Topic 5 Flashcards

Question

- costs What is the impact of financial regulation on providers?

Answer 1

imposes a large cost on providers, which can be: • Absorbed by the provider (reducing profit) • Passed on to customers through higher interest rates, insurance premiums, or management fees

Answer 2

A: • Fees to the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) • Levies to the Financial Ombudsman Service (FOS) and Financial Services Compensation Scheme (FSCS)

Answer 3

A: • More detailed and time-consuming procedures (e.g., credit checks, customer notifications, deposit source verification) • Adherence to anti-money laundering rules • Potential redesign of IT systems to ensure compliance • Increased staff time and training

Answer 4

A: • refers to criminals using financial products to conceal illegally obtained funds. • If banks fail to check the source of large cash deposits, criminals may convert stolen cash into legitimate bank balances

Answer 5

A: • IT systems may need to be (re)designed to implement new compliance procedures. • Staff must be trained (and retrained) as regulations change to ensure adherence to laws

Answer 6

A: • Hiring of qualified compliance staff • Ongoing training and retraining as regulations change • Development and implementation of continuous training programs

Answer 7

A: • Changes in regulations require updates to manuals and IT-based systems. • New compliance measures often lead to system modifications

Answer 8

A: • Banks must control risks to prevent loan value losses. • They must maintain enough liquid assets and capital. • They are required to keep a portion of funds in liquid form (cash or easily convertible assets) to meet withdrawal requests

Answer 9

A: • A portion of the bank’s funds must be kept in liquid form instead of being used for long-term loans. • Long-term loans are often more profitable, meaning the bank loses potential higher earnings

Answer 10

A: Regulation ensures providers comply with prudential rules, making them safer and less likely to collapse. It enhances sustainability and allows banks with good reputations to borrow money more cheaply due to higher credit ratings

Answer 11

A: Compliance makes providers appear more ethical and trustworthy, attracting individual and small business customers. Even if done out of obligation, promoting customer interests improves credibility

Answer 12

A: Regulation fosters a culture of ethical and lawful behavior, reducing the likelihood of rule breaches, which could lead to fines and negative publicity

Answer 13

reduces the risk of civil lawsuits, which can be costly. For example, banks involved in manipulating the LIBOR rate faced significant legal consequences and financial damages

Answer 14

A: It ensures all financial providers follow the same rules, preventing unethical firms from gaining an unfair advantage over those with more prudent business practices

Answer 15

A: Compliance costs can act as a barrier to entry for new firms, benefiting large, established banks while making it harder for smaller providers to compete

Answer 16

A: There was pressure to reduce regulatory oversight, especially concerning The Pensions Regulator. However, the Work and Pensions Committee advocated for more regulation

Answer 17

A: The committee suggested broadening the FCA’s remit to prioritize tackling financial exclusion

Answer 18

A: Ensuring customers fully understand the products and services they apply for is a key aspect of regulatory compliance

Answer 19

A: Financial regulation covers a wide range of businesses and products, meaning rules must account for many possibilities. They are often updated, creating challenges for staff ensuring compliance

Answer 20

A: 1. Direct financial costs – Expenses related to ensuring compliance. 2. Indirect costs – Stress on employees and the impact on staff motivation

Answer 21

A: Too many regulations can burden businesses unnecessarily. Improving regulation quality ensures effectiveness without excessive compliance costs

Answer 22

A: 1. Enforcing existing rules – Ensuring businesses comply with current regulations. 2. Monitoring market developments – Adapting regulations to new institutions, products, and market trends

Answer 23

A: • Financial Services (Banking Reform) Act 2013 required cost caps on borrowing. • FCA set a limit on the total cost of loans, including arrangement fees, penalty fees, and interest. • New rules on advertising restrictions and tighter affordability checks were introduced

Answer 24

A: • New regulators may replace old ones. • Existing regulators adjust their operational methods. • New rules are introduced for emerging situations. • New enforcement procedures are implemented

Answer 25

A: • Firms become uncertain about future regulation changes. • Planning for the future becomes difficult. • Banks may avoid launching new products due to fear of regulatory reactions

Answer 26

A: If businesses avoid innovation due to uncertainty about how regulators will react, regulation hinders growth rather than fostering stability

Answer 27

A: Compliance is expensive, but non-compliance can lead to even greater financial penalties and legal consequences

Answer 28

A: A high proportion of regulatory costs are fixed, meaning they must be paid regardless of business volume. Smaller banks find it harder to absorb these costs compared to larger banks, which can pass them on to customers or accept lower profits

Answer 29

A: 1. Solvency – Sufficient capital and liquid assets to operate and pay obligations. 2. Competence – Proper business procedures, trained staff, and adequate transaction records. 3. Monitoring – Undergo a long and expensive approval process

