Topic 2 Flashcards
1
Q
What is competition in a market?
A
A: Competition refers to the number and size of sellers supplying products to a particular market. A highly competitive market has many sellers, with none dominating the market, whereas a market with limited competition has fewer sellers, some of which can influence prices and product quality
2
Q
What defines a competitive market?
A
A: A competitive market has a large number of sellers, and no single seller is dominant enough to control prices or the quality of products
3
Q
What happens in a market where competition is limited?
A
A: There are fewer sellers, some of which may be so large and powerful that they can influence prices and the quality of products supplied.
4
Q
Why is competition important in financial services?
A
A: Competition ensures better pricing, improved service quality, and more choices for customers, preventing large institutions from exerting excessive control over the market
5
Q
What is the balance of power between suppliers and customers in retail banking?
A
A: Customers, particularly individuals and small to medium sized enterprises (SMEs), have little power to influence financial service providers if they are dissatisfied with products or pricing
6
Q
Why do individual customers have limited power in retail banking?
A
A: Because interest rates and other financial products tend to be similar across different banks, switching banks may not result in significant benefits
7
Q
What can depositors do if they believe interest rates on savings accounts are too low?
A
A: While they can move their accounts to another bank, this may not be effective as interest rates tend to be similar. To successfully push for better rates, depositors would need to band together and form a pressure group
8
Q
How can customers collectively influence banks?
A
A: By forming pressure groups, depositors can amplify their voices and push for better rates or services
9
Q
Why is the balance of power in retail banking tilted towards suppliers rather than customers?
A
A: Large commercial banks and even smaller providers have significant influence over the market. Since the number of customers who complain is much smaller than those who do not, banks are not seriously challenged by customer dissatisfaction
10
Q
What is ‘effective competition’ in the financial sector?
A
is when banks compete to serve customers well rather than exploiting customer ignorance or poor regulation. It ensures that banks provide high-quality, reasonably priced products that meet customer needs
11
Q
How do banks behave in an effectively competitive market?
A
A: - They offer good products at reasonable prices.
• They avoid relying on customer ignorance to retain business.
• They compete to attract customers by offering the best deals.
• They do not exploit consumers in the absence of regulations
12
Q
What motivates banks to engage in effective competition?
A
A: - Fear of losing business to competitors.
• The possibility of new rivals entering the market.
• The need to retain existing customers by offering better services and value for money
13
Q
Why is customer awareness crucial for effective competition?
A
A: Customers must be well informed about financial products and changes in the market. They must also be willing and able to switch providers, which historically has not been common in the UK
14
Q
What steps are being taken to encourage switching in the UK financial sector?
A
A: Measures are being introduced to make switching providers easier and to increase consumer awareness
15
Q
What characterizes a situation of good competition in financial markets?
A
A: - A variety of providers offer choices to consumers.
• Products are well-designed to meet real customer needs and serve long-term interests.
• Interest rates and fees are fair, reasonable, and reflect actual costs without excessive profit margins.
• No undue pressure is exerted on customers to buy unsuitable products.
• Transparency ensures customers receive full, clear information about terms, conditions, and financial implications.
• No firm tries to sell products that are too expensive or unsuitable for a customer’s needs.
16
Q
What role does transparency play in good competition?
A
A: Transparency means that customers are given clear, full information about available products, terms, and conditions, ensuring they understand what they are buying and the financial implications.
17
Q
How does good competition benefit consumers?
A
A: It ensures that consumers have choices, fair pricing, clear product information, and are not pressured into buying unsuitable or overly expensive products.
18
Q
What are the characteristics of bad competition in financial markets?
A
A: - Few, large, and powerful providers dominate the market, aiming solely to maximize sales.
• Firms copy each other, leading to little product differentiation.
• Some products prioritize profit over meeting consumer needs.
• Sales staff are pressured with targets, leading them to push products onto customers regardless of suitability.
• Customers receive only superficial information—attractive features are highlighted, while disadvantages are hidden in small print.
19
Q
How does bad competition impact consumers?
A
A: It limits choice, leads to misleading product information, encourages sales-driven behavior rather than customer service, and increases the risk of customers buying unsuitable or overpriced financial products.
20
Q
What is an example of bad competition in the financial sector?
