Topic 8 - Consumer protection

Question 1

What caused the credit crunch?

Answer 1

• Banks lent mortgages to the subprime market and sold this debt to other providers
• Banks used money from their retail business to pay for losses made but eh investment operations, which means providers didn’t have enough money to repay depositors when their customers wanted to retrieve their money
• the UK market was dominated by banks that were considered too big to fail,

Question 2

Define regulation

Answer 2

The process of supervising. The actions and businesses of financial service providers.

Question 3

What is the Financial Policy Committee?

Answer 3

A part of the BofE that monitors and responds to risks posed to the whole financial services market.

Question 4

What is the Prudential Regulation Authority?

Answer 4

A part of the Bank of England responsible for the prudential regulation of banks, building societies, credit unions, insurers and major investment firms.

Question 5

What are the objectives of the PRA?

Answer 5

• promoting safety and soundness if providers
• securing an appropriate degree of protection for insurance policy holders

Question 6

Standards and requirements set but the PRA

Answer 6

• holding enough cash and capital to absorb a certain level of losses
• having suitable management
• being fit and proper
• managing risk well to ensure businesses are safe and sound

Question 7

What is the FCA?

Answer 7

An independent body that reports to the Treasury and receives directions from the FOC.

Question 8

What is the FCA’s aim?

Answer 8

To make financial markets work well so consumers get a fair deal

Question 9

Three objectives of the FCA

Answer 9

• secure an appropriate degree of protection for consumers
• protect and enhance the integrity of the UK financial system
• promote effective competition in the interest of consumers

Question 10

How does the FCA manage risk?

Answer 10

• investigating individual providers
• investigating themes and issues in the market

Question 11

Financial Ombudsman Service

Answer 11

An independent body that sorts out complains between financial businesses and their customers.

Question 12

The Competition and Markets Authority

Answer 12

An independent body that works fine o promote competing between providers in benefit of the customers.

Question 13

What is the CMA’s role?

Answer 13

To ensure customers get good deals when buying goods or services, and that businesses operate within the law

Question 14

What is the CMA responsible for?

Answer 14

• investigating mergers that can restrict competition
• conducting market studies in whole markets where there is competition and consumer problems
• bringing criminal proceedings against businesses and individuals that take part in cartels
• enforcing consumer protection legislation to tackle practices and conditions that make it difficult for customer choice

Question 15

What are the voluntary codes of conduct?

Answer 15

• advertising that is fair, clear and not misleading
• giving customers info about changes made to products and services
• lending responsibly
• dealing with customers quickly and sympathetically when things go wrong
• keeping personal information of consumers private and confidential
• training staff to keep these standards in practice