1. Retail Banking Customers Flashcards
Define a ‘personal’ customer
Someone who uses banking for themselves
Define a ‘person’ in the sense of banking (3)
- A ‘natural’ person
- A ‘legal’ person
- A partnership
Define a ‘legal person’
A separate legal entity that can enter into contracts and be sued
Are the following considered to be ‘legal persons’:
- Executors
- Attorneys
- Trustees
Yes, all of them.
Is a company a legal person?
Yes, it is separate from those who run it.
What types of people tend to use cash? (4)
- Opportunity seekers
- Older People
- No bank account
- Underground Economy Members
What is an opportunity seeker? Why do they use cash?
Someone who either carries cash for emergencies or for opportunity e.g. haggling someone for a better price if paying in cash
Why do old people use cash? (2)
- Habit
- Don’t trust technology
How many adults in the UK do not hold a bank account?
Around 1.3 million adults
Why might someone not have a bank account? (5)
- No family history of banking
- Low income, unemployed
- Bad credit history
- Lack of understanding of products
- Distrust of banks
Describe underground workers. What sorts of activities are they involved in? (2)
They are illegal workers who don’t declare their income for tax avoidance purposes.
- Trade illegal products/contraband
- Employing informal labour
Which profile of cash user is most likely to be involved in money laundering?
Underground workers
Why should someone keep their sole account separate from their business account?
To make sure they are charged the correct tariffs and tax
Who is liable for debt regarding a joint account?
Everyone is jointly and severally liable
At what age is someone considered a minor in relation to bank accounts?
Those under 18
Are minors allowed to have overdrafts on their accounts?
In practice, most banks just wont offer one. But legally, minors can have one, but only for non-luxury items e.g. food and clothes.
What are the main reasons that people open bank accounts? (3)
- To be in control of finances
- To make payments
- To gain access to credit
Which different facilities are available to business customers? (7)
- Money transmission services
- Working Capital
- Capital Investment
- Protection from risk (insurance)
- Foreign business services
- Treasury services
- Business Advice via a relationship manager
How do businesses use transmission services?
To pay wages and suppliers
What is working capital in relation to business accounts?
It bridges the gap, allowing businesses to pay suppliers when they have not yet received funds from customers.
A bit like an overdraft facility
What is capital investment in relation to business accounts?
Borrowing money from the bank to buy resources, e.g. machinery, equipment and employees. These are considered investments as they are expected to make returns.
What are foreign business services?
Sending money or exporting goods overseas
What are Treasury Services in relation to business accounts? (3) To who are they provided?
Transaction, investment and information services. Provided to the treasurer or chief financial officers of a business.
What does SME stand for?
Small to Medium Enterprise
What are the possible criteria for a small enterprise? (3) How many need to be met to qualify?
- No more than 50 employees
- £10.2 million in max annual sales
- £5.1 million max balance sheet
must meet two of these to qualify
What are the possible criteria for a medium enterprise? (3) How many need to be met to qualify?
- No more than 250 employees
- £36 million max annual sales
- £18 million max balance sheet
must meet two to qualify
What are the possible criteria for a micro enterprise? (3) How many need to be met to qualify?
- No more than 10 employees
- £632,000 max annual sales
- 316,000 max balance sheet
What proportion of UK businesses are SMEs?
99.9% (very important target market for banks)
What proportion of private sector employers are SMEs?
60% (very important target market for banks)
What is a sole proprietor?
Another name for a Sole Trader
Can a sole trader use their personal account for their business?
They could, but they shouldn’t as keeping a separate account for their business is better for HMRC/tax
What are the banking needs of a sole trader? (3)
- Business banking
- Loans and mortgages
- Business protection (insurance)
What types of insurance is a sole trader likely to need? (3)
1.Life insurance
2. For equipment
3. Key persons
What is a general partnership?
Two or more people carrying out business together for a profit
Is a general partnership a legal entity? What does this mean?
No, not a separate legal entity from the individuals. This means the individual partners are jointly responsible for both assets and debt.
Which other type of customer are general partnership needs similar to? In what way do they differ? (2)
Similar to a sole trader,
(1. Business banking
2. Loans and mortgages
3. Business protection (insurance) )
but business protection is even more important and they also need partnership protection.
What is partnership protection?
Life assurance taken out by each partner in trust for the others. If a partner dies, the others get a lump sum payout to enable them to buy the deceased’s family to keep control of the business.
NB: the payout can be used for other things, they don’t have to do this, but it is the most common purpose.
What legal requirement is there for Solicitors and Accountants regarding client money?
Need to have separate accounts for business expenses and client money accounts.
Which type of professionals are likely to be LLPs? (2)
Accountants and Solicitors
What does LLP stand for?
