Finance

Consumer Protection

FCA

Financial Conduct Authority

PRA

Prudential Regulation Authority

FPC

Financial Policy Comittee

FSCS

Financial Service Compensation Scheme

FOS

Financial Ombudsman Service

What are the voluntary codes of conduct?

◆ advertising that is fair, clear and not misleading;

◆ giving customers information before, at and after the point of sale about how products work, including terms and conditions, interest rates and charges;

◆ giving customers information about any changes to their product or service

◆ lending responsibly;

◆ dealing with customers quickly and sympathetically when things go wrong

◆ Keeping personal information about customers confidential and providing secure and reliable banking and payment systems

◆ training their staff to put the Standards into practice.

What is the cause background for consumer protection?

The credit crunch.

What was the causes of the credit crunch?

◆ Banks lent money to people who were NINJA’s and then sold on this debt to other providers.

◆ Banks used money from their retail business to pay the losses made by their investment operations – the sections within a bank that buy stocks and shares and complex and risky investment products called derivatives, so the providers did not have enough money to repay depositors when their retail customers wanted to withdraw their money.

◆ The UK market was dominated by very large banking organisations that were considered ‘too big to fail’ – the impact of their going out of business would have been disastrous for the rest of the economy.

What were the responses to the credit crunch?

• Improve regulation of providers

• Ensure banks are able to absorb any loses

• Make it easier and less costly to deal with banks in financial trouble

• Reduce the amount of risks banks take

• Separate retail banking from investment banking

What were the main changes in legislation after the financial services act?

◆ UK banks must separate everyday banking activities from more risky investment bank activities, such as trading in stocks and shares and other risky products. This is called ring-fencing.

◆ Depositors who are covered under the Financial Services Compensation Scheme must be repaid as a priority if the bank fails.

◆ The government will have powers to ensure that banks can absorb losses more easily, for example by keeping larger reserves of cash.

What is the regulatory system?

• FPC is part of the BOE, the FPC monitors risks to the whole financial services market (macro).

• PRA looks at the risks individual providers take (micro).

• The FCA works with the PRA and are responsible for monitoring if providers are being nice to customers and other providers.

What are the objectives of the PRA?

• promoting the safety and soundness of providers

• securing an appropriate degree of protection for insurance policyholders.

What are the minimum requirements that have to be met set by the PRA?

◆ holding enough cash (also known as liquidity) and having enough capital (that is, funds) to absorb a certain level of losses;

◆ having suitable management;

◆ being fit and proper;

◆ conducting business prudently, that is, managing risk well to ensure the business is safe and sound.

What are the objectives of the FCA?

◆ to secure an appropriate degree of protection for consumers;

◆ to protect and enhance the integrity of the UK financial system;

◆ to promote effective competition in the interests of consumers.

How can the FCA take action?

◆ imposing fines on providers and/or individuals;

◆ withdrawing or suspending a provider’s authorisation to operate;

◆ ordering providers to compensate customers.

Why do FCA’s investigate larger providers more often than smaller providers?

As larger providers have a larger amount of customers, there are larger consequences and impacts on the customers.

What was the FSA and why does it no longer exist?

Financial Service Authority no longer exists as it was too slow at taking action during the credit crunch and was replaced by the FCA and PRA.

What does the FOS do?

They sort out complaints between financial businesses and their customers. It is free for consumers and funded by levies on providers. They are fair and ‘do not take sides’ .

What are the steps of making a complaint about providers?

Contact provider asking to put the situation right. The provider must respond within 8 weeks. If they do not respond or the consumer is dissatisfied with the response, the customer can go to the FOS within 6 months after the provider replies. The FOS will contact and make a conclusion with the provider and the provider will be ordered to pay the customer compensation. If the customer is still unhappy they can take it to the court.

What are the codes of conduct?

◆ advertising that is fair, clear and not misleading;

◆ giving customers information before, at and after the point of sale about how products work, including terms and conditions, interest rates and charges;

◆ giving customers information about any changes to their product or service, such as a change in interest rates;

◆ lending responsibly;

◆ dealing with customers quickly and sympathetically when things go wrong and acting sympathetically and positively when considering a customer’s financial difficulties;

◆ keeping personal information on customers private and confidential and providing secure and reliable banking and payment systems; and

◆ training their staff to put the Standards into practice.

What were the codes of conduct created by?

British Bankers’ Association (BBA), the Building Societies Association (BSA) and the former UK Cards Association.

CMA

Competition and markets authority

What does the FSCS offer?

Customers are covered up to a maximum of £85,000 per person per provider if a provider goes bust repaid within 7 days.

What is the ‘sub-prime’ market?

