Level 3 Financial Services BTEC

This subject is broken down into 46 topics in 8 modules:

  1. The Financial Services Environment 5 topics
  2. Personal Financial Services 6 topics
  3. Business Financial Services 6 topics
  4. Financial Services, Ethics, and Compliance 6 topics
  5. Risk Management in Financial Services 5 topics
  6. Retirement Planning 6 topics
  7. Financial Services Information Technology 6 topics
  8. Financial Services Marketing and Communication 6 topics
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  • 8
    modules
  • 46
    topics
  • 17,836
    words of revision content
  • 2+
    hours of audio lessons

This page was last modified on 28 September 2024.

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Financial Services

The Financial Services Environment

The financial services industry

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The financial services industry

The Financial Services Industry

Definition and Role

  • The financial services industry refers to diverse sectors dealing with the management of money, including credit unions, banks, credit-card companies, insurance companies, accountancy companies, consumer finance companies, stock brokerages, investment funds and some government sponsored entities.
  • The industry performs a crucial role in the global economy, directing money from entities that have surplus funds to those who are in need.
  • Financial intermediaries help match borrowers with lenders and provide a secure framework for transactions to take place.

Types of Financial Institutions

  • Commercial banks accept deposits, provide loans and offer basic investment products.
  • Investment banks primarily assist businesses in acquiring funds and provide various services such as mergers, acquisitions and asset management.
  • Insurance companies provide financial protection against potential losses.
  • Credit unions are non-profit organisations that serve members who have common professional or personal ties.

Regulation of Financial Services

  • In the UK, the Financial Conduct Authority (FCA) and the Bank of England's Prudential Regulation Authority (PRA) are the major regulatory bodies in financial services.
  • The FCA is responsible for conducting regulation, ensuring that business across the financial industry meet certain standards of behaviour.
  • The PRA is responsible for prudential regulation, ensuring that banks, insurance companies and other financial institutions have enough capital to meet their liabilities.

Key Trends in Financial Services

  • Digitisation has significantly transformed the financial services industry, with online banking, digital payment systems and robo-advisers becoming increasingly popular.
  • Globalisation has led to an increasingly interconnected financial services industry.
  • Regulatory changes post-financial crisis have led to a focus on transparency and consumer protection.
  • Financial technology (Fintech) startups represent a significant emerging trend in the industry, offering competition to traditional firms via innovative services.

Importance of Financial Literacy

  • Understanding financial concepts like compound interest, investment risk, and diversification can help individuals make informed decisions and achieve their financial goals.
  • Knowledge in financial services ensures better understanding of wider economic factors that might affect personal finances or business affairs.
  • It also promotes sustainable financial well-being and encourages responsible borrowing and saving strategies.

Course material for Financial Services, module The Financial Services Environment, topic The financial services industry

Financial Services

Risk Management in Financial Services

Risk and risk management concepts

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Risk and risk management concepts

Introduction to Risk and Risk Management Concepts

  • Risk refers to the potential for an unfavourable outcome from an event or activity.
  • Risk management is the procedure of identifying, assessing and controlling threats to an organisation's capital and earnings.

Types of Risks in Financial Services

  • Credit risk: The likelihood a lender will not receive the owed principal and interest, causing cash flow issues and an increased cost of collection.
  • Market risk: The potential for investors to suffer losses due to changes in market prices, such as interest rates, currency exchange rates, and market volatility.
  • Operational risk: The prospect of loss resulting from inadequate or failed internal processes, people or systems.
  • Liquidity risk: The risk encompassing the inability to meet short-term financial demands.

Risk Management Process in Financial Services

  • Risk identification: The first step involves distinguishing possible risks that could negatively affect the organisation's operations.
  • Risk assessment: This step includes evaluating the potential severity of each risk and the probability of its occurrence.
  • Risk mitigation: This involves establishing measures to reduce or eliminate organisation's exposure to the previously mentioned risks.

Tools and Techniques in Risk Management

  • Stress testing: A simulation technique often used to measure the potential impact of an unfavorable event.
  • Gap analysis: A tool used to measure the gap between the organisation's actual performance and its potential performance.
  • Risk matrix: A matrix that determines risk as the product of the probability of occurrence and the impact on the organisation.

Regulatory Framework for Risk Management

  • Financial services sectors operate within a regulatory framework which includes standards, policies and legal requirements set by regulatory bodies.
  • These regulatory obligations are designed to minimise the potential for financial system instability or a crisis.
  • Noncompliance with the regulatory framework can result in heavy fines, penalties, reputational damage and can even lead to the inability to conduct business.

The Importance of Risk Management

  • Risk management is essential to ensure a company's operations continue smoothly.
  • It helps foresee potential risks and mitigate their impacts efficiently.
  • Risk management also helps businesses remain compliant with regulatory requirements, therefore maintaining their reputation and credibility in the market.

Course material for Financial Services, module Risk Management in Financial Services, topic Risk and risk management concepts

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