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LIBF Unit 2 > Topic 8 - Ethics + Sustainability > Flashcards

Topic 8 - Ethics + Sustainability Flashcards

1
Q

What are everyday interactions w financial services?

A
  • wages + salaries (paid into bank account)
  • shopping + bills (plastic cards + electronic transfers)
  • protecting possessions (insurance)
  • buying a home (borrowing via mortgage)
  • planning for retirement (NI contributions + saving for personal pension)
  • savings (ISAs, savings bonds…)
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2
Q

What are the features of info. + advice

A
  • accurate
  • up to date
  • transparent
  • timely
  • sufficient but not too complex
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3
Q

What does information + advice being accurate mean?

A
  • description of product + terms + conditions must be correct
  • describes accurately how product works, what it costs, rights it confers + obligations it imposed on customer
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4
Q

What does info + advice being up to date mean?

A
  • info reflects current price + terms of product
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5
Q

What does info + advice being transparent mean?

A
  • clear + mustn’t try hide anything from customer
  • nothing ab product customer is not told before buying it
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6
Q

What does info + advice being timely mean?

A
  • info made available to customer at time they need it
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7
Q

What does info + advice being sufficient but not too complex mean?

A
  • amount of info should be enough so customer has a clear idea of what a product will do for them
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8
Q

What are the factors that influence financial choices?

A
  • original want or aspiration
  • feasibility of access to a financial product to fulfil want or aspiration
  • info sources
  • personality
  • price + product features
  • reputation of provider
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9
Q

How does the original want or aspiration influence financial choices?

A
  • stronger the desire to fulfil a want or aspiration, greater the desire for financial product that makes it possible
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10
Q

How does info sources influence financial choices?

A
  • must be available + allow an individual to find out ab a full range of products that they can choose from
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11
Q

How does price + product features influence financial choices?

A
  • influences choice of brand (quality also influences)
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12
Q

Why might a persons choose a particular provider?

A
  • their parents use it
  • it’s the one nearest to their home or workplace
  • might be influenced by a TV advert
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13
Q

What is the definition of ethics?

A
  • the moral principles that govern a person’s behaviour or the conducting of an activity
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14
Q

Why are ethics important in the financial sector?

A
  • bc money + finance depend on trust
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15
Q

What does a provider balancing self-interest w a degree of moral behaviour mean?

A
  • decisions the provider makes + the way it operates should be in accordance w certain moral guidelines
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16
Q

How did many financial services providers behave badly prior to the financial crisis of 2007-08?

A
  • mainly interested in maximising sales to achieve high targets + make a ST profit
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17
Q

What is financial legislation + regulation designed to do?

A
  • make sure consumers get a fair deal
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18
Q

What is the statutory objs. of the FCA?

A
  • to protect consumers
  • to enhance integrity of financial system
  • to promote effective competition
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19
Q

What are the statutory obligations of the PRA?

A
  • to promote safety + soundness of firms
  • to protect insurance policyholders
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20
Q

What happens if providers don’t comply w the rules of the FCA + PRA?

A
  • may be fined or lose their authorisation to practice
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21
Q

What are the 2 aspects to a provider acting legally + satisfying regulators but still be deemed unethical?

A
  • provider may behave unfairly to a group of customers (not breaking rule, as rule doesn’t exist)
  • financial transactions have certain implications beyond interest of a bank’s customers as affect interests of other stakeholder groups
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22
Q

What must a provider do in order to behave ethically?

A
  • go beyond simple compliance + have ethical culture
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23
Q

What does the culture of an organisation refer to?

A
  • its shared values: beliefs +norms determining how ppl are expected to behave
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24
Q

What does the FCA include as part of its principles so providers behave ethically?

A
  • all providers must follow a requirement to ‘treat customers fairly’ (TCF)
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25
Q

What are the 6 outcomes for treating customers fairly?

A
  • fair treatment of customers is central to corporate culture
  • products designed to meet needs of identified consumer groups + targeted accordingly
  • consumers provided w clear info before, during + after sale
  • advice is suitable + takes account consumer’s circumstances
  • consumers provided w products + service that perform as firms have led them to expect
  • consumers don’t face unreasonable after-sale barriers to change product, switch provider, submit a claim or make a complaint
26
Q

What are some examples of poor practice of ethical culture towards customers?

A
  • financial adviser conceals info from a customer to make a sale
  • adviser sells a customer a product clearly unsuitable to circumstances
  • bank makes charges out of proportion to cost of providing a product
27
Q

What combined effects have shown providers they must put the customer 1st + develop LT relationships rather than concentrating to make a ST profit?

A
  • damage to reputation
  • loss of consumer confidence
  • tighter regulations
28
Q

How do banks justify executive pay to top executives in large banks?

A
  • pointing out large profits made under management of top executives
  • high lvl of expertise needed to do their jobs
  • scarcity of this expertise
  • great responsibility placed upon them
  • senior managers need to be highly paid to motivate them to stay in UK
29
Q

What is an ethical response to the issue of executive pay?

