5.2 The political environment Flashcards
What does political environment refer to in relation to the financial services sector?
Government policy
There was a ‘light touch’ approach to the way providers operated before the financial crisis - what does this mean?
Banks were able to set their own rules without too much interference from the government or the regulators
The political agenda within which banks are now operating revolves around what?
- Securing financial stability
- Reducing systemic risk
- Ensuring public sector does not need to bail out banks
- Restoring public confidence
- Repairing banks’ reputations
Additional reasons for the existence of financial regulation:
- Financial institutions must have confidence in one another because of their interactions
- UK financial system contributes to economy by selling products abroad and so supports jobs in UK
- Reduce burden on the state as customers with confidence in financial products may use them to provide an income
Money laundering definition
Methods by which criminals use financial products to hide proceeds of their crimes
What are the regulatory costs to a provider?
- Fees to the FCA and the PRA as well as levies to the FOS and FSCS
- Complying with rules means more time-consuming procedures and so more costs
- Sets limitations on a provider’s operations
What is the FCA expected to be able to demonstrate?
Proportionality - the costs to providers of meeting regulatory requirements should not exceed the benefits of doing so
Benefits of regulation to a provider:
- Safer and more sustainable
- Makes provider look ethical
- All providers subject to same rules - compete on equal terms
- Benefit large banks as it is a barrier to entry of new firms
What was there pressure on the government to do in 2017 and where did the pressure come from?
- Reduce the role of the regulators, especially The Pensions Regulator
- This came from the market
Who called for more regulation in 2017?
The Work and Pensions Committee
HSBC/NHFA mis-selling investment bonds situation:
- HSBC fined £10.5m for mis-selling investment bonds to 2,485 elderly customers of the bank’s subsidiary NHFA
- Investment intended to help people finance long-term care but 87% of sales were unsuitable - bonds represented a five-year investment and were being sold to people with an average age of 83, many of whom did not have a remaining life expectancy of five years and who were either already living in or about to enter a care home
- NHFA was closed and HSBC was ordered to pay £29.3bn in compensation to customers
What is the payday loans sector cap on?
The total cost of a loan, including arrangement and penalty fees as well as interest paid
Why might a bank be discouraged from planning a new product?
Because it is not sure how the regulator will react to it.
Are high proportion of regulations costs for a provider fixed or variable?
Fixed
What must happen for a firm to be authorised?
- The firm must undergo a long and expensive monitoring procedure to show that it is solvent
- The firm must show that it is competent in the way in which it carries out its business - ie staff follow set procedures and there are adequate records of transactions.
What does it mean if a provider is solvent?
It has enough capital and liquid assets to be able to operate and pay obligations
Who took over the work of the OFT and the Competition Commission in the area of consumer protection>
CMA
What does the Information Commissioner do?
Enforces and supervises the implementation of the Data Protection Act 1998
What does the Data Protection Act 1998 aim to do?
Ensure the most public information is openly available and that personal information is properly protected
Since 2018, the Information Commissioner has enforced what?
The General Data Protection Regulation, which requires a new Data Protection Act
What does the General Data Protection regulation do?
Tightens the processing requirements of organisations that process EU citizen’s personal data (strengthens the rights of EU citizen’s to access data stored about them and have it erased if data is no longer needed)
What are the two main codes of banking practice?
- Banking Conduct of Business Sourcebook
- Standards of Lending Practice
What is set out in the BCOBS?
- Mandatory banking conduct regime
- Rules and guidance for providers that accept deposits from individual and small business customers.
What do the BCOBS rules apply to?
- The information that the banks must communicate to their customers
- The requirement to provide a fair after-sales service
- The right of the customer to cancel a product after purchase
