Topic 3 - The Impact of External Factors Flashcards
what does political factors refer to
government policies which affect the products and services offered by financial providers, and the impact these policies have on individuals
what does the new system of regulation post financial crisis set out
what they are and aren’t allowed to do, including transparency of pricing, quality of advice and how they respond to complaints
5 reasons why do we need regulation
protects consumers from dishonest, incompetent or unstable providers
a regulated and sustainable system will enhance individual sustainability - reducing risk of another financial crisis
gives confidence in the financial system
requires prudent business management and properly managed risks
requires providers to ensure consumers are fully informed of features, benefits, restrictions and terms and conditions of products
when the Financial Services Authority was abolished under the Financial Services Act 2013, who took its place
Financial Policy Committee
Financial Conduct Authority
Prudential Regulation Authority
what was the aim of the 3 new regulators
to maintain stability of the industry and providers, and ensure that consumers are treated fairly and fully protected
what agencies are in place to protect financial services consumers
Financial Conduct Authority
Financial Ombudsman Service
Financial Services Compensation Scheme
Competition and Markets Authority
Citizens Advice
Local Authority Trading Standards Offices
what is the political agenda
focused more directly on helping to ensure that every individual has access to the benefits that financial products and services can provide
social inclusion is a key policy within the agenda, what makes a person socially excluded
if certain groups or individuals in certain situations are denied access to the benefits enjoyed by most
if full social inclusion existed, what would every member of society experience
full participation in community life
can influence decisions affecting them
able to take some responsibility for what goes on in communities
exercise the right to access information and support that they may need
equal access to services and facilities
why do people find themselves social excluded
what is the extra feature for financial exclusion
physical/mental illness/disability
poor basic skills
live in deprived areas
have a low income due to low paid jobs
unable to find work
no fixed address/ homeless
discriminated against due to ethnicity/religion/gender/age/disability
level of financial literacy
what is financial exclusion
inability to access even the most basic financial products/services
what is meant by financial literacy
level of knowledge and understanding of financial matters
why were basic bank accounts introduced as part of the Universal Banking Policy 2003
benefits became payable by automatic credit transfer rather than cheque, so needed an account
what is the Post Office Card Account
the same as a basic bank account but accessed at the post office
what do the government promote providers to do to combat social and financial exclusion
offer products targeted at the financially excluded
provide information accessible to everyone
make own efforts to promote social inclusion through financial inclusion
how has the internet helped to reduce financial exclusion
who has it allowed access to
making broadband accessible to everyone
those who are housebound and cant get to the bank
have a disability
work unsociable hours
feel uncomfortable with sales staff
what is necessary for a perfect market
need competition, need confidence in buying products which will meet needs, at best price, and be informed about the product, the best way to buy it and own needs : perfect knowledge
what happens when consumers are not fully informed - information failure
no guarantee that free competition and market forces will deliver the best products at the best prices - market failure
what is the cost of complying to the new regulation
banks have to pay more for training of staff and costs of redesigning products
companies either have to accept lower prices (lower dividends) or increase price to consumer
what does technological factors include
matters such as automation, the rate of technological change and the influence of technology on outsourcing decisions
what processes are good for automation
ruled based jobs that require no judgement or discretion
what can automation show
any deterioration in accounts before it happens, when loans fall into arrears
what are the 2 key results of automation
increased speed and efficiency
less face to face advice and sales
providers can use it to get a clear picture of needs, wants and habits, why is this to consumer advantage
will be offered products that closely match their need and wants
what is digital divide
separates those of poor computer literacy/ access
what % of UK have not accessed/used the internet
13%
what are financial providers being encouraged to do
make their products environmentally friendly
what are banks encouraged to do
make favourable loans to companies that invest in developing green technology and not to those who are unsustainable
what are insurance companies encouraged to do
charge lower premiums for fuel efficient cars
what are green washing policies
masking products with green window dressing, when in truth they only pay a lip service to environmental issues
what changes are referred to in economic factors
interest (inflation, house prices, savings and investments)
economic activity, government spending and unemployment
global economy and exchange rates
what is the basic economy theory
if too much spending, consumer demand is higher than supply, so prices rise to take advantage, widespread action = inflation
what is the Monetary Policy Committees objective
to reduce consumer spending - which reduces demand and then prices
what does the higher cost of mortgages result in
reduced demand for property, as cannot afford it, resulting in falling house prices
before 2008 when there were relatively low interest rates, what impact did this have on house prices`
could borrow easily and cheaply, cheap mortgages, increase in property demand = increased price of property
how much did providers loan out pre crisis
100% of property value and 7x annual salaries
what is equity
the difference in market price and outstanding mortgage balance
how did you get positive equity
if value of property rose above value of mortgage - could be used to secure against as a loan
what can equity loans be used for
home improvements
consumer goods
life events
emergencies
what is the subprime mortgage market
market for mortgages for those with low credit ratings, who are thus less able to repay and more likely to default
if fewer people are buying what happens
reduced demand, lose jobs, fear job security
what was the typical reaction during the financial crisis
reduce debts
increase savings
emergency fund
avoid new debt
what is negative equity
value of house is lower than amount owed on mortgage
why is negative equity bad