A
A: The Payment Protection Insurance (PPI) mis-selling scandal, where firms sold flawed or unsuitable products to consumers. The scandal had long-lasting consequences, with the claims process concluding in August 2019.
21
Q
What is Payment Protection Insurance (PPI), and what is its intended purpose?
A
Answer: PPI is a policy sold to customers who take out loans. It covers loan repayments if the borrower becomes unable to pay due to unemployment or illness.
22
Q
What was the main issue with PPI policies that led to complaints?
A
Answer: Many PPI policies were mis-sold to customers who either:
1. Could not afford the high premiums due to low incomes.
2. Were wrongly told that they needed to buy PPI to get a loan.
3. Bought PPI but could not claim due to their circumstances (e.g., being self-employed).
23
Q
How much was the estimated total value of PPI policies sold, and how much has been paid out in compensation?
A
Answer:
• Financial firms sold PPI policies worth approximately £50 billion.
• Billions of pounds have been paid in compensation to affected customers.
24
Q
What unethical tactics did financial firms use to sell PPI policies?
A
Answer:
1. Pressuring customers: Some were told they could only get a loan if they bought PPI.
2. Selling to unsuitable customers: People with low incomes who couldn’t afford PPI.
3. Selling to ineligible customers: Policies were sold to those who couldn’t claim (e.g., self-employed people).
25
Why did financial firms continue mis-selling PPI despite the risks?
Answer:
• PPI sales were highly profitable, creating a strong incentive to sell as many policies as possible.
• Firms that didn’t engage in mis-selling risked losing out to competitors.
26
What rules were introduced to prevent PPI mis-selling?
Answer:
• Providers are now generally prevented from selling PPI at the same time as a credit product (e.g., a loan).
• This reduces pressure sales and ensures customers make informed decisions.
27
What role did the Financial Ombudsman Service (FOS) play in the PPI scandal?
Answer:
• The FOS investigated hundreds of financial firms involved in PPI mis-selling.
• They handled a high number of complaints from customers.
• Helped ensure victims received compensation.
28
What is wasteful competition in the banking industry?
occurs when banks spend large amounts on designing, branding, and marketing financial products that differ only slightly from competitors’ products.
• The money spent could have been used to lower the cost of existing products instead.
29
How do banks create wasteful competition through their product offerings?
Answer:
• Banks offer different types of current accounts with added features.
• Some features may be unnecessary for customers, making the extra costs unjustified.
• Customers may already have the same benefits elsewhere (e.g., travel insurance).
30
What are the different types of personal current accounts offered by RBS?
Answer:
1. Select Account
2. Reward Account (£2/month)
3. Reward Silver Account (£10/month)
4. Reward Platinum Account (£20/month)
31
What are the different types of personal current accounts offered by RBS?
in detail
Answer:
1. Select Account – A free standard current account.
2. Reward Account (£2/month) – Provides cashback on household bills (must deposit at least £1,250 per month).
3. Reward Silver Account (£10/month) – Includes European travel insurance, mobile phone insurance, fee-free debit card purchases abroad, and Reward Account benefits. Available to existing RBS customers only.
4. Reward Platinum Account (£20/month) – Includes worldwide travel insurance, UK car breakdown cover, fee-free debit card purchases abroad, and Reward Account benefits. Available to existing RBS customers only.
32
Why might packaged bank accounts be unnecessary for some customers?
Answer:
• Some customers might already have the benefits included in the account (e.g., separate travel or mobile phone insurance).
• Features like worldwide travel insurance may not be useful to a customer who only travels within Europe.
• Customers may end up paying for benefits they don’t need.
33
Besides product offerings, what is another example of wasteful competition in banking?
High advertising costs for financial products across multiple platforms:
• Television
• Radio
• Internet
• Telephone
• Mailshots
34
Why are financial products often considered too complex for customers?
Answer:
• Financial products require customers to have knowledge and understanding to use them effectively.
• Many products have complicated terms and conditions that are difficult to interpret.
• Examples of complex products include:
• Investment accounts
• Mortgage loans
• Pension plans
35
Why are pension plans considered complex financial products?
Answer:
• They involve long-term investment to provide income in retirement.
