Parliamentary scrutiny of financial regulation would result in better outcomes and could be a solution to the “democratic deficit” between legislators and regulators, according to Labour Shadow Treasury financial secretary Chris Leslie.
Speaking to Money Marketing, Leslie says if the retail distribution review had gone through Parliament, problems such as older advisers leaving the industry could have been solved.
He says: “The RDR is a good example of where proposals have been put on the table by the FSA with a take it or leave it approach where, in a Parliamentary context, you can amend them, finesse or improve them.
“You do not necessarily want someone who has two or three years of their career left going through a whole series of expenses and exams for that period. There has to be a solution for that and if Parliament had power or control over it, we would probably go through the legislative process and find it.”
Leslie says he wants to see the Government’s legislation for the new regulatory architecture before suggesting specific amendments that would give Parliament oversight of regulation. Such an approach would be a major change in Labour policy.
The FSA was set up by Labour in 2001 as an independent regulator, paid for by the financial services industry.
Leslie raised the issue of a “democratic deficit” during the Parliamentary debate on the RDR last year, saying too few crucial regulatory issues are subject to Parliamentary scrutiny, a sentiment which received cross-party support.
He says: “It was quite obvious that Treasury financial secretary Mark Hoban was almost embarrassingly having to regurgitate the line written for him by the FSA and that is not how Parliamentary democracy should work.
“My main concern is that we somehow have a dialogue with the FSA and make them respond to these really legitimate points but currently there is this gulf between us as legislators and them as regulators.”
Leslie says with the Financial Policy Committee and the Prudential Regulation Authority giving the Bank of England more power over regulation, the question of legitimacy and accountability will become increasingly important.
He says: “What legitimacy do they have for making quite considerable decisions about all our personal finances?”
However, the Treasury has made it clear it sees the independence of the regulatory structure as essential to stable financial services and markets.
On savings, Leslie says consumers have two choices, the “instant access of Isas or the untouchable nature of pensions”. He says some kind of middle ground should be found.
The Treasury is currently consulting on whether to allow early access to pension funds.
Leslie says: “There needs to be some sort of sophisticated set of options or people to develop thinking about five or 10-year bonds to encourage people to defer their savings for longer and longer.”
Another of the Treasury’s current consultations is on simplified financial products and Leslie says consumer bodies should be leading the way in their development.
He says: “We need to come at this from a consumer grass-roots’ perspective and have a better analysis of where the problems are that people have and who is losing out in the current environment.”
Leslie says tax relief changes could be used to encourage long-term saving.
He says: “We cannot have an abuse of the system where the generosity of tax relief is jeopardised by short-term withdrawals, so you would have to find some way of agreeing long-term lock ins and perhaps tax relief changes ought to be skewed to encourage long-term savings.”