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.
