Unit 3 Topic 7 Flashcards
(88 cards)
1
Q
Since when have there been many changes in the financial services industry?
A
Since 1997, there have been many changes in the financial services industry that have impacted on the financial sustainability of individual consumers.
2
Q
What is sustainable personal finance?
A
Achieving and maintaining a balance between personal income and expenditure - for the short, medium and long terms - so that individuals can satisfy their needs and achieve as many of their wants and aspirations as they can afford within their budget.
3
Q
Give ways to manage personal finances to achieve sustainability over the long term.
A
- using budgets
- using cash-flow forecasts to plan income, spending, savings, investments and borrowing to pay for current needs and future life events
- using insurance to protect against risks
4
Q
Give examples of events and issues that have driven change in the financial services sector over recent years.
A
- providers mis-selling products
- causes and consequences of the 2007-08 financial crisis
- the resulting recession
- investigations into fairness and consumer complaints
5
Q
How has the changes that have occurred over the recent years taken form?
A
The changes that have occurred have taken various forms:
- new organisations have been established
- new institutional roles and responsibilities have been outlined
- legislation and regulation has been introduced in the European Union and the UK
- increased consumer protection measures have been put in place
- industry guidelines have changed
6
Q
What is the impact caused by changes to the financial services industry in the recent years?
A
Many of these changes have resulted in a safer financial system for consumers, with greater consumer protection, as well as increased transparency of provider operations and financial information and more competitive fees.
Other changes - such as the impact of very low interest rates, changes in the eligibility criteria for products and services, changes to the age at which state pension is paid and changes to the benefits system - mean that individuals need to amend their financial plans to achieve sustainability in the longer term.
7
Q
What is the state pension age for selected birth dates in the UK?
A
Born on 1 January Men Women
1950 65 60
1960 66 66
1970 67 67
1980 68 68
1990 68 68
2000 68 68
2010 68 68
8
Q
Why have changes occurred due to access to computers and the internet?
A
Changes have also occurred because increased access to computers and the internet means that financial information and services are increasingly - and more easily - made available online or via mobile phones.
These changes include the development of smartphone apps, text services and software that help consumers to manage their money more effectively e.g. budget apps, websites offering free, unbiased and reliable financial advice.
9
Q
Why have changes occurred due to new providers?
A
There are also new providers like Metro Bank and products like individual savings accounts or ISAs and basic bank accounts. There are new services like the current account switch service that consumers should now consider when planning, choosing and operating their financial products.
10
Q
What is personal financial sustainability affected by?
A
Personal financial sustainability is affected by the sustainability of the economy in which an individual lives.
11
Q
Before 1997, how were economic factors influenced?
What happened after 1997?
A
Before 1997, the government sought to influence economic factors by setting monetary policy that was implemented by the Bank of England.
In 1997, the Bank of England was made independent of the government and tasked with setting monetary policy to ensure monetary stability.
12
Q
What Act gave the Bank of England responsibility for setting Bank rate?
A
This task (setting monetary policy to ensure monetary stability) was formalised when the Bank of England Act 1998 gave the Bank responsibility for setting Bank rate.
13
Q
What is the intention of Bank rate?
A
The intention was that Bank rate would be a tool with which the economy could be manipulated to meet a Consumer Prices Index inflation target of 2 per cent. The goal is to deliver stable prices that will help to create stable, sustainable economy.
14
Q
Describe the bank rate in the decades leading up to the change.
A
Bank rate had been high in the decades leading up to the change: in 1980, it stood at 17%; and in 1990, 14.875%.
In June 1998, Bank rate had been brought down to 7.5% - and by March 2009, in the aftermath of the global financial crisis, the Bank of England’s Monetary Policy Committee (MPC) had reduced the rate to an unprecedented 0.5% in an effort to stimulate the economy.