• The return on pension products is uncertain and depends on investment performance.
• Providers must actively manage funds to maximize returns.
• High management costs are often passed to customers in the form of relatively high charges.
36
How does competition contribute to the complexity of financial products?
Answer:
• Financial providers compete by differentiating their products from competitors.
• They add special features and additional conditions, making products more complex.
• As a result, customers may struggle to understand key differences between products.
37
What are some risks customers face due to complex financial products?
Answer:
• Customers may not fully understand the product they are buying.
• Some providers use unclear advertising slogans to gain a competitive advantage.
• Customers might choose a product without knowing its full terms and conditions.
38
How do financial providers make savings accounts more complex?
Answer:
• The market includes savings accounts from banks, building societies, credit unions, friendly societies, and peer-to-peer (P2P) lenders.
• Low interest rates make savings unattractive, so providers introduce special conditions to attract deposits.
• Some providers offer higher interest rates under specific conditions (e.g., for a limited period like one year).
• Customers may not fully understand the impact of these special terms.
39
What challenges do customers face when comparing savings accounts?
Answer: Customers may struggle to compare accounts because each one has different features and conditions. Besides the interest rate, other factors to consider include:
• Minimum deposit requirements
• The duration of the interest rate offer
• Whether regular deposits are required
• Additional products offered alongside the account
40
Why do many customers find financial products difficult to understand?
Answer: Many people:
• Have limited financial knowledge
• Are too busy to read through complex terms and conditions
• Find it difficult to process small print details
This can lead to confusion and poor financial decisions.
41
What do customers want from financial products?
Answer: Customers prefer simpler, transparent products where:
• Features, terms, and conditions are clearly stated
• Charges are explicitly outlined
• The product functions exactly as advertised
They do not want to spend hours researching or struggle to understand the product.
42
What are the two sides of the financial market in the UK?
1. The demand side – Customers (individuals and small businesses).
2. The supply side – Financial service providers.
43
Why is the demand side of the financial market generally weaker than the supply side?
Answer:
• Consumers are not organised – They rarely work together to express their needs or concerns.
• Financial providers have strong marketing power, making it harder for individuals to negotiate better terms.
• Many consumers lack financial capability, meaning they struggle to understand products and their terms.
44
How can the demand side become more powerful in financial markets?
Answer: If consumers are well-informed and financially capable, they can increase their influence by:
1. Comparing products – Evaluating different financial products to choose the best one.
2. Switching providers – Moving to better options when available.
45
Why is comparing financial products important for consumers?
Answer:
• It helps consumers find the best features and prices.
• Many consumers sign up for products they do not understand or that do not suit their needs.
• Consumers often struggle with financial terms and fee structures.
• Gaining knowledge through leaflets and websites can help them make informed choices.
46
What prevents consumers from switching financial providers?
Answer:
• Inertia – Many consumers prefer to stay with their current provider out of habit.
• Loyalty to a bank – Some people have used the same bank all their lives.
• Fear of penalties or charges – Consumers worry about the costs of switching.
• Lack of awareness – They might not know better deals exist.
47
How did the 2007–08 financial crisis impact consumer behavior?
Answer:
• After the crisis, people became more cautious with financial decisions.
• Consumers started looking for better deals rather than staying loyal to one bank.
• Younger people became more willing to switch providers to get better value.
48
Why are savers earning low returns on their savings accounts?
Answer:
• Interest rates on savings accounts are generally very low.
• Most accounts offer a rate lower than inflation, meaning savers’ money loses value over time.
• This encourages savers to shop around for better interest rates.
49
How do banks attract savers despite low interest rates?
Answer:
• Many providers offer a bonus interest rate for a limited introductory period (e.g., one year).
• After the introductory period, the rate drops to a much lower standard rate.
• At that point, savers need to look for an alternative account that offers better returns.
50
What are pressure groups in financial markets, and why are they important?
Answer:
• Consumers of financial products are rarely organised to voice concerns.
• Pressure groups represent consumer interests and increase the power of the demand side.
• They help advocate for fairer financial policies and more transparency in financial products
51
What was “Save Our Savers,” and what did it stand for?
Answer:
• Save Our Savers was a pressure group that advocated for savers to be supported and rewarded for saving.
