Consumer Protection Flashcards

What is the 'cooling-off period' for most retail investment products?

Answer: 14 days

Most retail investment products have a 14-day cooling-off period during which the consumer can cancel the contract without penalty, starting from the date the contract is concluded or when they receive the contractual terms.

What is a 'Key Information Document' (KID)?

Answer: A standardised document providing key information about packaged retail investment products

A KID is required under the PRIIPs Regulation for packaged retail and insurance-based investment products. It provides standardised key information to help retail investors compare products.

What does 'vulnerable customer' mean in FCA guidance?

Answer: A customer who is at greater risk of harm due to personal circumstances

The FCA defines a vulnerable customer as someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care. Vulnerability can be temporary or permanent.

What are the four key drivers of vulnerability identified by the FCA?

Answer: Health, life events, resilience, capability

The FCA identifies four key drivers of vulnerability: health (physical or mental health conditions), life events (such as bereavement or job loss), resilience (ability to withstand financial or emotional shocks), and capability (knowledge and confidence to manage finances).

What is 'information asymmetry' in the context of consumer protection?

Answer: When one party in a transaction has more information than the other, typically the firm over the consumer

Information asymmetry occurs when financial firms have significantly more knowledge about products and services than consumers, which can lead to poor consumer outcomes if not addressed through disclosure requirements.

What is the purpose of the FCA's financial promotions rules?

Answer: To ensure that financial promotions are fair, clear and not misleading

The FCA's financial promotions rules (in COBS 4) require that all financial promotions are fair, clear and not misleading, ensuring consumers receive accurate information on which to base decisions.