The 0.5 per cent rate was in force for a much longer continuous period than any previous rate. In August 2016, Bank rate was lowered even further to 0.25 per cent as a result of the Brexit referendum, before being raised slightly in 2017 and 2018. However, in March 2020 Bank rate was lowered to an historic 0.1% in response to the economic instability created by Covid-19, ie coronavirus.
15
Q
What is the effect of a low bank rate?
A
The effect of this extremely low Bank rate is low returns on savings products and low charges on borrowing products. This means that savers wish to see Bank rate increase, while borrowers hope it will remain low.
16
Q
What happens when Bank rate is uncertain?
It is always uncertain as to what it will be
A
Because it is difficult to predict when Bank rate will be increased, people are uncertain whether their current financial plans are sustainable in the long term. Their savings are likely to offer greater returns and their borrowings are likely to cost more at some point in the future – but it is not clear when.
17
Q
What did Mark Carney say about Bank rate?
When will it be considered to increase?
A
In August 2013, Mark Carney, governor of the Bank of England, announced that an increase in Bank rate would be considered only if the UK unemployment rate were to fall to 7 per cent or below.
Towards the end of 2020 the unemployment rate was 4.9 per cent, which was more than 1 per cent higher than the previous year due to Covid-19
18
Q
What is the boomerang generation?
A
Young adults that leave their parents’ home and then need to return because they cannot afford to rent or buy a home of their own.
19
Q
In 2019 how many young adults lived with parents?
A
In 2019, around one in four young adults lived with their parent
20
Q
What factors affect home affordability?
What is the trend and evidence of this factor?
A
Factor Trend
Private rental prices Moderate increase
- (evidence) By an average of 1.4% in the 12 months to November 2020
UK average earnings in real terms Slight increase
- For the 12 months to October 2020
Multiple of income that first-time buyers paid for a home Large increase
From an average of 2.7 times income in 1996 to an average of 4.5 times income in 2020.
21
Q
Who does low interest rates and lack of home affordability affect?
A
Low interest rates and a lack of home affordability do not affect only young adults. Some older people who rely on their savings to supplement their employment income or pensions also find that they cannot sustain their personal finances.
22
Q
As well as a sustainable economy, what else is needed for individuals to sustain their personal finances?
A
As well as a sustainable economy, a sustainable financial services industry is needed if individuals are to be able to sustain their personal finances in the long-term.
23
Q
What is the purpose of the changes in the financial services industry?
A
The purpose of most of these changes, such as the new regulatory regime, is to make financial services safer for consumers, and to increase their choice of products, services and providers. All of these changes have a positive impact on the sustainability of individual finances and help to avoid market failure.
24
Q
What were the changes within the financial services industry initiated by?
A
Many of the changes within the financial services industry have been initiated by the European Union, the financial services policy of which aims to deliver stable, secure and efficient financial markets.
25
How does the European Union achieve the aim of delivering a stable, secure and efficient financial market?
The Union achieves this aim by means of the European System of Financial Supervision (ESFS).
26
What does the European System of Financial Supervision include?
- the European Systemic Risk Board, which monitors the entire financial sector to identify potential problems that could lead to future crises and to take action to prevent them
- three independent regulatory bodies, all established on 1 January 2011:
−the European Banking Authority (EBA), which ‘works to ensure effective and consistent prudential regulation and supervision across the European banking sector’
−the European Securities and Markets Authority (ESMA), which ‘contributes to safeguarding the stability of the European Union's financial system by enhancing the protection of investors and promoting stable and orderly financial markets’
−the European Insurance and Occupational Pensions Authority (EIOPA), which aims to ‘support the stability of the financial system, transparency of markets and financial products as well as the protection of insurance policyholders, pension scheme members and beneficiaries’
27
What does the European Systemic Risk Board do?
It monitors the entire financial sector to identify potential problems that could lead to future crises and to take action to prevent them.
28
What does the European Banking Authority (EBA) do?
The EBA ‘works to ensure effective and consistent prudential regulation and supervision across the European banking sector’.
29
What does the European Securities and Markets Authority (ESMA) do?