• It campaigned against:
• Devaluation of savings due to inflation.
• Artificially low interest rates.
• Unfair legislation and taxation.
• Exploitative financial practices
52
What did “Save Our Savers” want from financial providers?
Answer:
• Higher interest rates for savers.
• Greater transparency about interest rates and conditions.
• Clear disclosure of fees on investments and pensions.
53
Is “Save Our Savers” still active? What is the situation for savers today?
Answer:
• No, the group is no longer active.
• However, interest rates remain historically low, meaning savers still face the same challenges.
54
What is the Financial Services Consumer Panel (FSCP)?
A: The FSCP is an independent statutory body established to represent consumer interests and aid effective regulation
55
What are the main areas of interest for the FSCP?
A:
1. Supervision of the consumer credit sector.
2. Consumers’ ability to obtain redress and compensation.
3. Ensuring products and services “do what they say on the tin.”
4. Price transparency, financial advice, and product accessibility.
5. Addressing issues that prevent effective competition.
6. Consumer representation at the EU level
56
How did the FSCP address pension scams in 2017?
A: It supported measures to strengthen cooling-off periods and restrict the marketing of “boiler room” scams. The FSCP advocated for banning ads that referred to a specific rate of return
57
What is the Centre for Social Justice (CSJ)?
A: An independent think tank that focuses on putting social justice at the heart of British politics
58
The CSJ produced a report entitled Maxed Out: Serious Personal Debt in Britain
What was the purpose of the Maxed Out: Serious Personal Debt in Britain report by the CSJ?
A: It examined personal debt levels in the UK and described high debt levels as “problem debt.
59
What did the Maxed Out report say about the consequences of problem debt?
A: It highlighted the social and medical consequences of problem debt and called for:
• Improved financial capability and education.
• Better debt advice.
• Improved access to alternative finance (e.g., credit unions)
60
What is the difference between secured (mortgage) debt and unsecured debt?
A:
• Secured debt is backed by collateral, such as a mortgage.
• Unsecured debt includes loans and credit card debt without collateral
61
What are the two main aspects of competition on the supply side of the financial market?
A:
1. Degree of concentration – How many firms dominate the market.
2. Barriers to entry – Factors that prevent new firms from entering the market
62
How is the financial services sector, particularly personal banking, structured?
A: It is highly concentrated, meaning a few large providers dominate the market
63
How did the 2007-08 financial crisis affect the concentration of the banking sector?
A: The degree of concentration increased as stronger banks took over weaker ones
64
What is the concentration ratio in the personal current account market?
A: The percentage of the market controlled by a certain number of firms
65
How does concentration in the mortgage and personal loan markets compare to savings and credit card markets?
A:
• Mortgage and personal loan markets → Highly concentrated.
• Savings and credit card markets → More competitive (easier for smaller providers to enter).
66
What is an oligopoly, and how does it relate to banking?
A:
• An oligopoly is a market dominated by a few large firms (“competition between the few”).
• In banking, major firms monitor competitors closely, leading to stable pricing and slow product innovation
67
How do firms in an oligopolistic market compete?
A: They compete less on price and more on product differentiation and heavy marketing since price differences are usually small
68
How do banks differentiate their personal current accounts from competitors?
A: By using brand names and special features to make their products appear unique
69
Name some branded personal current accounts used by major UK banks.
A:
• RBS – ‘Select’ accounts.
• Lloyds – ‘Classic’ and ‘Platinum’ accounts.
• Santander – ‘123’ current accounts (referring to cashback amounts).
• Nationwide – ‘FlexAccount,’ ‘FlexDirect,’ and ‘FlexPlus.’
70
How do banks market their products to consumers?
A: Through television, radio, online banners, mailshots, and telephone calls
71
Why is advertising beneficial to banks, even if it doesn’t provide many details?
A: It helps sell the bank’s image, making customers more likely to buy one product and stay loyal to the brand for future products
72
How does customer loyalty impact market competition in banking?
A: High loyalty makes it hard for new firms to enter, keeping the market highly concentrated. However, if customers switch banks more easily, competition will increase
73
What are barriers to entry, and how do they affect new firms in banking?