if default, not only lose their house but also may have to pay extra to cover the debt in full
what are marginal borrowers
people who are only just managing to pay repayments even at a lower interest, who will be unable to meet even small increase in payments when interest rates rise
rising interest results in
higher returns to savers
changed attitudes to savings - encourages save not spend - increases pressure to reduce prices
how are business profits being reduced due to falling revenue and rising costs a problem
lower profits make shares seem unattractive - demand for shares fall - price of shares fall
people lost faith in investments after crisis but wanted security with high returns, what are structured products
offer safer place than stock market but still allowed them to benefit from share price growth
what are guaranteed growth/capital plans
investments called derivatives who if stock market goes up, get money back plus growth, but if market goes down get money back (many even plus a minimum)
what is the risk of guaranteed growth/capital plans
not covered by FSCS
what 4 sources of demand are there for economic activity
consumer demand
corporate demand
government spending
demand for exports
what is a healthy economy
high enough demand for goods so unemployment is low, but not so high to cause high inflation
what do the government do if inflation goes above 2%
increase interest to reduce spending, forces lower prices
what do the government do if unemployment is growing`
reduce interest to make it cheaper to borrow for spending on consumer goods, increasing demand
what is the monetary policy
manipulation of interest rates
what is a fiscal policy
amount of money raised by taxation, the amount it borrows on financial markets, and overall amount it spends
how do governments borrow money
through gilt edged securities
what did the labour government do that was a mistake
increase government debt to improve public services and maintain full employment
what was the government policy after 2010
austerity policy, lots of jobs lost from public sector
what is the effect of high employment
people are in a high consuming life style and encourages consumer culture
enables people to save money if they make enough
feel confident
what is the effect of high unemployment
have to rely on state benefits and do not have the resources
due to increased travel and increased exports and imports, what do individuals need providers to supply
foreign exchange services
buy back Guarentee
credit cards that will be accepted abroad
products to manage exchange rate risk
how are floating exchange rates effected by interest rates
if interest is high in the UK, then investors from abroad have an incentive to buy UK products
higher demand for sterling on currency markets increases the price for the pound
strengthens the value
what do cultural issues refer to
ethnic and religious backgrounds
social group they belong to and were brought up in
what do cultural backgrounds determine
ideas, beliefs, values and attitudes that were instilled to us as children and what is important
what aspects of cultural issues are there to be considered
multiculturalism
religion
youth culture
grey culture
consumer culture
how do providers need to consider multiculturalism to limit social exclusion of those who do not fully identify with UK tradition
must take into account cultural difference when designing, marketing and delivering products and services
what does sharia law not permit
not allowed to charge or be charged interest for borrowing or lending money
if they need to borrow money should use their family or sharia-compliant product
and avoid investment products which are linked to the stock exchange
what does youth culture refer to
people in their teens and early twenties and what they believe in and how they spend their time and money
what does grey culture refer to
the older section of population which is increasing due to increasing life expectancy
they have specific financial needs and share certain values
what is consumer culture
a society in which the buying and selling of goods and services is the most important social and economic activity
how does consumer culture emerge
due to increased living standards and having more disposable income
demographics involve analysing the population by what terms
age sex ethnicity culture social status geography
how does the structure of the population and changes to structure affect financial products
providers can group individuals by certain demographics and they may have very different needs, wants and aspirations
what is the problem of an ageing population and state pensions
more people above retirement age than there are people paying taxes to fund the state pensions from working, so less likely the state can provide adequate pensions
what two big demographic changes are happening to the population
changes in birth rate
migration
what two new groups of people now need specific financial products
mothers (who now work)
youth (who have more money)
legal factors include laws relating to what (4)
discrimination
consumer protection
employment
health and safety
what did the Banking Act 2009 establish
a permanent statutory regime for dealing with failing banks and makes new provisions for governing the bank of england
what must companies comply with under the Financial Services Act 2012 (5)
company law (how set up and run)
employment legislation (must treat workers)
tax laws (taxes must pay)
proceeds of crime and anti-terrorism legislation (stopping criminals and terrorists)
accounting standards (drawing up annual financial statements)
what changes happened under the Enterprise and Regulatory Reform Act 2013
Office of Fair Trading and Competitions Commission were closed and responsibilities were divided between Financial Conduct Authority and Competition and Markets Authority
what is the Competitions and Markets Authority responsible
investigating mergers which may restrict competition
investigations where there may be competition and consumer problems
investigation breaches of law
enforcing consumer protection legislation
co-operating with and encouraging regulators
what does the Sale of Goods Act ensure
that if customers are sold a product that doesn’t meet their needs then they can use the complaints procedure or cooling off period to change their mind
complaints lead to court case
what is an EU law regulation
directly applicable to all member countries as soon as they come into force - apply to all members equally, no variation
what is an EU law directive
instructions from the European Commission - members can adapt their laws, variation can exist as long as directive is fulfilled within time period
what is the aim of the EU trying to harmonise the financial services regulation
to safeguard the rights of consumers of the financial services
why is the objective to create a single European market for financial services
so all consumers can buy from all EU countries safe in the knowledge that providers are regulated to the same standard across the union