Legal Liability Partnership
Is an LLP a separate legal entity?
Yes - the partners are only liable for the capital they have personally invested.
Are LLPs registered with Companies House?
Yes
How are General Partnerships and LLPs taxed?
As individuals. Taxed as if they are self employed and their share of profits are subject to normal income tax.
What are the banking needs of LLPs?
Same as General Partnerships:
1. Business banking
2. Loans and mortgages
3. Business protection (insurance) )
but business protection is even more important and they also need partnership protection.
Are private limited companies separate legal entities?
Yes, individuals are only liable for the amount they have invested in shares
How are profits of LTD companies paid?
In dividends, based on the amount of shares held by an individual.
What is one benefit and one challenge of LTD companies?
Benefit - easy to change personnel, they aren’t tied to the company like a partnership
Challenge - difficult to transfer shares. They cannot be listed on the stock exchange so it is difficult to assess their value. Shareholders are usually family members not wanting to sell.
What is a memorandum?
The company’s powers to borrow, i.e. what the company can do, including the amount and purpose of any loans.
What are the articles of association? What is included within? (3)
The working rules of a company.
e.g. duties /powers of the director, transfer of shares, company conduct
Where is a certificate of incorporation registered? What info does it contain? (2)
Companies House
1. Shareholders names and shares held
2. Director & Secretary names and addresses
What does PLC stand for?
Public Limited Company
Does a PLC have a certificate of incorporation?
No, it has it’s own version called a Trading Certificate
What is the main difference between a PLC and a LTD co?
PLCs can sell shares to the public on the stock market.
What is the role of a PLC’s board of directors? (3)
- Responsible for overall strategy and direction of the company
- Elected by members at an AGM
- Are shareholders of the PLC
What is the role of a PLC’s CEO?
- Day-to-day running of most matters
What is the minimum capital that PLCs need to issue to its shareholders?
£50,000 min
What are some examples of large PLC household names? (3)
Vodafone, Tesco, Barclays
Their share capital is in the billions
Who is likely to be the majority shareholder of a PLC? What rights can this bring someone?
Institutional investors, e.g. investment houses and pension funds
Those with a big enough share have the right to appoint a board member
NB: CEOs are NOT likely to be majority shareholder
What is a non-personal account? What are some examples?
One used not for individuals or companies. It is for people who look after funds on behalf of others. e.g. sports teams & charities
What is a settlement?
Another name for a trust
What is a Settlor?
The owner of an asset - the person who originally owns the property and creates the trust.
Do trusts only come into affect after the death of the settlor?
No, can be whilst settlor is still living. Once the trust comes into effect, the settlor no longer has any rights over the property.
Can a settlor also be a trustee?
Yes
What is an asset benefitor?
Another name for beneficiaries. Those who benefit from the trust.
What is meant by an asset of a trust?
The property held within it
Who appoints the trustees?
Settlor
What is the role of a trustee? (2)
- Legal ownership of the trust
- Administer the trust according to the Trust Deed
What are the banking needs of a trustee? (3)
- Make payments to beneficiaries
- Investment services (on behalf of beneficiaries)
- Borrowing, if trust deed gives them the power to do so
What is liable for the debt of a trust?
Trustee is personally liable for any debt
What are the two types of personal representative?
- Executor - with valid will
- Administrator - without valid will
What is a testator?
The deceased person in relation to inheritance
What is the role of an executor?
Apply for probate which gives them the legal authority to distribute the testator’s estate according to their will
How are executors appointed?
By the testator in the will, however, they don’t have to agree to act if they have been appointed. You can also appoint a solicitor to be your executor to ensure the estate is handled by an experienced professional.
What is the role of the Administrator?
Grant of Letters of Administration gets issued & must deal with the estate according to the laws of intestacy
What does intestate mean?
dying without a valid will
What makes a will valid? (3)
- Completed by someone age 18+
- Completed in writing
- Properly executed
What are the responsibilities of a personal representative?
- Distribute assets
- Settle any debts
- Be personal liable for any debt
What can personal representatives do in banking?
- Open a bank account (sole or joint)
- Take out a probate loan (to help cover inheritance tax)
Where must all charities register?
With the charity commission
What are the banking needs of a charity? does this depend on its size?
All charities need business banking accounts.
Larger charities have needs similar to medium sized companies and may need more sophisticated services to distribute funds.
Are clubs, associations and societies a separate legal entity? Can they take out loans?
NOT separate entity - club etc cannot be sued for debt
but can have debt, the bank will require individuals to act as guarantors & have full liability
What are the banking needs of a club/association/society?
Basic business banking - e.g current and deposit accounts