A: Barriers to entry are obstacles that make it difficult for new firms to enter and compete in a market. In banking, these include:
• Strong customer loyalty to existing brands.
• Extensive branch networks of established banks.
• High costs of entry and advertising.
• Financial regulations that make it expensive for new firms to operate
74
What did the Office of Fair Trading (OFT, 2010) find about new entrants in banking?
A:
• New banks struggle to attract customers.
• There is a high degree of inertia (customers unwilling to switch banks).
• High start-up costs deter new firms from entering the market
75
What would happen if barriers to entry in banking were reduced?
A: More challenger banks could enter the market, leading to greater competition and a less concentrated banking sector.
76
Why do the government and financial regulators want more competition in retail banking?
A: They want customers to have more choice, receive better service, and benefit from lower charges
77
What are two major problems caused by a lack of competition in banking?
A:
1. Consumers find it difficult to switch banks.
2. There is little difference between the design and price of financial products
78
What is meant by ‘genuine competition’ in banking?
A: It refers to a market where providers are truly independent, design useful products, and price them fairly based on different financial circumstances
79
What are the benefits of genuine competition for consumers?
A:
• More choices among distinct financial products.
• Avoidance of nearly identical products with different branding.
• Fairer pricing that meets various financial needs
80
How does the corporate structure of large financial institutions affect consumer interests?
A: Large banks are often motivated by profit for shareholders, which can sometimes conflict with consumer protection and financial stability
81
What risks can arise when large financial institutions have too much economic power?
A:
• They may take excessive risks that harm the economy.
• Consumer protection and financial stability may be compromised
82
How does increased competition benefit banking customers?
A:
• It pressures banks to prioritize customer interests.
• It encourages the design of better, more affordable financial products
83
What are the three main methods identified by the Independent Commission on Banking (ICB) to improve competition in financial services?
A:
1. Encouraging challenger banks and reducing barriers to entry.
2. Enhancing consumer choice and current accounts.
3. Regulation
84
What is a ‘challenger bank’ according to the ICB?
A: A small bank with strong growth incentives that is also large enough to be seen as a viable alternative to existing banks, creating real competition
85
Name some challenger banks that have entered the UK market.
A: Virgin Money, Atom Bank, and Metro Bank
86
How do challenger banks compare in size to established banks?
A: In 2021:
• Lloyds Banking Group had over 1,500 branches.
• Metro Bank had just over 75 branches
87
How might the government encourage challenger banks?
A:
1. Treating them more leniently in terms of capital and liquidity rules (though this could risk insolvency).
2. Encouraging them to buy branches and divisions being sold by large banks (e.g., Virgin Money buying the ‘good’ part of Northern Rock in 2012).
3. Preventing large banks from growing excessively by capping their market share
88
Why might a lenient approach to capital and liquidity requirements be risky?
A: If regulators are too lenient, challenger banks may face financial instability and risk becoming insolvent
89
How can the CMA help maintain competition in banking?
A: By implementing rules to prevent large banks from merging with or taking over other providers, thereby limiting their dominance
90
What was the role of the European Commission’s competition department in UK banking before Brexit?
A: It helped regulate competition in banking, insurance, and capital sectors through policy
91
How has the UK government encouraged foreign banks to enter the market?
A: By allowing acquisitions of UK banks, such as:
• Santander (Spain): Took over Abbey in 2004, then acquired Bradford & Bingley and Alliance & Leicester in 2008.
• Handelsbanken (Sweden): Opened over 200 UK branches by 2022
92
What was the second way identified by the independent commission on banking (ICB) to improve competition in banking?
A: Reducing barriers to entry for new players in the market.
93
What are the three main barriers to entry for small banks identified by the independent commission on banking (ICB)?
A:
1. Prudential capital requirements – Difficulty in raising enough capital can limit expansion.
2. Access to cash-handling facilities – Small banks lack a wide branch network, making it harder for businesses to deposit cash.
3. Access to the payments system – New banks may not be included in the payments clearing system and must rely on larger banks
94
Why is access to cash-handling facilities crucial for small banks?
A: Around 27.4% of businesses choose a bank based on the proximity of branches to their business location, making branch access important
95
How does increasing consumer choice and ease of switching improve banking competition?
