The Labour MP for West Dunbartonshire says he supports the clear distinction between advice and sales proposed in the interim paper and believes the extra transparency will help the industry avoid future misselling scandals.
McFall says: “It is important to distinguish clearly between advice and sales. People should be told what they are paying for because nobody can come back and say: ‘I did not know what was happening’.
“The industry needs simple language and transparency. If things are simple and transparent, then the propensity for misselling is vastly reduced. The RDR is on our agenda and in the summer we will come back to the FSA about it.”
Addressing concerns that mortgage brokers could be made scapegoats for affordability issues associated with the credit crunch, McFall says the blame should lie primarily with lenders. He says: “The affordability problem cannot be blamed on brokers. The past 10 years of exuberance have seen plenty of examples both of irresponsible lending and irresponsible borrowing. We have got to get back into kilter. We have seen collective madness and contagion and that is why we are in this position.
“We are not over the hill yet, not by any means. We will still see writedowns and if we could get banks and others to be honest and transparent about their writedowns, it would go a long way to easing this crisis. There is a case to say that the mortgage market will never be the same again.”
He predicts that the Bank of England will have to inject more money on top of the £50bn pumped into the market. “The injection has had a limited effect on Libor. Confidence is still to be regenerated,” he says.
McFall considers that the FSA’s handling of the Northern Rock crisis showed a huge lack of expertise, professionalism and accountability. He says: “If you were the secretary at your local sports club, you would probably get thrown out at the AGM. There was also insufficient scrutiny of junior officials. We have got to ensure there is a management culture whereby accountability goes from the bottom to the top and back. That was not the case, so that has to change. Hector Sants has a big responsibility and the TSC will be looking at that and we will want evidence that change is occurring.”
McFall says Sants’ decision to recruit an extra 100 senior staff is a step in the right direction but he is calling for the FSA’s programme of secondments to be improved.
He says: “The balance between the FSA and the industry is out of kilter. An FSA employee could get five or six or more times their salary working at a financial institution. If the best and brightest in the industry are seconded to the FSA, it would allow the industry to understand where the regulator is coming from but, just as important, allow the regulator to get first-hand knowledge of the norms and the practices that exist in the private sector.”
He believes that Prime Minister Gordon Brown is doing a good job in a very difficult economic environment although the select committee has criticised scrapping of the 10p tax rate and is conducting an inquiry into the issue.
McFall says: “The TSC has a great interest in this because it is a taxation policy that has adversely affected a considerable number of people. Brown has said he is willing to assist groups and I think the TSC can outline the issue for the benefit of Parliament in time for the report stage of the Finance Bill in July and put more detail into the public domain.”
McFall says fairness and social justice are core issues that Labour needs to focus on. He says: “We are going through a difficult period economically but we need to be open with people that this is the case and ask for their patience and co-operation in seeing through these difficulties. It does not matter who is in Government, these are the difficulties the country is facing.”
The TSC is putting together a report on inherited estates after hearing evidence from Norwich Union and the FSA, among others. McFall says by shining a public light on this issue, the TSC can help ensure that policyholders interests are considered seriously.
He says: “It seems that it has been a bit one-sided and the FSA has been procrastinating. There is a need for more rigour from it and I hope this happens in the next few months.”
Prudential revealed last week that it had spent £1.6bn of its estate to pay misselling compensation. Firms are allowed to use the estate to pay misselling costs, shareholder tax, staff pensions and fund new business.
McFall says: “If inherited estates are the accumulation of policyholders’ money, there is a good case for examining why firms should be allowed to do those things. In terms of new business, firms with inherited estates are not taking the same risk as other firms and maybe, as a result, they could be more reckless and the disciplines of the market regarding risk do not apply to the same extent.”
He says the TSC will look into the issue again if NU and policyholder advocate Clare Spottiswoode cannot agree on a settlement.
McFall, who has chaired the TSC for six years, will step down at the next general election. He says it has been an extremely satisfying experience and cites inquiries into split caps, endowment mortgages, financial capability and Northern Rock as ones he is particularly proud of. He says: “If you can effect change, that is the important thing. It is change for the public good, not for change’s sake.”