Answer 30

A: The complexity and cost of obtaining authorisation make it harder for new entrants to establish themselves, despite financial authorities wanting to promote competition

Answer 31

A: The FCA has introduced measures to allow new providers to obtain authorisation at an earlier stage of their development (FCA, 2020)

Answer 32

A: 1. Financial Conduct Authority (FCA) – Conduct of business regulation. 2. Competition and Markets Authority (CMA) – Took over roles from the Office of Fair Trading (OFT) and the Competition Commission in April 2014. 3. Financial Ombudsman Service (FOS) – Handles consumer complaints. 4. Financial Services Compensation Scheme (FSCS) – Protects consumers in case of financial institution failure

Answer 33

A: • Enforces the Data Protection Act 2018, ensuring personal data is protected. • Oversees UK General Data Protection Regulation (UK GDPR), which: • Strengthens processing requirements for organisations handling personal data. • Gives individuals rights to access and erase their stored data

Answer 34

A: • Providers must adhere to the principle of ‘treating customers fairly’. • This creates a duty of care for financial institutions. • Compliance with these rules impacts both costs and benefits of regulation

Answer 35

A: It ensures that financial service providers prioritize customer needs when designing products and do not sell unsuitable products based on financial status, age, or legal status

Answer 36

A: They must act in the best interests of customers, ensuring products are appropriate for individual circumstances rather than focusing solely on sales and profits

Answer 37

A: It involved personalized relationships where bank managers knew customers personally and understood their financial needs

Answer 38

A: Banks began seeing customers as sources of income rather than individuals needing financial services, leading to aggressive sales techniques

Answer 39

A: By the number of new contracts signed rather than customer satisfaction

Answer 40

A: Aggressive sales techniques led to the mis-selling of financial products.

Answer 41

A: Banks have faced compensation payouts and fines, prompting a shift back to customer-focused banking

Answer 42

A: By taking financial responsibility for mis-selling and making leadership changes

Answer 43

A: Cultural shifts take time to implement effectively within large organizations

Answer 44

A: They aim to lead by example and foster a customer-centric banking culture

Answer 45

A: The Banking Conduct of Business Sourcebook (BCOBS) and the Standards of Lending Practice

Answer 46

A: To ensure high standards of consumer protection in banking

Answer 47

A: It provides mandatory rules and guidance for banks that accept deposits from individuals and small businesses

Answer 48

A: - Provide clear and accurate information to customers. • Offer prompt, efficient, and fair after-sales service. • Allow customers the right to cancel a product after purchase

Answer 49

A: It is voluntary and covers the sale of credit (such as overdrafts, personal loans, and credit cards) but does not cover mortgages

Answer 50

A: - Advertising must be fair, clear, and not misleading. • Customers must receive clear product information, including interest rates and charges. • Regular statements must be provided. • Customers must be informed about any changes in terms and conditions

Answer 51

A: - Lend money responsibly. • Act quickly and sympathetically when customers face difficulties. • Keep personal information private and confidential

Answer 52

A: It owns more than 50% of NatWest (formerly RBS) share capital, though shares are being sold to private investors

Answer 53

A: It purchased shares in banks to inject cash and prevent them from failing during the financial crisis

Answer 54

A: The government has more influence over NatWest’s operations than it does over banks that are fully privately owned

Answer 55

A: The economic environment consists of economic variables that impact financial services providers, influencing their success or failure

Answer 56

A: Changes in economic variables such as inflation and unemployment influence financial services by affecting demand for loans, savings, and investments

Answer 57

A: Inflation refers to the rate at which general prices in a country rise. If incomes do not increase at the same rate, people’s real standard of living falls

Answer 58

A: Inflation affects the value of money, real return from savings, and the cost of borrowing, making it difficult for businesses and individuals to plan for the future

Answer 59

A: High inflation makes a country’s goods more expensive, reducing competitiveness in international markets where other countries have lower inflation rates

Answer 60

A: Inflation affects the demand for lending, savings, and investment products, depending on whether inflation is high or low

Answer 61

A: • People feel secure about the future value of assets. • Firms expect demand to rise gradually. • Investment and lending demand remain strong, benefiting banks

Answer 62

A: • People and businesses are less willing to borrow. • Investors seek inflation-protected investments. • Banks create inflation-indexed savings accounts to preserve real value

Answer 63

A: • Higher unemployment generally leads to lower demand for services/products, reducing inflation. • Lower unemployment can lead to increased spending and higher inflation

Answer 64

A: Increases in the prices of gas, electricity, and food can lead to higher inflation

Answer 65

A: It shows the speed at which the economy is growing

Answer 66

A: In terms of the unemployment rate, which measures the number of people out of work

Answer 67

A: Less money is spent, demand for loans decreases, and savings decline

Answer 68

A: It impacts both sides of their balance sheets, increasing bad debts as people struggle to repay loans

Answer 69

A: People who lose jobs are more likely to default on their loans

Answer 70

A: It encourages a high-consuming lifestyle and a ‘consumer culture.