A: It allows customers to move to better products with minimal cost and difficulty, pressuring banks to offer competitive services
96
Why have UK consumers historically struggled to switch bank accounts?
A:
• Lack of transparency in terms and conditions.
• Perception that switching is risky and difficult
97
What was the Payments Council’s response to the ICB’s recommendations on switching?
A: It introduced the Current Account Switch Service (CASS) in September 2013 to make switching quick, simple, and stress-free
98
What are the key features of the Current Account Switch Service (CASS)
1. Free service for consumers.
2. Takes seven working days (compared to the previous 18–30 days).
3. Salary payments and direct debits are automatically transferred to the new account.
4. 13-month redirection of payments to ensure smooth transition.
5. Managed by the new bank, reducing hassle for the customer
99
What protection does the Current Account Switch Guarantee offer?
A: It outlines consumer rights if any issues arise during the switching process
100
What is one of the main objectives of the Financial Conduct Authority (FCA) regarding competition?
A: Promoting effective competition to empower consumers, ensuring they are informed and able to switch providers if dissatisfied.
101
Promoting effective competition is one of FCA’s main objectives, based on the belief that:
When competition works well, consumers are empowered as well as informed. They can make sense of the information they receive and can take their business elsewhere if they are not happy. In turn, firms strive to win custom on the basis of service, quality, price and innovation
102
How does the FCA view its role in competition?
A: It aims to protect and promote competition in general, rather than protecting individual competitors. The focus is on ensuring good service for consumers rather than ensuring firms survive
103
According to the FCA, what happens when competition works well?
A: Consumers are empowered and informed, allowing them to understand information and switch providers if dissatisfied. Firms, in turn, compete based on service, quality, price, and innovation
104
How does the FCA support new competitors entering the market?
A: By lowering barriers to entry and introducing the ‘mobilisation phase,’ which allows new firms to receive authorisation to trade earlier in their development
105
What is the ‘mobilisation phase,’ and why is it important?
A: It is a stage introduced by the FCA that allows new firms to receive authorisation to trade earlier in their development, making it less costly for a new bank to apply for authorisation before investing in infrastructure.
106
When does the FCA intervene in market issues?
A: When it identifies issues that pose significant potential harm to consumers and where it believes intervention can successfully prevent or correct the harm
107
What are two market features that could distort competition, according to the FCA?
A: 1. The high degree of market power held by large banks.
2. The low rate of account switching
108
What article did the FCA publish to help consumers with switching accounts?
A: The online article titled ‘Switching an account’ (FCA, 2021), which helps consumers understand their rights when switching current accounts and ISAs
109
What is the role of the Competition and Markets Authority (CMA)?
A: The CMA is responsible for monitoring and regulating competition in the financial services marketplace.
110
What are the CMA’s main goals?
A: Extending competition and protecting consumers
111
What does the CMA aim to be, according to its 2014 statement?
A: “One of the leading competition and consumer agencies in the world.
112
the CMA is responsible for:
• investigating mergers that could restrict competition;
• conducting market studies and investigations in entire markets where there may be competition and consumer problems;
• bringing criminal proceedings against businesses and individuals who take part
in cartels or anti-competitive behaviour;
• enforcing consumer protection legislation to protect consumers from unfair
trading practices; and
• co-operating with sector regulators and encouraging them to use their powers
on behalf of consumers
113
What are the two main levels of consumer choice when selecting financial services?
A:
1. Choosing the type of product based on financial needs (saving, borrowing, or protection).
2. Choosing a provider for the selected product
114
What factors determine the type of financial product a consumer chooses?
A:
• Whether they have money to save.
• Whether they need to borrow for a purchase.
• Whether they want to protect themselves against financial loss
115
What decision follows after selecting a financial product?
A: Consumers must choose a specific provider to purchase the product from
116
What will be explored further regarding consumer choice?
A: How consumers decide on specific financial products and providers, using examples.
117
What is the role of an Independent Financial Adviser (IFA)?
A: An IFA provides expert advice by researching financial products and providers from the entire market to identify the most suitable options for the customer
118
When is it beneficial to use an Independent Financial Adviser (IFA)?
A: It is useful for complex financial decisions, such as choosing a pension scheme, which has long-term implications. However, it may not be necessary for simple products like a savings account
119
What is a key consideration when using an Independent Financial Adviser?
