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Regulations

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by

Ryan Spooner

on 22 January 2013

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Transcript of Regulations

Regulations •To (preserve) confidence in the UK financial system To preserve confidence in the financial system means to maintain and keep intact the existing customers perception of the state of the system.

there are different groups that confidence needs to be preserved in such as customers, investors and businesses that have been set up. for example if your investors didn't trust you or have faith with you dealing with their money, they're going stop investing. Most banks have to deal with millions of transactions a day whether it's money going in or out. They need to ensure their customers are getting that money.

it is important that customers around the UK have confidence and trust within the financial system. not only the customers but the banks themselves. for example. the banks need to know that the investments they do within other businesses is the right choice as it could lead to loosing money in the long or short term affect. Also it's important that banks offer deals with customers to ensure they stay with them and not find other banks to switch to.

The 'Northern Rock Crisis' shows that they have a lack of customer confidence. as the owners made bad investments it began to make rumors around which made customers confidence low and to not believe and trust Northern Rock with there money so they closed their accounts. which Northern Rock were relying on their money whilst making the investments so they couldn't pay money back. To (protect) consumers from incompetence and fraud what is incompetence to a customer? the customer will never fully understand what is going on in the inside and what is really happening with their money. For this reason many people in the UK don't trust their own banks as they themselves are incompetence to what is happening. as I quote "82% Brits say banks not improved; 60% don't trust high street banks, as Barclay's scandal continues"

http://yougov.co.uk/news/2012/07/04/banks-dishonest-incompetent/

Fraud is a deception to peoples eyes in which banks make a gain in their income. for this case that is the reason why there are company's such as PPI where you can call up and see if you have been mis-sold Payment Protection Insurance. As it says on the PPI website ''4 of the biggest banks set aside a further 1 billion to pay for PPI mis-selling'' . As people will see this it will make them think whether to stay with their bank or switch to another.

dealing with loan sharks is the worst thing to do as most websites say best way to deal with them is (don't). What they are? is a unlicensed moneylender in which they charge at a very high rate of interest. by not paying your loans back they scare customers by either threatening them or using violence to get their money.

there are different types of customers to a bank such as regular customers and you have businesses and investors.
http://www.hsbc.co.uk/1/2/ To take account of the asymmetry of market information TO ENSURE THERE IS APPROPRIATE CHANGES MADE TO THE WAY FINANCIAL SERVICES OPERATES FOLLOWING SCANDALS AND DISASTERS TO RESTORE CONFIDENCE The Financial services authority (FSA) is the main statutory regulator for the UK which were established in 2000 by an act of parliament. They regulate over 29,000 firms which include EEA firms that are pass porting into the UK. this allows global investment banks to small businesses.

These are the people who decide and influences conduct on banks around the UK. the objectives they set against fraud and incompetence are 'protecting consumers, market confidence, UK financial stability and public awareness.

The reason they need to restore confidence in banks is to keep there business going, a business with on going customers and no rogue traders is substantial to be able keep it that way is by the FSA putting those four objectives I mentioned above. No business is flawless for example 'Northern Rock' went bust because of the lack of confidence within the customers.

bigger reasons for the financial services need to restore confidence is because of these bank crisis's that happened PONZI Scheme what is a PONZI? it was invented in 1930's in which Bernard Madoff took it to the extreme. what it consists of is making people believe they are investing into a business that pays them from their own money that the business has earned. but instead they pay you either with your own money that's been invested or with other investor's money.

in total he stole around 65 billion pounds and that's the reason why his jail sentence was so much when he confessed. when he confessed in 2008 he was sentenced to 150 years to prison. reasons for such profit was because he had investors such as celebrities and big business people.

why he was so successful is because he was a respected business man and a highly esteemed financial expert. obviously he was able to maniipulate customers into believing that they will be able to have unusually high returns on their investments Allied Irish Bank this bank was the biggest bank in the Republic of Ireland. reason for this was because it's estimated income which is the market value was 10.5 billion euros.

John Rusnak who was a US currency trader. in which he was able to cover up 474million pounds of trading losses which will boost up his earnings. the reasons to why he got found out was because the FBI was called in when there was 860 million euros missing from the main american subsidiary of allied irish bank.

so in 2002 an investigation took place to see how much money was involved withing this fraudulent crisis. soon as they found out they notified share holders and the market as soon as possible to stop more money going missing.

John Rusnak could of faced up to 30 years in prison. but they took place of the original sentence from 7 and a half years to prison because of a plea bargain. Asymmetry is the imbalance of information when the seller knows more relevant information to the product they are selling to the customer. also this can be the other way around. example of this can be PPI (Payment Protection Insurance). this insurance is designed to cover your repayments on the borrowing should you be unable to as a result of illness or injury.

reasons why people able to make PPI claims because their policies might of been miss sold to them. there are ways it can be miss sold:-
the cover was compulsory in order to get the loan.
the cover wasn't adequately explained to the client
the policy was over priced
the policy was hidden inside the loan without telling the customer.

so it is important that you take in account of the asymmetry in financial services, as there will be a lot of miss selling loans and fraudulent incidents happening. Bibliography http://www.investopedia.com/terms/a/asymmetricinformation.asp#axzz29jkMsnoG

http://money.howstuffworks.com/ponzi-scheme5.htm

http://financetrain.com/aib-john-rusnak-role-and-the-subsequent-fraud/

http://yougov.co.uk/news/2012/07/04/banks-dishonest-incompetent/

http://www.hsbc.co.uk/1/2/
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