Unit 1 Topic 8 Flashcards
Define ‘capital’
The money or other assets owned by an individual or a business. Refers to the funds provided by the shareholders, not deposits from customers.
Who are Citizens Advice?
A charity providing free, independent, confidential and impartial advice on citizen’s and consumer’s rights and responsibilities.
Who are the CMA?
Competition and Markets Authority
An independent, non-ministerial government department which works to promote competition between providers so that consumers benefit.
What is a credit crunch? Why did the global financial crisis of 07/08 start?
A reduction in the availability of loans or a tightening of the conditions needed to obtain one. The global financial crisis of 2007-08 began when financial institutions became reluctant to lend funds to one another.
What is a deposit?
A sum of money placed by a customer with a financial services provider.
What is the FOS?
Financial ombudsman service
An independent body set up by parliament that settles customer complaints about providers at no charge to consumers.
Who are the FPC? What kind of authority are they?
Financial Policy Committee
A part of the Bank of England that monitors and responds to risk posed to the entire financial services market. Its focus on the whole market makes it a macro-prudential authority.
Who are the ICB?
Independent Commission on Banking
A committee formed in June 2010, as a response to the global financial crisis. It considered reforms to the UK banking sector to promote both financial stability and competition.
Who is an IFA?
Independent financial adviser
A professional who makes financial recommendations to clients, based on available products across a wide range or providers.
What are investment banks?
Banks that are involved in trading financial assets such as shares, underwriting issues of shares by other institutions and advising on mergers and acquisitions. Investment banks don’t provide services such as current accounts.
Define ‘liquidity’
The assets that a business holds in the form of cash, that can be used to meet immediate demands for payment.
What is MoneyHelper?
An independent organisation set up by the government to support people to make the most of their money and pensions.
What is money laundering?
The process of making ‘dirty’ money (money gained from criminal activities) ‘clean’ - in other words making it look like it has been acquired legitimately.
What is PPI?
Payment Protection Insurance
An insurance product intended to ensure repayment of loans should a borrower face unexpected events that prevent them from repaying the debt.
What is a PIN?
A secret personal identification number that verified a user’s identity to a system.
What are retail banks? What do they provide?
Banks that deal directly with consumers, for example providing current accounts and mortgages.
Explain ‘Standards of Lending Practice’
A voluntary code of conduct that sets out good practice for the provision of advice about loans, credit cards, charge cards and current account overdrafts. It assures customers that subscribed providers follow the Standards and gives information on the service they should expect.
Define ‘Sub-prime market’
Lending to and borrowing by consumers with untested or poor credit histories.
Name 2 causes of the credit crunch
Banks lent to people that were unable to pay
UK market was dominated by a bank organisation ‘too big to fail’
Name 3 key recommendations of the Independent Commission on banking
Improve regulation of providers
Separate retail banking +
investment banking
Reduce the amount of risks banks take
What was the legislation that was introduced to implement these recommendations?
The financial services act
Name 3 main changes the Financial services act made to the structure of the UK banking sector
Separated everyday banking activities from more risky investment activities
Depositors covered under the FSCS must be repaid as priority if a bank fails
Government given power to ensure that banks can absorb losses easier
What did the Financial Service Act (2012) do?
Established a new system of regulation.
Name the 3 main ways the Financial Services Act is set up
Financial Ombudsman Service - handles customer complaints
FCSC - compensates customers if their FSP fails to
MoneyHelper - Information service by the government that was set up to help people make informed financial decisions
Name 3 threshold conditions required by the PRA
Holding enough cash
Having suitable management
Conducting business prudently
What is the aim of the FCA?
To ensure that more financial markets work well so that consumers get a fair deal.
Name 3 objectives of the FCA
Secure an appropriate degree of protection for customers
Protect/enhance integrity of the UK financial system
Promote effective competition in interests of consumers
What are 3 actions the FCA can take if providers have broken FCA rules?
Imposing fines on providers/individuals
Withdrawing/suspending a providers authorisation to operate
Ordering providers to compensate customers
What is the key role of the FOS?
To handle complaints between financial businesses + their costumers.
How is the FOS funded?
All financial businesses that are covered by the service and are regulated by the FCS pay an annual levy.
Businesses may also have to pay an individual case free when a complaint is handled about them.
What is the maximum amount of compensation the FOS can order providers to pay?
Depends on the financial product involved:
Deposits, investment and mortgages are covered up to a maximum of £85,000 per person per provider
What are the 3 steps that a customer who has a complaint should take?
Contact the provider directly
Contract the FOS
Take the matter to court
How is the FSCS funded?
By the financial services industry. Firms authorised by the financial conduct authority (FCA) and prudential regulation authority (PRA) pay them a levy.
How much can the FSCS compensate for deposits?
£85,000
How much can the FSCS compensate for investments and mortgages?
£85,000
What are the 4 responsibilities of the CMA?
To investigate mergers that could restrict competition
To conduct market studies and investigations in whole markets where there may be competition and consumer problems
Enforcing consumer protection legislation to tackle practices and market conditions that make it difficult for consumers to exercise choice
To bring criminal proceedings against businesses and individuals who take part in ‘cartels’
What are cartels?
When competitors agree to fix prices, rig bids, share markets or limit output at the expense of customers.
The lending code was created by HMRC. True or False?
False - it was created by the British Bankers Association (BBA)
