Unit 2 / Section 4 - Market Conduct

Question 1

What does a narrow focus on Market Conduct consider?

Answer 1

A company’s pattern of behaviour in executing pricing and promotion strategy, and its responses to the realities of the market it serves.

Question 2

What does a wider focus on Market Conduct consider?

Answer 2

Market and historical contexts in addition to the company’s behaviour and responses to the realities of the market it serves.

Question 3

What does IOSCO stand for?

Answer 3

International of Securities Commissions

Question 4

What are the IOSCO’s three core objectives underpinning regulation?

[Summed up in the May 2003 Statement of Objectives and Principles of Securities Regulation?]

Answer 4

> The protection of investors

> Ensuring that markets are fair, efficient and transparent which leads to stability and confidence

> The reduction of systemic risk, which is preserving the integrity of the markets

Question 5

What did the FCA summarise it’s aims and objectives as in Dec 2015?

Answer 5

“We protect and enhance the integrity of the UK financial system. This benefits firms, individuals and society as a whole, and we continue to work to ensure markets are effective, efficient and reliable.

We aim to support and empower a healthy and successful financial system, where financial markets are efficient and transparent, firms can thrive, and consumers of all types can place their trust in transparent and open markets. This means that the markets need to be supported by resilient infrastructure, with appropriate access and transparency to meet the needs of the consumers, corporates and other wholesale clients that use them.”

Question 6

How do regulators and interested bodies encourage firms to be “Transparent”?

Answer 6

1) Collecting, analysing and reporting on consumer trends, and identifying concerns from this data analysis
2) Reviewing and coordinating financial literacy and education initiatives to enhance understanding within the consumer base
3) Developing standards for the industry to deliver minimum levels of in-house education and training
4) Contributing to the development of common disclosure rules that firms need to adhere to
5) Adopting guidelines and recommendations to promote safety and soundness of markets and convergence of regulatory practice
6) Issuing warnings in case a financial activity, product type or business initiative poses a serious threat to the core regulatory objectives
7) Within specific parameters, temporarily prohibiting or restricting certain types of financial activities that threaten the orderly functioning of financial markets or the stability of the whole or part of the financial system.

Question 7

What is conduct regulation moving from and to?

Answer 7

From objective decisions on whether rules have been breached;

To subjective decisions about how firms and their staff operate, and the wider impacts on the market as well as on individual consumers.

Question 8

How does conduct of business regulation play a fundamental role in protecting and enhancing the confidence in any financial system?

Answer 8

Through setting out the standards to which firms are expected to adhere, and in monitoring and enforcing compliance by firms with these standards.

Question 9

How can a good reputation benefit businesses in a market ?

Answer 9

> Drive consumer preference

> Support for a company in times of crisis or controversy

> Protect future value of a company in the marketplace

Question 10

What forces are promoting wider, faster scrutiny of companies and the markets in which they operate?

Answer 10

Not just the speed, severity, and unexpectedness of credit crisis events but also of underlying shifts in the reputation environment.

Changes include:
> Growing importance of social media
> Increasing significance of non-governmental organisations and other third parties
> Declining trust in advertising

Question 11

** What is “Company Conduct”?

Answer 11

How a firm determines its internal approach to conduct

Question 12

** What is “Customer Conduct”?

Answer 12

Actions of the firm to ensure the fair customer outcome

Question 13

** What is “Market Conduct”?

Answer 13

A firm’s wider interactions in the marketplace

Question 14

** What does a firm need to do to define it’s company conduct?

Answer 14

> Determine approach to conduct and conduct risk
Consider consumer interests and market integrity
Publish its own codes of conduct
Communicate conduct expectations
Deliver effective training and guidance
Develop personal checklists for employess
Define its risk appetite

Question 15

** What are the benefits of good Company conduct?

Answer 15

> Commercial benefits

• Reduced cost
• Increased loyalty
• Better placed to manage change
• Enhanced reputation

> Position within wider community and society

> Customer centricity and proactive service

> Functioning conduct framework

Question 16

** In what areas can good Customer conduct be demonstrated?

Answer 16

1) Meeting individual customer objectives
2) Products and pricing - not the only indicator
3) Being trustworthy
4) Protecting client assets
5) Treating Customers Fairly (TCF)
6) Products and promotions - quality and relevance
7) Sales process
8) After sales service and support - whole customer journey
9) Who benefits? Consumers, company and market

Question 17

** What are indicators of good Market conduct?

Answer 17

1) Transparency at markets level
2) Trust and reputation
3) Strong leadership
4) Good commercial performance
5) Positive relations with industry and with consumers in the market