Answer 71

A: People feel financially secure, reducing fears about the future

Answer 72

A: It refers to people being unemployed for more than a year

Answer 73

A: Long-term unemployed individuals rely on state benefits and have little demand for financial products

Answer 74

A: They lack financial stability and resources to buy consumer products or insurance policies

Answer 75

A: It creates financial uncertainty, leading people to prioritize protection products like insurance

Answer 76

A: - Insurance for debt repayment in case of job loss • Low-risk savings products for emergency funds

Answer 77

A: Few people have a ‘job for life,’ and many switch employers frequently

Answer 78

A: They may not qualify for traditional benefits like pensions and sick pay, requiring them to buy financial products independently

Answer 79

A: Mobile pension schemes that employees can carry between jobs

Answer 80

A: Salaries rise, increasing staff costs and reducing company profits unless controlled

Answer 81

A: There are fewer unemployed people available for hire

Answer 82

A: Economic growth allows companies to pay higher salaries and bonuses

Answer 83

A: It slows wage growth and may even cause wages to fall

Answer 84

A: Many available workers may lack the required skills and qualifications

Answer 85

A: By making staff redundant, reducing the wage bill

Answer 86

A: - Redundancy payments • Adverse publicity • Loss of valuable skills in the workforce

Answer 87

A: Skilled staff may no longer be available when demand for labor increases again

Answer 88

A: Inflation is typically higher during periods of high economic activity and growth when unemployment is low. Conversely, lower inflation is linked to higher unemployment

Answer 89

A: It uses interest rates to control economic activity and balance inflation with unemployment levels

Answer 90

A: Spending is low because people have less disposable income

Answer 91

A: It reduces interest rates to boost spending and encourage businesses to borrow and invest

Answer 92

A: Borrowing becomes cheaper, making it more attractive for businesses and individuals to take loans

Answer 93

A: Spending increases as businesses and consumers have more money to invest and buy goods

Answer 94

A: Businesses experience higher demand for goods and services, prompting them to hire more workers

Answer 95

A: Unemployment falls because more people are in work

Answer 96

A: As more people have jobs and income, demand rises, leading to an increase in prices

Answer 97

A: Inflation rises due to increased consumer spending and business growth

Answer 98

1. Low inflation & high unemployment → Low spending 2. Government reduces interest rates → Cheaper borrowing 3. Cheaper borrowing → Increased spending 4. Increased spending → Businesses hire more workers 5. More workers employed → Unemployment falls 6. Lower unemployment → Prices rise 7. Higher prices → Inflation rises

Answer 99

A: An exchange rate is the price of one currency in terms of another. For example, the conversion rate of pound sterling (£) to euro (€) or US dollar ($)

Answer 100

A: Changes in exchange rates are influenced by: • Interest rates among the currencies involved • Levels of imports and exports between countries

Answer 101

A: Banks are affected by exchange rate fluctuations because they conduct business in foreign markets. They may make profits or losses on currency trades depending on market movements

Answer 102

A: Businesses often deal in multiple currencies. For example, a UK manufacturer may: • Buy raw materials from France (paying in euros) • Export products to the US (getting paid in US dollars) • Pay UK-based costs (e.g., wages, rent) in pounds sterling

Answer 103

A: Financial providers offer: • Foreign exchange services – for individuals buying holiday money • Buy-back guarantees – allowing people to sell unspent currency at the same rate they purchased it • Credit and cash cards – usable abroad, including at cash machines • Exchange rate risk management products – helping businesses mitigate risks from currency fluctuations

Answer 104

A: 1. If sterling rises: • Imported products become cheaper • Importers need more payment services, foreign currency loans, and trade insurance 2. If sterling rises: • Exported products become more expensive and less competitive • Exporters perform poorly, reducing demand for banking services

Answer 105

A: • The euro is a major international currency • Many UK businesses deal in euros for trade and financial transactions • The UK remains a global financial center, and banks offer services for multiple currencies, including the euro