It ‘contributes to safeguarding the stability of the European Union's financial system by enhancing the protection of investors and promoting stable and orderly financial markets’.
30
What does the European Insurance and Occupational Pensions Authority (EIOPA) do?
It aims to ‘support the stability of the financial system, transparency of markets and financial products as well as the protection of insurance policyholders, pension scheme members and beneficiaries’.
31
What did Michel Barnier explain that the aim of the European regulatory framework is?
Michel Barnier, the EU Commissioner who was responsible for initiatives in the financial services industry, explained that the aim of the European regulatory framework is to co-ordinate between the national financial authorities of member states and to harmonise the technical rules that apply to the financial services sector.
32
Do member countries have to oblige to European Union changes?
Member countries are not obliged to implement the changes initiated by the European Union unless they are presented in the form of directives or regulations.
33
Explain the mandatory EU initiative (Directive 94/19/EC on Deposit Guarantee Schemes) that has been implemented by the UK.
The mandatory EU initiative that has been implemented by the UK is Directive 94/19/EC on Deposit Guarantee Schemes. The Directive required all EU member countries to offer a compensation scheme that would protect depositors should an authorised institution fail. The Directive set a minimum level of compensation of €20,000 per person, per institution. It was implemented in the UK by means of the Credit Institutions (Protection of Depositors) Regulations 1995, SI 1995/1442. These Regulations set the maximum amount of compensation at 100 per cent of deposits up to £2,000 and 90 per cent of deposits between £2,000 and £35,000.
The Financial Services Compensation Scheme (FSCS) was established to operate the guarantee scheme by the Financial Services and Markets Act 2000 and became operational on 1 December 2001. Then, in March 2009, the limit for compensation under the EU Deposit Guarantee Scheme Directive was raised: from €20,000 to be at least €50,000 euros by June 2010 – and to be €100,000 by the end of 2010. In the UK, the FSCS raised the compensation limit to £85,000 (the equivalent of €100,000).
34
Explain the EU regulation adopted by the UK, the EU gender directive.
Under Directive 2004/113/EC establishing the principle of equal treatment between men and women in the access to and supply of goods and services (known as the EU Gender Directive), a European court judgment determined that insurance companies should be prohibited from charging different insurance premiums for men and women. This led to an amendment to the UK’s Equality Act 2010. In practice, it means that young female car drivers are now paying more for their insurance premiums and that young male drivers are now paying less. In the past, young male drivers were charged more than their female counterparts because they are more likely to be involved in an accident. The Directive also requires that males and females should be offered the same annuity rates for their pensions. In the past, females were offered a reduced yearly income because they are likely to live longer.
35
Explain the EU regulation adopted by the UK, the transparency directive.
Directive 2004/109/EC (as amended), known as the Transparency Directive, was implemented in the UK in January 2007 by means of changes to the Financial Services and Markets Act 2000. The Directive applies to storing and providing regulated information, such as the financial reports of providers, annual and half-yearly accounts, and interim management statements, and the disclosure of major shareholder transactions. The requirement to publish this information makes it less likely that providers will be able to hide deficits in their balance sheets, which could lead to bank failure.
36
Explain the EU regulation adopted by the UK, the capital requirements directive.
Directive 2013/36/EU, known as the Capital Requirements Directive (CRD) IV, is an amendment to an earlier version of the Directive and specifies the liquid assets that providers must hold to ensure that they will be able to meet the withdrawal needs of their customers and continue to operate during any period when external funding is not available. This Directive makes it less likely that a bank will fail because panic among consumers drives them to withdraw all of their holdings (known as a ‘run on the bank’). It also makes it much less likely that taxpayers’ money will be needed to bail out banks in the future.
37
What does the capital requirements directive say about bank staff remuneration?
