8. Ethics And Sustainability Flashcards
1
Q
What are some everyday interactions with financial services?
A
- wages + salaries -> paid into bank account
- shopping + bills -> plastic cards + electric transfers
- protecting possessions -> insurance
- savings ->. ISAs, savings bonds, premium bonds, investment trusts etc.
- buying a home -> borrowing via a mortgage
- planning for retirement -> NI contributions towards state pension, saving for personal pension
2
Q
What features should financial information + advice have?
A
- accurate
- up to date
- transparent
- timely
- sufficient but not too complex
3
Q
What makes financial information accurate?
A
- the description of the product + of its terms and conditions must be correct
- it must describe accurately how the product works, what it costs, the rights it confers + obligations it imposes on the customer
- e.g. a person buying home insurance needs to know exactly the value covered + what circumstances a claim can be made
4
Q
How is financial information up to date?
A
- the information given must reflect the current price + terms of the product
- e.g. a description of a savings product must include latest interest rate being paid
5
Q
How can financial information be transparent?
A
- it must be clear + must not try to hide anything from the customer
- there must be nothing about the product that the customer is not told before they decide to buy
- e.g. someone buying a long term savings product needs to know the penalties of early withdrawal
6
Q
What makes financial information timely?
A
- the information must be available to the customer at the time they need it
- e.g. someone who has decided to take out a loan + wants to buy payment protection needs to know at that point about the types of insurance available
7
Q
Why should financial information be sufficient but not complex?
A
- the amount of info should be enough so that a customer has a clear idea of what a product will do for them
- however, there is no need for too much technical detail as they may not understand + such complexity is probably not necessary
8
Q
What factors influence choice of medium + long term financial products?
A
- the original want or aspiration
- feasibility of access to a financial product to fulfil want or aspiration
- information sources
- personality
- price + product features
- reputation of provider
9
Q
How does original want or aspiration affect choice?
A
- the stronger the desire to fulfil a want or aspiration, the greater the desire for the financial product that will make it possible
- e.g. someone whose main aspiration to buy a home has a strong desire for a mortgage
10
Q
How does feasibility to access affect choice
A
- someone who needs a mortgage must be able to afford to repay it + this depends on their financial circumstances
- their income, their existing assets + liabilities affect ability to
- the economic situation must be such that it is relatively easy to get a mortgage
11
Q
How does information sources affect choice?
A
- info must be available + must allow individual to find out about a full range of products from which they can choose
12
Q
How does personality affect choice?
A
- some people find it difficult to make choices + want to be presented with a limited range of options
- whereas others want to select from all possible options
- some people are impulsive - buy the first product that is suggested to them, where as others are more cautious + do a lot of research before committing
13
Q
How does price + product features affect choice?
A
- these influence choice of brand
- a customer will not always choose the cheapest if they believe that a more expensive version is better quality
14
Q
How does reputation of provider affect choice?
A
- for safety + security + for conducting its business in a way with which the customer agree
- reputation can be a deciding factor for some
15
Q
What are the reasons for people choosing certain provider?
A
- one their parents used to
- the one nearest to their home or work
- influenced by to advertisement
- ethical stance + sustainable behaviour
16
Q
Why is ethic important in finance?
A
- money + finance depend on trust
- when people save they place their money in the care of a financial services provider e.g. bank or investment fund
- they do that as they believe it is safer there + hope for a return - but they must feel confident that the provider can be trusted to behave with integrity
17
Q
What do people expect their provider to do?
A
- balance self-interest with a degree of moral behaviour
- this means that the decisions the provider makes + the way it operates should be in accordance with certain moral guidelines
- a bank needs to make a profit for the benefit of its shareholders
- but it should be concerned about the wellbeing of all its shareholders + about the social and environmental impacts of its loans + investments
18
Q
What was the moral situation before the financial crisis?
A
- many financial services providers behaved badly in the years prior to the financial crisis
- they were mainly interested in maximising sales to achieve high targets + in making short term profit - they put these goals before the interests of the customers
- a lot of poor practices have come to light since the crisis - banks concerned have received bad publicity
- combined with taxpayers having to bail out several banks made people angry
19
Q
What is the aim of financial regulation?
A
- designed to make sure customers get a fair deal
- the statuary objectives of the FCA are to protect customers, to enhance integrity of the financial system + to promote effective competition
- the obligations of the PRA are to promote the safety + soundness of firms + to protect insurance policy holders
- if providers don’t comply with these obligations they could be fined or lose authorisation to practise
20
Q
How can a provider be acting unethical?
A
- compliance with rules of regulations does not necessary mean that a provider is behaving ethically
- a provider may behave unfairly to a group of customers but not be breaking any rule, simply because no such rule exists
- financial transactions have certain implications beyond the interests of a bank’s customers as they affect the interest of other stakeholders - within an international rather than national context
21
Q
What ethical behaviour is promoted in regulations?
A
- the FCA includes that all providers. Must follow, a requirement to ‘treat customers fairly’
- under the heading of TCF providers are expected to put th wellbeing of customers at the heart of their approach to business
22
Q
Treating customers fairly outcomes
A
- The fair treatment of customers is central to the corporate culture
- Products are designed to meet the needs of identified customer groups + targeted accordingly
- Consumers are provided with clear information before, during and after sale
- Advice is suitable + takes account of consumers’ circumstances
- Consumers are provided with products + a service that performs as firm have led them to expect
- Consumers do not face unreasonable after-sale barriers to change product, switch provider, submit a claim or make a complaint
23
Q
Examples of poor practice towards customers?
A
- bank makes exaggerated + unrealistic claims for its products when compared with the products of its competitors or when taking into account the reality of the economic + financial world
- a financial adviser conceals info from a customer in order to make a sale
- adviser sells a customer a product that is clearly unsuited to their circumstances
- bank makes charges that are out of proportion to the cost of providing a product
24
Q
Examples of treating customers unfairly
A
- 1980s + 90s providers made unrealistic claims for the future performance of their endowment policies - they told customers it would grow fast but it didn’t + they were unable to pay off their interest only mortgages
- in recent years many small businesses were sold interest rate swap - they would told if interest rates went up they’d have to pay less on their loan, but weren’t told they’d have to pay more if they went down - caused many businesses to close down