Answer 106

- it is central to the UK’s economy and is an important indicator to economic activity - changing property prices mean people will have to change deposits, monthly mortgage repayments which will effect other goods and services they can buy - effects products such as home insurance, loans for furniture and PPI. After the financial crisis, people defaulted on their repayments and house prices fell - banks were under pressure to not repossess their houses but to give them a forbearance period - since the crisis, the government have brought in nee regulations to practice ‘responsible lending’. For this, borrowers must show that their income is sufficient to meet repayments

Answer 107

A: Fluctuations in house prices influence demand for mortgages, personal loans, home insurance, and payment protection insurance, affecting profits and staffing needs in financial institutions

Answer 108

A: The housing market boomed due to high demand, which increased house prices. Many people borrowed against the rising equity in their homes using mortgage equity withdrawal

Answer 109

A: House prices fell, and many homeowners struggled to repay mortgages, leading to arrears and defaults. Banks practiced loan forbearance, delaying repossessions to give borrowers more time to pay

Answer 110

A: A practice where banks allow borrowers who miss payments extra time before repossessing their homes. It helped reduce defaults during the financial crisis

Answer 111

A: Defaults were lower than expected due to low interest rates and loan forbearance. However, when interest rates rise, mortgage defaults are expected to increase

Answer 112

A: Slack lending policies allowed banks to grant large mortgages to borrowers who could not afford them. This led to defaults and contributed to the crisis

Answer 113

A: New regulations enforced responsible lending, requiring borrowers to prove they could afford mortgage repayments after covering other bills

Answer 114

A: Despite economic recession and lower demand, house prices did not fall much further and have been rising in recent years

Answer 115

A: Government schemes aimed at helping people, especially first-time buyers, purchase homes more easily

Answer 116

- many people’s wealth are effected by the stock market, this is because people’s pensions are indirectly effected to the stock markets. - in 2000, the stock market fell rapidly and decline for several years after - this was beneficial to people’s knowledge about risk involved in the stock market, but lost faith in stock related products

Answer 117

- guarantee investment products that promise a certain return after a certain amount of years - alternative investment products The stock market crash recovered with an economic boom soon after

Answer 118

A: They influence the wealth of individuals and businesses, even those who don’t invest directly, as pension products are linked to stock markets

Answer 119

A: It experienced rising trends with occasional declines until 2000, when global markets fell dramatically

Answer 120

A: Many people lost faith in stock market investments and sought safer alternatives

Answer 121

A: They developed safer financial products such as: • Guaranteed products (e.g., endowment policies) with set returns. • Alternative investments (e.g., hedge funds) offering positive returns even in declining markets (though not guaranteed)

Answer 122

A: After the 2000 crash, markets eventually rebounded, followed by another financial crisis in 2007-08 that severely impacted global banks

Answer 123

A: It reached 6,832 on January 23, 2015, raising concerns of another potential crash

Answer 124

A: Investors were advised to diversify and ensure they had knowledge before investing in stocks

Answer 125

A: The index dropped to 6,460, marking its worst performance since 2008. The UK’s GDP fell by 2.6% in November 2020 due to restrictions

Answer 126

- competitive environments have a significant effect on providers - a market in which one firm dominates is known as a ‘monopoly’ and when a few institutions dominate, this is known as an ‘oligopoly’ - the financial regulatory authorities are now promoting the importance of competition as it forces banks to manage their risk better - during the financial crisis, smaller banks and building societies were taken over by larger firms who were look to expand - northern rock went into public ownership but still sold off the good parts of the bank to virgin money - this is only temporary until they return into a private sector where investors will be asked to buy shares in them

Answer 127

A: Competition influences the products designed by providers, the prices at which they are sold, and the methods of promotion and delivery

Answer 128

A: - Mergers between large banks reduce the number of competitors, impacting how remaining banks operate. • An oligopoly can form, where a few large banks dominate, closely monitoring each other’s policies

Answer 129

A: An oligopoly is a market structure where a few large providers dominate. In banking, this leads to fierce competition, with each provider closely watching the policies of others

Answer 130

A: They believe competition makes banks more cautious and improves risk management

Answer 131

A: - The number of banks and building societies fell. • Weaker providers were acquired by stronger banks looking to expand. • Some mergers occurred due to the belief that larger banks are more stable

Answer 132

A: - The government bought part of Northern Rock and was eventually repaid nearly £50 billion. • The ‘good’ part of the bank was sold to Virgin Money. • The government retains a large controlling stake in NatWest (formerly RBS)

Answer 133

A: - Challenger banks are new entrants in retail banking that compete with dominant large banks. • The government encourages them to increase competition. • Examples: Metro Bank, Virgin Money, Handelsbanken (Swedish bank)

Answer 134

A: Social factors influence both the demand for financial products and how they should be delivered. These include cultural aspects, demographics, employment changes, and home ownership trends, all of which have financial consequences