The CRD also made provisions for bank staff remuneration. This was adopted by the UK by means of the Financial Conduct Authority (FCA) Remuneration Code, which came into force on 1 January 2011. The Code requires that 50 per cent of the bonuses paid to a bank’s senior managers, risk takers and staff in control functions must be paid in the form of shares. A proportion of the bonus must also be deferred, so that bankers receive the bonus only if their actions have been proven to have helped the long-term sustainability of the bank.
38
What does the capital requirements directive say about bonus caps?
The CRD IV also calls for a 2:1 cap on bonuses. This means that bankers can receive a maximum of 100 per cent of their base salary as a bonus, provided that the bank’s shareholders agree. The measure is intended to reduce risk-taking by bankers by capping the remuneration that they can receive for making profits.
39
What is personal financial sustainability affected by?
As is evident from the example relating to the Gender Directive, personal financial sustainability is affected not only by directives and regulations, but also by rulings made by the courts of the European Union. In 2009, for example, a ruling to increase competition and customer choice in the UK led Lloyds TSB to be split into two banks: Lloyds and TSB.
40
Why was legislation introduced in the UK?
In recent years, legislation has been introduced in the UK to ensure the sustainability of the financial services industry.
41
Describe a regulatory change that alters the way in which providers conduct themselves.
(Banking Conduct of Business Sourcebook)
There have been many regulatory changes that alter the way in which providers conduct themselves, eg the FSA’s introduction of the Banking Conduct of Business Sourcebook (BCOBS) on 1 November 2009. This requires banks to be fair, clear and not misleading in communication with consumers, so combating information failure. It is now operated by the FCA.
42
What does the FCA operate?
| In relation to senior bankers and staff
The FCA also operates the Senior Managers Regime, the Certification Regime and the Conduct Rules (together replacing the former Approved Persons Regime). This ensures that all senior bankers and certain staff providing regulated financial advice are ‘fit and proper’ by assessing their:
- honesty, integrity and reputation;
- competence and capability;
- financial soundness. Certain staff must be approved before they are allowed to perform their job
43
Describe the recent financial services legislation, the credit act 2006.
Increased the powers of the Office of Fair Trading (OFT) to investigate organisations that apply for consumer credit licences, to impose conditions on licences and to charge organisations that fail to comply with penalties of up to £50,000 – which means that lenders and their products must meet standards that are designed to protect the interests of borrowers Note: The OFT’s responsibilities in relation to consumer credit were taken over by the FCA from April 2014.
44
Describe the recent financial services legislation, the financial services and markets act 2000.
- Introduced the Financial Ombudsman Service
- Established the Financial Services Authority (FSA) as regulator of the industry and set out the regulatory framework
Note: The FSA has now been replaced.
45
Describe the recent financial services legislation, the banking act 2009.
- Allows the Bank of England to close down a bank before it becomes insolvent to protect the rest of the financial services industry
- Gives the Bank of England a new statutory financial stability objective
45
Describe the recent financial services legislation, the banking act 2009.
- Allows the Bank of England to close down a bank before it becomes insolvent to protect the rest of the financial services industry
- Gives the Bank of England a new statutory financial stability objective
46
Describe the recent financial services legislation, the financial services act 2010.
- Made financial stability one of the FSA’s regulatory objectives Act 2010
- Gave HM Treasury powers to make regulations about financial services providers’ remuneration policy, which powers have been used to discourage risk-taking by bank staff
- Set out the objectives of the Consumer Financial Education Body (CFEB), now renamed the Money Advice Service (MAS
47
Describe the recent financial services legislation, the financial services act 2012.
- Established an independent Financial Policy Committee (FPC) that monitors risk to the UK financial system and can take action to ensure sustainability
- Replaced the FSA with two regulatory bodies: the Prudential Regulation Authority (PRA), to supervise firms; and the Financial Conduct Authority (FCA), to ensure that providers prioritise the interests of their customers and operate with integrity, and that there is effective competition in the market, so that consumers have more choice of providers and products
48
Describe the recent financial services legislation, the Financial Services (Banking Reform) Act 2013.