Money lent to people with poor or no credit history, so are high risk customers and are less likely to repay loans.

What are ‘NINJA loans’?

Loans given to customers with No Income, No Job or Assets

What are’prime’ customers?

The best customers who are most likely to repay their loans with a good credit score.

What is the CMA responsible for?

• investigating mergers that could restrict competition;

• conducting market studies and investigations in whole markets where there may be competition and consumer problems;

• bringing criminal proceedings against businesses and individuals who take part in cartels (when competitors agree to fix prices, rig bids, share markets or limit output at the expense of customers);

• enforcing consumer protection legislation to tackle practices and market conditions that make it difficult for consumers to exercise choice;

• co-operating with the government and sector regulators and encouraging them to use their competition powers.

What did the CMA state about retail banking that stll is not working for customers?

◆ many customers saw little difference between the largest banks in terms of the services they offer;

◆ switching between banks remains low (inertia)– at just 3% a year for personal accounts;

◆ current account overdraft charges are very complex, making it harder for bank customers to choose the cheapest or most appropriate accounts.

What are the main financial providers?

• Banks

• Building societies

• Post offices

• Credit Unions

• National savings and investments (NS+I)

APR

Annual percentage rate

AER

Annual equivalent rate

What services do banks provide?

• Making transactions

• Saving

• Investing (Shareholders)

• Borrow

• Protect you (insurances)

What are the advantages of banks?

• Easy access to different products and services

• Size of the bank means it can afford to invest in new products and services

What are the disadvantages of banks?

• Customer service may be less efficient than in smaller organisations

What services do building societies provide?

They provide a wide range of other financial products, including current accounts, credit cards and insurance

What are the advantages of building societies?

• Members have a say in how the society is run: they can vote on key issues and attend and speak at annual meetings

• They do not have shareholders and therefore do not need to pay dividends from their profits

• Charge lower interest rates on borrowing and pay higher interest rates on savings than banks

• Customer service offered by building societies also tends to score more highly

What are disadvantages of building societies?

• They are smaller organisations than banks so they offer less services

• They are unlikely to be able to spend the same amounts of money on research and development

What is demutualisation?

When a building society (voted by its members) chooses to turn into a bank.

What are credit unions?

A mutual organisations owned and run by the individuals who are their members with a common bond. E.g. they all live in a certain area.

What do credit unions provide?

• Savings (including cash ISAs)

• Loans

• Insurance

• Lend small amounts

• Current accounts

NQM

Non-qualifying member

(When a person part of a credit union looses the common bond, but do not have to leave the credit union.

What are the advantages of a credit union?

• Lower operating costs

• Profits generated are used for the benefit of members

• Provide a local, community-focused service

What are the disadvantages of credit unions?

• Only offer a limited product range, depending on their size.

• Dividends are only paid if the credit union makes a profit

NS+I

National savings and investments.

(They are government bank accounts)

What services do NS+I provide?

Savings and investment products

• a cash ISA;

• a savings account;

• an investment account;

• income bonds; and

• Premium Bonds

What services do post offices offer?

• savings accounts, mortgages and a credit card;

• loans: personal loans, car loans, home improvement loans and debt consolidation loans;

• a cash ISA;

• home and car insurance policies;

• travel insurance;

• life cover, including free new parent life cover; and

• pet insurance.

What are the communication methods?

• Branches

• Online banking

• Telephone

• Mobile banking

• Post

What are the (+)Pros and (-)Cons of branches

(+) Customers can go in and talk to someone in person

(+) Branch can advertise all of its products

(+) Branch staff offer a personal service

(-) May not be convenient to visit them, as they are open when most people are at work or school / university

What are the (+)Pros and (-)Cons of online banking?

(+) Access 24 hours a day and 7 days a week

(+) Carry out banking transactions immediately

(+) Research products and use online tools to make calculations such as the likely repayments on a loan

(-) Security issues and the lack of personal contact to ask questions

What are the (+)Pros and (-)Cons of telephone?

(+)Customers can contact their bank from wherever they are.

(+)The call centre operate 24 hours a day.

(+)Call centres are cheaper than branches for providers to operate.

(+)Customers can access specialist advice

(+)Customers can ask questions to clarify information or raise concerns and get tailored responses.

(-) Potential fraud and the quality of the customer service

What are the (+)Pros and (-)Cons of mobile banking?

(+) Quick and convenient

(-) Sophisticated security to ensure data remains safe

What are the (+)Pros and (-)Cons of post?

(+) Delivers a physical message that customers can spend time considering and keep for future reference

(+) Most convenient method for customers who need to return a signed contract

(-) Time it takes for information to arrive and the potential risk of documents being lost in transit