Answer 135

A: - Financial inclusion is a part of social inclusion. • Social inclusion means all members of society can participate in community life, influence decisions, and access necessary support and services. • Financial inclusion ensures people have access to banking, credit, and other financial services

Answer 136

A: - Disability • Language difficulties • Poor literacy and numeracy skills • Living in deprived areas • Poverty and homelessness • Old age • Discrimination

Answer 137

A: - Without a permanent address, it is difficult to open a bank account. • Lack of a bank account prevents homeless individuals from receiving state benefits or managing finances effectively

Answer 138

- the lifestyle changes and social trends effect the providers or financial services. - ‘social factors’ include a variety of cultural aspects as well as the social effects of changes in demographics, employment and home ownership.

Answer 139

- financial inclusion is a component of social inclusion - ‘ social inclusion’ refers to all members of society being able to participate fully in community life, influence decisions that effect them and they can take some responsibility for what goes on in their community. As well as access information, services and facilities that they need. - however, people are socially excluded as well as financially because of factors such as disabilities, poor literacy, language difficulties and old age.

Answer 140

- somebody who is financially excluded is that they don’t have a current account. Meaning that they are unable to access savings accounts, loans, insurance - and are unable to be paid straight into a bank

Answer 141

- MAS provides info on how to manage money - basic bank account is for everyone which can’t get them into debt. Although somebody with this account are unlikely to get other products it does fulfil a social purpose - working towards financial inclusion can be part of a banks CSR policy

Answer 142

A: Financial exclusion is the inability to access even the most basic financial services. This may happen because individuals are not aware of financial products, believe they will not be accepted, or their situation prevents them from accessing financial services

Answer 143

A: Not having a bank current account. Without a current account, individuals cannot access other financial services such as savings accounts, personal loans, insurance policies, or receive wages directly from an employer

Answer 144

A: 1. MoneyHelper – Provides clear advice on money management. 2. Basic Bank Account – Offered by all banks to provide simple and cheap banking services without allowing overdraft debt

Answer 145

A: A basic bank account is a government-required account that all banks must offer, allowing financially excluded individuals to access simple banking services. While banks would not typically provide these accounts voluntarily due to limited cross-selling opportunities, they serve an important social purpose by enabling access to a wider range of financial services

Answer 146

A: 1. Providing low-cost, low-deposit products – Examples include basic savings accounts with no minimum deposit. 2. Making product information accessible – Ensuring descriptions are available in multiple languages or Braille. 3. Educating financially excluded people – Sending representatives to community centers and schools to explain financial products

Answer 147

A: Financial inclusion aligns with CSR by ensuring ethical business practices that consider all stakeholders, not just shareholders. It helps enhance a provider’s reputation and contributes to financial and social sustainability

Answer 148

Profitability concerns Higher costs Limited cross - selling opportunities

Answer 149

A: 1. Profitability concerns – Financially excluded individuals are not considered profitable customers since their transactions generate little income. 2. Higher costs – Small transactions cost banks more than the income they bring in. 3. Limited cross-selling opportunities – Excluded individuals are usually on low incomes, making them unlikely to take loans or insurance

Answer 150

A: They must weigh their obligation to shareholders (profit-making) against their CSR responsibilities. While financial inclusion programs may be costly, they can improve a provider’s reputation and contribute to long-term sustainability.

Answer 151

- Refers to somebodies inability to participate in computer based society Digital inclusion help address financial exclusion by: - housebound people able to deal with finances online - disabled people can use software online - unsocial hours allows them to carry out transactions

Answer 152

**A:** It explains how financial systems work and helps individuals decide which products and services they need.

Answer 153

**A:** Libraries and community centers offer free internet access, and most banks provide mobile banking for those with mobile phones.

Answer 154

**A:** It refers to the inability to participate in a computer-based society, often due to lack of access to technology or skills.

Answer 155

**A:** Older individuals who grew up without computers and low-income individuals without access to devices like computers, tablets, or smartphones.

Answer 156

**A:** They provide access to online financial services for housebound, disabled, shift workers, and those uncomfortable with in-person interactions.

Answer 157

**A:** It allows them to manage their financial needs online without visiting a bank branch.

Answer 158

**A:** Screen readers and voice synthesizers.

Answer 159

**A:** It enables them to conduct transactions 24/7, outside traditional working hours.

Answer 160

**A:** They can research products and providers at their own pace without sales pressure.

Answer 161

**A:** Computer classes specifically tailored for older adults.

Answer 162

**A:** - **Culture:** The attitudes and behaviors characteristic of a social group or organization, shaped by their values and beliefs. - **Cultural Trends:** Shifts in these attitudes/behaviors over time, influencing needs, wants, and financial behavior.