- Introduced a ‘ring fence’ around consumer and small business (Banking Reform) deposits to separate them from riskier banking activities, such as Act 2013 trading in stocks and shares
- Gave the PRA powers to force banks to separate these activities
- Provided new penalties, eg bankers found guilty of reckless misconduct that leads to bank failure can be sent to jail
- Gave depositors protected under the FSCS preference if a bank enters insolvency, so that they are more likely to get more of their money back (not only the amount protected under the FSCS)
- Introduced a cap on payday loans
49
Describe the recent financial services legislation, the Finance Act 2016.
- Amended the law relating to national debt and public revenue
- Made amendments to areas such as income tax structure, corporation tax, capital gains tax, inheritance tax, VAT, stamp duty land tax, and tax avoidance and evasion
50
How does implementing new legislation and new regulation affect consumers?
Implementing this new legislation and complying with new regulation may have a negative impact on consumers if providers need to raise the fees on borrowing and reduce the returns on savings to pay for the changes. The sustainability of the financial services industry has, however, been substantially strengthened by this legislation and regulation. This enhances personal financial sustainability because provider and product failures become less likely, transparency of provider operations, fees and charges increases, and there is more choice of products and providers.
51
What do consumers need to be able to create, monitor and adjust their plans?
To be able to create, monitor and adjust their plans, consumers need access to free, unbiased, independent and reliable information and advice. Recent changes in the industry mean that this information is available via the internet, brochures and in person, from organisations such as Citizens Advice, National Debtline and StepChange Debt Charity. Radio and television programmes and reports in newspapers and journals also address personal financial sustainability issues, although this information may sometimes be biased.
The government also provides unbiased and reliable financial information and advice online at www.gov.uk, including details on benefits, work, pensions and debt. Pension Wise offers advice on current pension rules.
52
What information does the government provide regarding unbiased and reliable financial information?
The government also provides unbiased and reliable financial information and advice online at www.gov.uk, including details on benefits, work, pensions and debt. Pension Wise offers advice on current pension rules.
53
What is the MAS a part of?
| What unbiased information does it provide?
The Money Advice Service (MAS), online at www.moneyadviceservice.org.uk and part of the Money and Pensions Service, is another provider of advice for consumers. Set up as an independent body in April 2010, with the aim of improving people’s money management, it covers a wide range of topics, including detailed guides to life events, explanations of products, tools such as budgets and borrowing calculators, and news.
54
What regulatory changes have been made surrounding commission from investment products?
Regulatory changes have also been made to ensure that people can get reasonably priced, unbiased professional advice. Independent financial advisers (IFAs), for example, can no longer receive a commission from the provider of investment products that they sell; instead, they must be paid by means of fees. The FSA introduced this change to ensure that advisers cannot be tempted to recommend products that offer them higher commission, but which may not necessarily be the very best choices for the customer.
55
What steps have the FCA taken to ensure that fees are reasonable for customers?
The FCA has also taken steps to ensure that fees are reasonable, stating that: Payments from product providers to advisory firms should be based on reasonable reimbursement for the costs incurred by advisory firms. Furthermore, any such payments should always enhance the quality of service provided to customers.
56
What changes have the FCA introduced surrounding packaged bank accounts?
The FCA has additionally introduced more transparency to packaged bank accounts, which make a charge for extra benefits such as insurance policies. When consumers apply for a packaged bank account, the provider must now:
- check that the consumer would be eligible to make a claim under each policy in the packaged account and share that information with the consumer;
- provide an annual statement, explaining how to claim each of the benefits included in the packaged account;
- ensure that the advisers who recommend packaged accounts check whether each policy is suitable and tell the consumer if some are not. These changes will enable consumers to judge whether a packaged account is good value for their need.
57
What has caused changes to the providers operating in the UK market?
Changes to the providers operating in the UK market and the products and services that they offer have been driven by regulation, super-complaints and market investigations, economic conditions, and the ageing population and other changes in demography.
58
What will happen for consumers as large competitors enter the personal banking market?
