8. Consumer Protection Flashcards
What organisations provide consumer protection?
- the Financial Conduct Authority (FCA)
- Prudential Regulation Authority (PRA)
- Financial Ombudsman Service
- Financial Services Compensation Scheme
- Competition and Markets Authority
What are the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA)
The regulators that set out the rules providers must follow + supervise their operations
What does the Financial Ombudsman Service do?
handles customer complaints about providers
What does the Financial Services Compensation Scheme do?
- protects consumers if their provider defaults
- includes repaying customers’ deposits of up to £85,000 if their provider can not
What does the Competition and Markets Authority do?
Aims to make financial market (as well as all other markets in the UK) work well for consumers, businesses and the economy
What was the credit crunch?
- financial crisis of 2007/08
- started in the US ‘sub-prime’ market, lenders provided 100% mortgages to the most risky borrowers
- the banks lost a lot of money when the lenders couldn’t pay their mortgages, interest rates raised -> increasing mortgage repayments
- house prices were stalling -> homeowners started to sell which lead to fall in house prices
- house market collapsed
- banks stopped lending money to other banks
What are the objectives of the PRA?
- promote the safety and soundness of providers
- means providers are better able to cope in a crisis and can support the economy
- make sure the economy/financial system can cope if a provider fails
- secure an appropriate degree of protection for insurance policyholders
How does the PRA achieve its objectives?
- set standards + requirements that providers must meet e.g.
- providers must hold enough cash for day to day transactions and capital/funds to absorb a certain level of losses
- providers must have suitable management
- providers must be fit and proper
- providers must conduct business prudently
Why is the PRA forward looking?
- so it can assess the level of risk in the future
- it can take action to make sure providers reduce risk e.g. requiring banks to hold more capital
- they can also order providers to change their lending criteria
What are the FCAs objectives
- Making sure financial markets well so customers get a fair deal
- to ensure customers are protected
- to protect and enhance the integrity of the uk financial system
- to promote effective competition in the interest of customers
- regulates all consumer credit e.g. personal loans
What does FCA do when rules are broken?
- impose fines
- withdrawing or suspending a providers authorisation to operate
- ordering providers to compensate customers
Difference between the two regulators?
- the two regulators work together
- the PRA (prudential regulation authority) is part of the Bank of England - the FCA (financial conduct authority) is an independent organisation
- the PRA is responsible for micro-prudential regulation -> looks at the risk that individual providers might present to the stability of the financial services market
- the FCA is responsible for ensuring that all providers conduct their businesses in a way that benefits consumers and the market as a whole
What supports the regulatory system?
- financial ombudsman services - handles customer complaints
- financial services compensation scheme - compensates if their financial services provider fails to
- MoneyHelper - a consumer information services set up by the government to help people make informed financial decisions
What is the Financial services compensation scheme?
- funded by levies (fees that must be paid) on regulated providers
- repays customers their deposits held by providers regulated by the FCA
- deposits are covered to the value of £85,000 per person per provider
How do these three bodies receive funding?
- funding from providers via levies (fees that must be paid)
- and for the financial ombudsman service, by providers paying case fees