Answer 163

**A:** - Affects their **needs, wants, and aspirations** (e.g., saving vs. spending habits). - Shapes **financial behavior** (e.g., trust in banks, preference for cash vs. digital payments).

Answer 164

**A:** - To tailor products/services to different groups (e.g., halal banking for Muslims). - To anticipate shifts in demand (e.g., ESG investing due to growing environmental awareness).

Answer 165

**A:** - **Older generations:** Prefer face-to-face banking, distrust digital tools. - **Younger generations:** Demand mobile banking, crypto options, and flexible loans.

Answer 166

• People living in the UK have family elsewhere in the world and their attitudes, values and beliefs are often different from other peoples. This means that financial providers have to adapt their products. • Large sections of the UK population have family origins elsewhere in the world. Their values, attitudes and beliefs may be very different from those of people with other cultural backgrounds, and so financial services providers must adapt their products, their marketing and their delivery to suit a range of cultural values. • Some banks provide accounts and loans specifically for religious and ethnic minority groups. The Islamic Bank of Britain, for example, offers its customers savings and loans products that comply with Sharia law, under which the payment of interest is strictly forbidden. •Multiculturalism affects providers as employers because they need to adapt their work practices to accommodate the traditions of different cultures and religions. For example, Muslim staff may need to be free on a Friday to attend prayers and some may require space to pray while at work. • Employing a diverse workforce is beneficial to a bank because it will allows it to understand and supply services to meet the needs of customers from the wide range of groups that comprise the UK's multi-ethnic culture.

Answer 167

**A:** - The UK population includes diverse cultural/ethnic groups with distinct **values, attitudes, and beliefs**. - Financial providers must adapt **products, marketing, and delivery** to meet these varied needs. **Key Example:** - Al Rayan Bank offers Sharia-compliant products (no interest/Riba) for Muslim customers.

Answer 168

**A:** - **Prohibit interest (Riba)** — profits are generated through asset-sharing or fees. - **Example:** Islamic banks offer savings/loans tied to real assets (e.g., property) instead of interest-bearing accounts

Answer 169

**A:** - Must accommodate cultural/religious practices (e.g., **Friday prayers for Muslim staff**, prayer spaces). - **Benefit:** Diverse workforce improves understanding of customer needs across ethnic groups.

Answer 170

**A:** - **Market Insight:** Staff from varied backgrounds help tailor services (e.g., multilingual support). - **Inclusivity:** Builds trust with minority communities (e.g., halal mortgages for Muslims).

Answer 171

**A:** - **Al Rayan Bank**: Offers Sharia-compliant savings/loans (profit-sharing instead of interest).

Answer 172

**A:** - The Islamic prohibition against **charging or paying interest**, central to Sharia-compliant finance

Answer 173

• Young people have different needs from middle-aged and elderly people, and they also have different values. The staff employed by providers will usually span the range of working ages and can help the provider to understand the customer needs of each age group. • At a management level, the provider needs to consider how these different needs can be met by means of appropriate products. A growing number of older people in the UK are approaching retirement or are already retired. - These people need help in planning their pensions and in boosting their income after retirement. some may be able to withdraw equity in their property to help to fund a particular expense and many providers offer equity release schemes to enable people to unlock the cash tied up in a house. • Others may want to invest in accounts that are intended for those saving over the long term. Specialist funds take savers' deposits, and invest the money in equities and bonds. The value of the investment therefore depends on movements in the stock markets and can fall, as well as rise. Since this is a riskier way of saving, the potential yield can be high, but it is also possible for investors to lose capital value, or to earn little or no return.

Answer 174

A: Different age groups have varying financial needs and values due to their life stages. Young people, middle-aged individuals, and elderly people require different financial products and services. Providers employ staff across different age groups to better understand and address these diverse needs

Answer 175

A: At a management level, providers must ensure that financial products cater to the specific needs of different age groups. This helps them offer appropriate solutions that align with customers’ financial goals at various life stages

Answer 176

A: Older people in the UK often need help planning their pensions and boosting their income after retirement. They may seek financial advice on managing their savings and investments to ensure financial stability

Answer 177

A: Older individuals can withdraw equity from their property through equity release schemes. These schemes enable homeowners to unlock the cash tied up in their house, which can help fund particular expenses

Answer 178

A: Older people may invest in accounts intended for long-term savings. Specialist funds take depositors’ savings and invest them in equities and bonds to generate returns over time

Answer 179

A: The value of long-term investments depends on stock market movements. If the market rises, investments increase in value; if it falls, investments lose value

Answer 180

A: Investing in equities and bonds carries risks and potential rewards. While the potential yield can be high, investors may also lose capital value or earn little to no return if the market performs poorly.