As large competitors enter the personal banking market, consumers will find themselves with more choice. Virgin Money, Metro Bank, TSB, Williams & Glyn, the Post Office, M&S and Tesco Bank have all launched, or are launching, current accounts. These are being called ‘challenger banks’, because they will challenge the dominance of the existing ‘big five’ banks. that presently hold around 90 per cent of personal bank accounts – ie RBS, HSBC, Lloyds, Barclays and Standard Chartered. Not only will the existence of challenger banks improve consumer choice, but it may also lead to higher interest rates on savings and lower fees and charges as the banks compete for people’s current accounts.
59
What will happen for consumers as large competitors enter the personal banking market?
As large competitors enter the personal banking market, consumers will find themselves with more choice. Virgin Money, Metro Bank, TSB, Williams & Glyn, the Post Office, M&S and Tesco Bank have all launched, or are launching, current accounts. These are being called ‘challenger banks’, because they will challenge the dominance of the existing ‘big five’ banks.
60
What are challenger banks?
Virgin Money, Metro Bank, TSB, Williams & Glyn, the Post Office, M&S and Tesco Bank have all launched, or are launching, current accounts. These are being called ‘challenger banks’, because they will challenge the dominance of the existing ‘big five’ banks that presently hold around 90 per cent of personal bank accounts – ie RBS, HSBC, Lloyds, Barclays and Standard Chartered.
61
How much dominance do the big five banks hold over personal bank accounts?
The dominance of the existing ‘big five’ banks presently hold around 90 per cent of personal bank accounts – ie RBS, HSBC, Lloyds, Barclays and Standard Chartered.
62
What are the big five banks?
RBS, HSBC, Lloyds, Barclays and Standard Chartered.
63
What will challenger banks do for consumer choice?
Not only will the existence of challenger banks improve consumer choice, but it may also lead to higher interest rates on savings and lower fees and charges as the banks compete for people’s current account.
64
What was introduced to help people switch bank accounts quickly?
When was it introduced?
Why was it introduced?
In the past, consumers rarely changed bank accounts because of the work involved and the time it took to complete the transfer. For these reasons, and in response to recommendations made by the government-sponsored Independent Commission on Banking in 2011, the Payments Council set up the Current Account Switch Service. This service was introduced on 16 September 2013 to ensure that people are able to switch bank accounts quickly and easily.
65
What does the Current Account Switch Service guarantee?
The service ensures that switching bank accounts will take no more than seven working days, and that providers will transfer all of the existing balance, incoming payments (such as a salary) and outgoing payments (such as direct debits and standing order).
66
What is the current account switch service backed by?
| What does this do?
The service is backed by the Current Account Switch Guarantee, which will refund consumers any interest that they lose or pay and any charges that they may incur should the switching process go wrong.
67
How do consumers switch accounts using the current account switch guarantee?
What is the redirection service that comes with the switch guarantee?
To make the switch, consumers choose their switch date and then need only to complete two forms. There is also a
redirection service that lasts for 13 months after the switch date, so that any payments made into or out of the old account by mistake will be transferred to the new account.
68
How effective is the current account switch service?
The effectiveness of the service (the current account switch service) is evident: in the final three months of 2013, current account switching increased by 17 per cent compared with the same period a year earlier.
69
What happens over the 7 days when using the current account switch service?
Day 1 = Customer agrees switch date with new provider.
Days 2 - 6 = New provider begins transferring payments from old provider. Customer can still use old account.
Day 7 = Old account closed. Funds transferred to new account.
70
What product have the government introduced to encourage people to open a bank account?
In recent years, the government has introduced new financial services products, such as basic bank accounts, that ensure that individuals who formerly had no bank account now have access to financial services.
71
How do ISAs encourage people to save?
Individual savings accounts (ISAs) encourage people to save by offering a tax-free return. Since 6 April 2016, the first £1,000 of savings interest earned on non-ISA products is also tax-free for basic-rate taxpayers. There are also government changes to the benefits system and to the state pension.
