Topic 8 - Ethics + Sustainability Flashcards
What are everyday interactions w financial services?
- 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…)
What are the features of info. + advice
- accurate
- up to date
- transparent
- timely
- sufficient but not too complex
What does information + advice being accurate mean?
- description of product + terms + conditions must be correct
- describes accurately how product works, what it costs, rights it confers + obligations it imposed on customer
What does info + advice being up to date mean?
- info reflects current price + terms of product
What does info + advice being transparent mean?
- clear + mustn’t try hide anything from customer
- nothing ab product customer is not told before buying it
What does info + advice being timely mean?
- info made available to customer at time they need it
What does info + advice being sufficient but not too complex mean?
- amount of info should be enough so customer has a clear idea of what a product will do for them
What are the factors that influence financial choices?
- 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
How does the original want or aspiration influence financial choices?
- stronger the desire to fulfil a want or aspiration, greater the desire for financial product that makes it possible
How does info sources influence financial choices?
- must be available + allow an individual to find out ab a full range of products that they can choose from
How does price + product features influence financial choices?
- influences choice of brand (quality also influences)
Why might a persons choose a particular provider?
- their parents use it
- it’s the one nearest to their home or workplace
- might be influenced by a TV advert
What is the definition of ethics?
- the moral principles that govern a person’s behaviour or the conducting of an activity
Why are ethics important in the financial sector?
- bc money + finance depend on trust
What does a provider balancing self-interest w a degree of moral behaviour mean?
- decisions the provider makes + the way it operates should be in accordance w certain moral guidelines
How did many financial services providers behave badly prior to the financial crisis of 2007-08?
- mainly interested in maximising sales to achieve high targets + make a ST profit
What is financial legislation + regulation designed to do?
- make sure consumers get a fair deal
What is the statutory objs. of the FCA?
- to protect consumers
- to enhance integrity of financial system
- to promote effective competition
What are the statutory obligations of the PRA?
- to promote safety + soundness of firms
- to protect insurance policyholders
What happens if providers don’t comply w the rules of the FCA + PRA?
- may be fined or lose their authorisation to practice
What are the 2 aspects to a provider acting legally + satisfying regulators but still be deemed unethical?
- 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
What must a provider do in order to behave ethically?
- go beyond simple compliance + have ethical culture
What does the culture of an organisation refer to?
- its shared values: beliefs +norms determining how ppl are expected to behave
What does the FCA include as part of its principles so providers behave ethically?
- all providers must follow a requirement to ‘treat customers fairly’ (TCF)
What are the 6 outcomes for treating customers fairly?
- 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
What are some examples of poor practice of ethical culture towards customers?
- 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
What combined effects have shown providers they must put the customer 1st + develop LT relationships rather than concentrating to make a ST profit?
- damage to reputation
- loss of consumer confidence
- tighter regulations
How do banks justify executive pay to top executives in large banks?
- 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
What is an ethical response to the issue of executive pay?
- 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
What happens as ppl learn more ab overall effects of financial provider’s business policies?
- 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
What are types of stakeholders other than shareholders + top directors?
- customers
- employees
- communities within own country
- disadvantaged groups in other countries
- envi.
What is Corporate social responsibility (CSR) also known as?
- citizenship or sustainable responsible business
What does corporate social responsibility refer to?
- any action or project a company does that goes beyond interests of its shareholders + top management to benefit other stakeholder groups
What purpose does corporate social responsibility normally have?
- a social or envi. purpose
- goes beyond compliance w laws + regulations
What are ethical investments?
- those made in companies taking into account wider impact of their activities on society + envi., specifically envi, social + governance factors
What do ethical investments aim to do?
- meet needs of ppl who care ab how their money is used
What does the term ‘responsible investment’ refer to?
- financial institutions selling only ethical products (ethical investments)
What does financial services providers supporting a range of charities mean?
- may mean they make donations
- may mean provider forms a partnership w a charity + sponsor fundraising or sporting events
What is sustainability ab?
- the way we live, now + in the LT
What does sustainability involve?
- 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
What is the definition of sustainability?
- sustainable dev. is dev. that meets the needs of the present w/o compromising the ability of future generations to meet their own needs
What are the 3 ways sustainability can be approached?
- eco. dev.
- social equity
- envi. protection
What is envi. sustainability ab?
- dec. neg. human impact on earth’s ecosystem by dec. atmospheric pollution, managing water + land responsibility + limiting human consumption of earth’s resources
What is eco. sustainability ab?
- 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
What is social sustainability ab?
- 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
What are the aspects of sustainability in relation to financial services?
- 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
What are the 3 crucial factors in measuring a business’s societal impact?
- environmental
- social
- governance
What are envi factors in measuring w business’s societal impacts?
- impact of climate change (C emissions that damage atmosphere)
- participation in ‘green’ conservation efforts
What are social factors in measuring a business’s societal impacts?
- treating ppl fairly (e.g. customers, staff + shareholders)
- customer satisfaction + how business protects data it collects from customers
What are gov. factors in measuring a business’s societal impacts?
- how a business’s standards reflect its responsibilities to stakeholders
- concerns company’s ethical priorities in decision-making
What product groups give the most scope for expressing an ethical opinion?
- savings
- investments
- pension funds
What does the Ethical Investment Association (EIA) do?
- helps members find out which companies have greener + more ethical policies
How does an affinity savings account work?
- linked to particular charity/good cause
- provider makes cash payment, from own funds, to charity
- based on average balances held in affinity group accounts
What might ppl who are keen on buying ethical + green products consider becoming customers of?
- a building society or other mutual
What do building societies + other mutuals aim to do?
- provide a good service to members rather than making a profit
- bc they have no shareholders + have always had a social ethos
What principle is Islamic finance based on?
- 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
What does Sharia law consider conventional financial systems to be?
- unsustainable bc using money as a commodity results in inequality of income + wealth at expense of wider society
What does an investment being permissible or halal mean they must be?
- 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
What is a halal investment?
- 1 avoiding putting money into industries such as alcohol, tobacco, gaming, adult entertainment + weapons
What do ppl who want to adhere to Sharia law need to buy their financial products from?
- an Islamic bank
- a conventional bank offering Sharia-compliant products