Answer 181

A: Providers offer advice on how to plan for and manage income in retirement. This includes guidance on equity release, pension planning, and investment strategies to maintain financial security

Answer 182

• In the last two decades, many people have suffered a fall in their real income; the only way in which many were able to buy new and attractive consumer goods and services was to borrow. • In the years leading up to the financial crisis of 2007-08, financial institutions did not impose strict lending conditions and many people got into debt through the use of multiple products such as mortgages, personal loans, credit cards and overdrafts. - In many cases, the amount that these people owed was more than they could afford to repay. When the financial crisis led to a recession, many people lost their jobs and many were subsequently unable to meet their debt repayments. • Some people have managed to reduce the amount that they owe, in a process known as 'deleveraging', but many still need to borrow to make ends meet at the end of each month. Because banks are now less willing to lend, some customers are turning to payday loan companies and other lenders that charge high interest rates, and are getting into further debt as a result. • The implications for mainstream lenders are that customers might then be unable to repay debts owed to them because their overall debt burden is so high. Providers will then have to write off large amounts of lending and this will affect their profits.

Answer 183

A: Many people have suffered a fall in real income and relied on borrowing to afford consumer goods and services

Answer 184

A: Financial institutions did not impose strict lending conditions, leading people to accumulate debt through mortgages, personal loans, credit cards, and overdrafts, often beyond their repayment ability

Answer 185

A: Many people lost their jobs and were unable to meet their debt repayments, exacerbating financial instability

Answer 186

A: It is the process where individuals reduce the amount of debt they owe

Answer 187

A: Many individuals still struggle to make ends meet each month and require additional borrowing

Answer 188

A: Banks are now less willing to lend, leading people to seek loans from alternative lenders that charge high interest rates

Answer 189

A: Borrowers often accumulate further debt due to the high interest rates, making their financial situation worse

Answer 190

A: Customers with high debt burdens may become unable to repay loans, forcing providers to write off large amounts of lending, which negatively affects their profits.

Answer 191

- pensions are living longer and this is pushing up the cost of retirement - people are told not to rely on state pension and should have an occupational pension or pay into a private pension scheme however many people have ignored this advice which has been made worse by employers switching from final salary pension to money purchase schemes

Answer 192

A: The government introduced auto-enrolment, making it mandatory for all employers to offer a basic workplace pension scheme

Answer 193

- Home ownership is deeply embedded in UK culture, with many people expecting to buy their homes. - This contrasts with some European countries where families often rent property throughout their lives. - Owning a home is seen as advantageous because it allows individuals to eventually own a valuable asset and pay off their mortgage before retirement, avoiding housing costs during pension years.

Answer 194

1. **Asset Accumulation:** The borrower eventually owns the property, a significant asset. 2. **Long-Term Planning:** Mortgages are typically paid off before retirement, reducing financial burden later. 3. **Rent Offset:** Mortgage payments replace rent, and if property values rise, the owner benefits from increased equity.

Answer 195

1. **Repayment Risk:** If borrowers cannot keep up with repayments, they may lose their home and initial deposit. 2. **Negative Equity:** If property values fall below the remaining mortgage amount, the borrower cannot sell or move without incurring losses. 3. **Market Volatility:** Property prices can fluctuate (e.g., during the 2007–08 crisis), impacting financial stability.

Answer 196

- **Definition:** When a property’s value falls below the outstanding mortgage amount. - **Consequences:** - Borrowers cannot sell or move without covering the shortfall. - Traps owners in their current property until prices recover.

Answer 197

- **Price Trends:** Fell during the 2007–08 crisis but have risen since, with regional disparities (some areas rising faster). - **First-Time Buyers:** - Average age increased from 28 (2002) to 32 (2020/21). - Rising prices make it harder for young people to enter the market. - Government schemes (e.g., Help to Buy) aim to revive mortgage demand.

Answer 198

- **Help to Buy:** A scheme to support first-time buyers by making mortgages more accessible. - **Impact:** Reversed some of the decline in mortgage demand, particularly among younger buyers.

Answer 199

- when someone applies for a loan, the manager no longer has to make an unaided decision because of computer programmes. The programme comprises a set of rules to point towards a decision whether or not to improve the loan - technological development allow customers to manage their accounts online. It also caused some people the loss of jobs however has created other jobs.