72
What scheme have the government introduced to help people when buying a home?
Why have they introduced this?
The government has also introduced a ‘Help to Buy’ scheme in England for people wanting to buy a home, which is its response to rising house prices and the high deposits needed to get a mortgage. Recent research has shown that a typical family can afford less than 10 per cent of the suitable homes in more than half the country.
73
What does the help to buy scheme include?
The government’s ‘Help to Buy’ scheme offers help in two ways: an equity loan or a mortgage guarantee.
- The equity loan involves the government lending the borrower(s) up to 20 per cent (40 per cent in London) of the purchase price of a new-build home, with no fees payable for the first five years of ownership. Borrowers need to put down a 5 per cent cash deposit and they borrow the remaining 75 per cent (55 per cent in London) from a commercial lender. The scheme is limited to properties with a maximum price of £600,000 in England.
- The mortgage guarantee scheme involved the mortgage lender purchasing a guarantee on the mortgage loans that it makes. Lenders offered mortgages that were 95 per cent of the purchase price, so the consumer needed to put down only a 5 per cent cash deposit. The mortgage guarantee scheme applied to any type of property. This scheme closed on 31 December 2016.
The Scottish government, Welsh government and Northern Ireland Housing Executive run similar schemes.
74
What product did the Conservative-Lib Dem coalition introduce in Autumn 2015?
What did it include?
The Conservative–Lib Dem coalition introduced a Help to Buy ISA, available from autumn 2015. For every £200 people save towards their first home in this ISA, the government will put in an extra £50, up to a maximum bonus of £3,000. These ISAs were available for new savers until 30 November 2019.
75
What kind of products have been introduced because of new consumer needs?
As well as government initiatives, new products have been brought to the market by providers seeking to meet newly identified consumer needs. These include Islamic banking products and the many new services offered because of new technology.
76
What are the figures for internet growth in Great Britain?
The Office for National Statistics (ONS) has identified how rapidly access to the internet has grown in Great Britain.
These figures are for internet use in 2019.
- 96% of all households had internet access, this is up from 57% in 2006.
- 89% of all adults had accessed the internet every day, this is up from 21% in 2006.
- 87% of all adults had bought goods or services online, this is up from 53% in 2008.
- 76% of all adults had accessed their bank account over the internet, this is up from 35% in 2008.
77
How are people who don't have access to the internet disadvantaged?
Not all adults have access to the internet, however, which means that some people are disadvantaged by the trend towards accessing financial services online. Branch and telephone services are often reduced to encourage consumers to use a provider’s website and save operating costs.
78
How can people use the internet to exercise greater day-to-day control over their finances?
Those with access to the internet, and to devices such as laptops, tablets and smartphones, can use services to exercise greater day-to-day control over their finances, and to access new products and services.
- Online and mobile banking enables individuals to get information, to apply for products and services, to operate products, to transfer funds, to make payments and to manage their money 24 hours a day, from any location with an internet connection.
- Apps and calculators with which someone can budget and manage their money are common, such as budget planners, ways of recording transactions as you make them and the Money Dashboard app, which groups expenditure into categories such as food, travel and fuel.
- Faster payments enable people to make payments that are credited to the recipient within a few hours, so that consumers know their bills have been paid on time, eg credit card repayments.
- New sources of borrowing have emerged, such as peer-to-peer lending sites (of which Zopa is an example).
- Product comparison sites and bill switching services enable people to find deals that match their needs, while reducing their costs. These services often make switching easy as well.
79
How can technology affect payment methods?
Technology is also offering new ways in which to make digital payments, such as the Zapp app for mobile phones, Google Wallet and the increased acceptability of alternatives to bank payment systems such as PayPal. There are even virtual currencies such as Bitcoin.
80
What is Bitcoin?
Bitcoin is a virtual currency that is not linked to any other currency and is not backed by a government or central bank.