A: The adviser will save the customer time and provide professional advice, but the customer must pay a consultation fee
120
What concerns has the FCA raised about price comparison websites?
A: Some sites may mislead customers by promoting certain deals over others, failing to disclose conflicts of interest, or emphasizing price over suitability and service quality
121
What action did the FCA take in 2013 regarding price comparison websites?
A: It began an investigation into 14 sites, covering 90% of the market, to examine various aspects of their service
122
What did the FCA find regarding price comparison websites?
A: Some sites did not provide sufficient information for customers to make informed decisions and failed to disclose conflicts of interest, such as being part of a larger insurance group
123
What did the FCA request price comparison websites to do?
A: Take action to address the identified issues, ensuring transparency and better consumer protection
124
Why is the cash savings market important in the UK?
Answer:
• 93% of UK adults have a savings account.
• Total balances in easy-access accounts surveyed by the FCA amounted to £354 billion.
• The FCA studied the market to assess whether it works well for consumers
125
What types of interest-bearing cash savings accounts did the FCA study?
Answer:
• Easy-access accounts
• Fixed-term bonds
• Cash ISAs (with no term)
• Fixed-term cash ISAs
• Notice accounts
• Children’s accounts
• Regular savings accounts
126
What were the key findings of the FCA regarding the cash savings market
1. Many savers hold accounts opened over five years ago, which pay lower interest rates than newer accounts.
2. Providers do not adequately inform savers about alternative savings accounts with better rates.
3. Consumers hesitate to switch accounts due to perceived hassle and low expected interest gains.
4. Large providers attract more savers despite offering lower interest rates than smaller providers
127
What challenges do people face in navigating the financial services market?
Answer:
• Many people need significant help in understanding financial products.
• Consumers must be financially capable to make informed decisions.
• The FCA emphasizes that consumers should take responsibility for their financial choices
128
How has the government demonstrated its commitment to improving financial capability?
Answer:
• Introduced money management and financial education into the citizenship curriculum in September 2014.
• Aims to prepare students to be responsible citizens.
• Equips students with skills and knowledge to manage money effectively and make sound financial decisions
129
What did the 2019 research by The London Institute of Banking & Finance (LIBF) reveal about financial education?
Answer:
• Only 64% of students aged 15-18 had access to financial education.
• Only 4% were taught financial education as a separate subject
130
Which of the following has the largest amount of influence in the retail banking sector?
Commercial banks
Customers
Small to medium- sized enterprises
Commercial banks
131
A benefit of effective competition is that:
A. Customers will always get the best deal from their bank
B. Customers no longer have to shop around
C. Customers have more choice
D. Customers will get a poor deal from their bank
C
132
The financial services consumer panel aims to:
A. Be an independent voice for consumers of financial services
B. Educate consumers about financial products and services
C. Resolve consumer complaints without resorting to the ombudsman
D. Regulate banking products
A
133
A market which is dominated by a small number of very large firms is called:
A. Duopoly
B. Monopoly
C. Perfect competition
D. Oligopoly
Oligopoly
134
An example of wasteful competition is:
A. Developing a product for a newly identified market sector
B. Creating a product with innovative new features
C. Developing and marketing a product almost identical to that offered by competitors
D. Developing few products to offer customers
C
135
An example of a ‘challenger bank’ is:
A. Metro bank
B. Lloyds
C. RBS
D. Santander
Metro
136
The current account switch service enables clients to switch their current account provider in just:
5 days
7 days
10 days
14 days
7
137
In relation to competition, the FCA sees its role as being:
A. To protect the interests of specific competitors
B. To be the leading competition agency
C. It is not concerned about competition in general
D. To protect and promote competition in general
D
138
The competition and markets authority investigates mergers that could:
A. Improve competition
B. Contribute to economic growth
C. Restrict competitor
D. Cause job stress
C
139
When choosing a pension scheme, it is most sensible to discuss the decision with:
A. An independent financial adviser
B. A bank cashier
C. A friend
D. A relative
A
140
Competition is always good for the consumer
True
False
False
141
The financial services sector, and particularly the banking sector, is highly concentrated
True
False
True