A
  • providers to limit salaries + bonuses payed to top staff, while maintaining a reasonable difference from ppl at lower lvls in business to motivate + reward top talent
30
Q

What happens as ppl learn more ab overall effects of financial provider’s business policies?

A
  • put inc. pressure on them to go beyond standard business goal of making profits
  • providers need to consider effects of business on all stakeholder groups
31
Q

What are types of stakeholders other than shareholders + top directors?

A
  • customers
  • employees
  • communities within own country
  • disadvantaged groups in other countries
  • envi.
32
Q

What is Corporate social responsibility (CSR) also known as?

A
  • citizenship or sustainable responsible business
33
Q

What does corporate social responsibility refer to?

A
  • any action or project a company does that goes beyond interests of its shareholders + top management to benefit other stakeholder groups
34
Q

What purpose does corporate social responsibility normally have?

A
  • a social or envi. purpose
  • goes beyond compliance w laws + regulations
35
Q

What are ethical investments?

A
  • those made in companies taking into account wider impact of their activities on society + envi., specifically envi, social + governance factors
36
Q

What do ethical investments aim to do?

A
  • meet needs of ppl who care ab how their money is used
37
Q

What does the term ‘responsible investment’ refer to?

A
  • financial institutions selling only ethical products (ethical investments)
38
Q

What does financial services providers supporting a range of charities mean?

A
  • may mean they make donations
  • may mean provider forms a partnership w a charity + sponsor fundraising or sporting events
39
Q

What is sustainability ab?

A
  • the way we live, now + in the LT
40
Q

What does sustainability involve?

A
  • taking steps to ensure standards of living in developed countries can continue into future, while enabling ppl in developing countries to raise their living standards
41
Q

What is the definition of sustainability?

A
  • sustainable dev. is dev. that meets the needs of the present w/o compromising the ability of future generations to meet their own needs
42
Q

What are the 3 ways sustainability can be approached?

A
  • eco. dev.
  • social equity
  • envi. protection
43
Q

What is envi. sustainability ab?

A
  • dec. neg. human impact on earth’s ecosystem by dec. atmospheric pollution, managing water + land responsibility + limiting human consumption of earth’s resources
44
Q

What is eco. sustainability ab?

A
  • dec. undesirable consequences of eco. activity by maintaining consumption on a sustainable scale instead of trying to achieve continual growth + by regulating markets to dec. inequalities
45
Q

What is social sustainability ab?

A
  • creating communities promoting well-being, peace, security + justice, by making education available to everyone + dec. gap between rich + poor: creates fairer societies more likely to last in LT
46
Q

What are the aspects of sustainability in relation to financial services?

A
  • sustainability of an individual financial services provider
  • sustainability of customers of financial services providers
  • individual financial institutions come together in financial markets + create networks between themselves
47
Q

What are the 3 crucial factors in measuring a business’s societal impact?

A
  • environmental
  • social
  • governance
48
Q

What are envi factors in measuring w business’s societal impacts?

A
  • impact of climate change (C emissions that damage atmosphere)
  • participation in ‘green’ conservation efforts
49
Q

What are social factors in measuring a business’s societal impacts?

A
  • treating ppl fairly (e.g. customers, staff + shareholders)
  • customer satisfaction + how business protects data it collects from customers
50
Q

What are gov. factors in measuring a business’s societal impacts?

A
  • how a business’s standards reflect its responsibilities to stakeholders
  • concerns company’s ethical priorities in decision-making
51
Q

What product groups give the most scope for expressing an ethical opinion?

A
  • savings
  • investments
  • pension funds
52
Q

What does the Ethical Investment Association (EIA) do?

A
  • helps members find out which companies have greener + more ethical policies
53
Q

How does an affinity savings account work?

A
  • linked to particular charity/good cause
  • provider makes cash payment, from own funds, to charity
  • based on average balances held in affinity group accounts
54
Q

What might ppl who are keen on buying ethical + green products consider becoming customers of?

A
  • a building society or other mutual
55
Q

What do building societies + other mutuals aim to do?

A
  • provide a good service to members rather than making a profit
  • bc they have no shareholders + have always had a social ethos
56
Q

What principle is Islamic finance based on?

A
  • a person shouldn’t enjoy an inc. in wealth from allowing some1 else to use their money unless 1st person is prepared to expose their wealth to risk of loss
57
Q

What does Sharia law consider conventional financial systems to be?

A
  • unsustainable bc using money as a commodity results in inequality of income + wealth at expense of wider society
58
Q

What does an investment being permissible or halal mean they must be?

A
  • free of interest, speculation + gambling (bc considered as forms of exploitation)
  • made in permissible activities
  • separately approved by an independent Sharia supervisory board: ensures principles have been adhered to
59
Q

What is a halal investment?

A
  • 1 avoiding putting money into industries such as alcohol, tobacco, gaming, adult entertainment + weapons
60
Q

What do ppl who want to adhere to Sharia law need to buy their financial products from?

A
  • an Islamic bank
  • a conventional bank offering Sharia-compliant products

LIBF Unit 2 (10 decks)

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