Answer 200

Answer: The technological environment in financial services refers to the increasing use of technology to operate and deliver products. It is important because: • It provides new ways of operating and delivering financial services. • Technological shifts affect costs and service quality. • It leads to product innovation

Answer 201

Answer: • Banks store customer data in computers. • Computer programs make automated decisions based on this data. • When a customer applies for a loan, a set of programmed rules determines loan approval. • The system assesses the affordability of the loan and repayment likelihood. • This ensures consistency, streamlines processes, saves time, and reduces costs

Answer 202

Answer: • Customers can manage accounts online, transfer money, make payments, and receive e-statements. • Account information updates in real time, 24/7. • Customers can connect to their accounts via smartphones. • Features include alerts for low balances or overdrafts

Answer 203

Answer: • Increases efficiency in managing customer accounts. • Helps providers meet regulatory requirements, such as ‘responsible lending.

Answer 204

Answer: • Some jobs have been lost as computers replace human decision-making. • New jobs have been created for installing, operating, and maintaining computerized systems

Answer 205

- tax - discrimination - consumer issues - employment - healthy and safety

Answer 206

- allows regulatory authorities to resolve a distressed bank/building society in an orderly way - educes the impact of a bank failure on financial stability and bank customer - increased BOE responsibilities , power and roles by creating a permanent Special Resolution Regime (SRR) - partially amended by the Financial Services Act 2012

Answer 207

Answer: The financial services sector must comply with laws on: • Companies • Tax • Discrimination • Consumer issues • Employment • Health and safety Additionally, there are specific financial laws and EU regulations that financial institutions must follow. New Acts of Parliament were introduced after the 2007-08 financial crisis to address financial stability and regulation

Answer 208

Answer: • Provides regulatory authorities with tools to resolve distressed banks or building societies in an orderly way. • Aims to reduce the impact of bank failures on financial stability and customers. • Strengthens the role of the Bank of England by giving it more powers to manage failing financial institutions.

Answer 209

Answer: • A permanent system created to deal with failing banks and building societies. • Allows the Bank of England to step in and manage failing financial institutions to prevent economic disruption. • Ensures a more structured and controlled approach to handling financial crises.

Answer 210

Answer: • It was partially amended by the Financial Services Act 2012, which introduced further reforms to strengthen financial stability.

Answer 211

Answer: • The Bank of England used its new powers to manage the collapse of Dunfermline Building Society. • The social housing lending business was transferred to Nationwide Building Society, which was chosen as the preferred bidder. • This demonstrated the effectiveness of the Act in stabilizing financial institutions

Answer 212

2010: - required that banks have a recovery solution plan in case it gets into trouble. - contains consumer protection measures and defines liability of the FSCS in the event of a bank failure

Answer 213

2012: Amended the BOE Act 1998, Financial Services Act 2000 and the Banking Act 2009 Main provisions - gave BOE responsibility for protecting financial stability - abolished the FSA and created the FPC, PRA and FCA - laid down regulations about London interbank offered rate (LIBOR) after the scandal

Answer 214

• Provides ring fencing of retail banking activities - ring fencing retail banking is a particular protection of a certain service for example banks keep there deposits separate from there investments so if there investment fail then there deposits wont be affected. • Means that the side who take deposits will stay separate from the investment side of the bank • If the bank makes losses, it will not be able to take money form the ring fenced area to subsides its loss making arm

Answer 215

The Act introduced changes to: - Income tax, personal/savings allowances, and pension tax rules. - Corporation tax, capital gains tax (CGT), and inheritance tax (IHT) rates. - Benefits-in-kind accounting, the "wear and tear" allowance, and the apprenticeship levy.

Answer 216

- **Serious Ill-Health Lump Sum:** Allowed individuals with terminal illnesses to withdraw their pension lump sum more flexibly. - **Purpose:** To provide financial support during critical health situations.

Answer 217

- **Purpose:** Fund millions of new apprenticeships. - **Mechanism:** - Employers taxed a percentage of their pay bill. - Funds could be offset to hire apprentices. - **Impact:** Encouraged workforce training while redistributing costs to large employers.

Answer 218

1. **Benefits-in-Kind:** Stricter accounting rules to ensure accurate taxation of non-cash employee benefits. 2. **Wear and Tear Allowance:** Reformed to better reflect actual costs of property maintenance (replaced the flat-rate system).

Answer 219

- **Corporation Tax:** Reduced to incentivize business investment. - **Capital Gains Tax (CGT):** Adjusted rates (varies by asset type/income bracket). - **Inheritance Tax (IHT):** Thresholds or rates revised (specifics depend on estate value).

Answer 220

1. **Simplify Taxation:** Streamline rules (e.g., benefits-in-kind, allowances). 2. **Support Vulnerable Groups:** E.g., terminally ill pension access. 3. **Economic Stimulus:** Via apprenticeship funding and corporate tax cuts.

Answer 221

Digital inclusion