors (PRA) and the other on conduct (FCA). This new framework creates the new judgement based approach moving away from the reactive style of regulation and will require significant behavioural changes from supervisors and firms.

State the three objectives of the Financial Services Action Plan.


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The Government regulates and participates in finance through its role in maintaining the economic stability of the country which fulfils its electoral mandate of protecting the interests of UK citizens.

Taxation within the UK

Taxation, also known as fiscal policy, is the way the Chancellor raises money for the Government to run the country. The forms of taxation which exist in the UK and the amounts charged has a major impact on the country’s economy and the financial services industry. Changes in taxation not only affect individuals’ disposable income, but also affect trade and the economic activity of the country and impact on the financial services industry. The money raised through taxation is used to provide services, for example the National Health Service and to redistribute wealth from those most affluent to the poorest members of our society through social security benefits and payments.

An increase in taxation can lead to a reduction in disposable income for taxpayers. This will impact on people’s spending decisions and may affect their willingness to purchase financial products. However, a reduction in taxation will give people more money to spend, therefore stimulating the economy by injecting more funds into the system.

The Chancellor uses tax concessions to encourage people to invest and the following list gives examples of products offering tax concessions:

Individual Savings Accounts (ISAs)

Pension schemes

Qualifying life assurance

Friendly ...

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...rsonal pensions by introducing auto-enrolment and NEST (National Employment Savings Trust). At the same time, growing numbers of employers are finding that they can no longer run their final salary pension schemes due to extra costs such as changes in accounting regulations and the removal of dividend credits.

The number of beds available for state funded long-term care for the elderly and infirm is also reducing and the costs of private provision are frequently high. Although there are policies available to fund this need, there is currently no tax benefit from doing so and few people see the expense as essential, often meaning that a family home needs to be sold to meet the costs.

As the population ages alongside a declining birth rate, there are fewer working taxpayers supporting the system for those retired or claiming benefits and a continually worsening situation. Actions by the government such as the introduction of:

Laws requiring compulsory contributions to pensions by employers and employees (partly addressed through the introduction of NEST)

Compulsory private medical insurance

Tax breaks for pensions, health insurance, medical insurance and long-term care insurance.

All these could help to relieve the situation, but current arguments against them focus on the costs involved in their introduction.

What action is carried out by the Monetary Policy Committee to assist in achieving the Governments’ inflation target?


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NOTE - These questions are designed for revision purposes only and are therefore not written in an exam style. If you require exam style que...

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...the R01 exam. Note that the number of questions in the R01 exam for each learning outcome is an estimate and can vary by plus or minus 2 questions.

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