It was created by a group of computer programmers called Satoshi Nakamoto in 2009.
Bitcoin is ‘mined’ (ie collected) by means of a mathematical process on a computer. People can unlock and so collect more Bitcoin if they discover a hidden series of letters or numbers that matches up with the Bitcoin security keys specified by Nakamoto.
Bitcoin is held in online wallets, and is not represented by physical coins and notes. Bitcoin is not regulated and Bitcoin transactions are difficult to trace, leading some commentators to question if it may be being used for illegal purposes. It is difficult to value Bitcoin against other currencies, but there are Bitcoin exchanges, such as Mt Gox in Tokyo.
In 2014, the University of Cumbria announced that it would experiment with accepting Bitcoin as payment for tuition.
81
What is the European Union?
The European Union is an economic partnership between its member states, created with the aim that economic dependence through a single European market will increase social and economic stability. The EU has its own currency, the euro, which member states can agree to use.
82
What is 'brexit'?
The term ‘Brexit’ emerged as a combination of the words ‘Britain’ and ‘exit’ to describe the process by which the United Kingdom withdrew from the European Union, following a 2016 referendum in which 51.9 per cent voted to leave the EU and 48.1 per cent voted to remain.
83
Describe the process that Brexit took.
Theresa May took over from David Cameron as UK Prime Minister in July 2016. She formally triggered the Brexit process in March 2017 and the UK was supposed to leave the EU two years later. However, the UK and the EU had to negotiate a withdrawal agreement and that process was fraught with difficulties and disagreements. The Conservative government intended to finalise a withdrawal agreement without consulting Parliament, but businesswoman Gina Miller challenged this in court, so the final deal had to proceed through votes in the House of Commons and the House of Lords. On multiple occasions, the withdrawal agreement failed to win a majority of votes in the Commons, meaning the date of Brexit was repeatedly delayed. Eventually Theresa May stepped down as Prime Minister and Boris Johnson was appointed in July 2019. After winning a large majority of MPs in the December 2019 general election, Johnson was able to pass his version of the withdrawal agreement. The UK left the EU on 31 January 2020.
84
What does the European Union (Withdrawal Agreement) Act 2020 include?
The European Union (Withdrawal Agreement) Act 2020 includes confirmed details such as the following.
- How the UK will make agreed payments to the EU for many years.
- The practicalities of the customs and regulatory border to be set up between Great Britain and Northern Ireland, in order to avoid a ‘hard border’ between Ireland and Northern Ireland.
- The establishment of an independent monitoring authority to handle the complaints of EU nationals in the UK.
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What did the second phase of brexit negotiations determine?
A second phase of negotiations, to determine UK–EU arrangements that were not discussed before Brexit, took place during the UK’s transition period, which ended on 31 December 2020. Details agreed included ‘level playing field’ measures, ensuring that the UK and EU maintain common standards on workers’ rights and various social and environmental regulations.
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What are the potential pros of brexit for the UK?
PROS
- The UK will not be required to contribute to the EU budget
- Reduction in bureaucracy and regulatory burden for small and medium-sized enterprises
- Potential economic revitalisation for the UK as a standalone economy
- Scotland may stay within the UK as Europe becomes more uncertain
- Freedom to look at significant growing economies outside of the EU such as China, India and the US for business
- The UK gaining more control over its affairs
- Increased control over immigration to help govern the UK economy
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What are the cons to brexit for the UK?
CONS
- Loss of free trade and increase in import tariffs resulting in a reduction in international trade and thus a fall in GDP
- Loss of foreign direct investment from the EU
- Uncertainty of trading terms with other countries
- As a major financial centre, the UK may lose its reputation as a way for central banks to access the EU
- Workers from the EU currently contribute more to the UK in fiscal terms than they cost
- The UK is still bound by NATO and the World Trade Organization
- Potential job losses if trade suffers
- Employment and travel will become harder and/or more expensive
- Those UK citizens living abroad may be required to move back or get a work visa
