2011 was the year the FSA saw Parliament bare its teeth. The regulator’s accountability has been an issue since it was created but a new, fiery intake of MPs operating in a post-expenses, post-hacking, post-Wikileaks world turned up the heat.
Calls for transparency and accountability peppered proposals and speeches. The Treasury select committee’s inability to force the FSA to budge over the retail distribution review was the starkest example of the regulator falling behind that cultural change.
But although it showed its teeth, Parliament was seen to have little in the way of bite. Select committee chairman Andrew Tyrie, MP, and his committee were furious when its call for a one-year delay to the RDR and a softening of the cliff-edge was refused before it was even made public.
Labour MP George Mudie slammed the move as “arrogant” while Conservative MP Andrea Leadsom said it showed “contempt” for the committee. The TSC has been running inquiries into the bodies intended to replace the FSA and has said the behaviour of the regulator over the RDR report will inform its recommendations.
Aifa director Rob Sinclair (pictured) says: “The FSA has felt the Treasury select committee does not have the right to hold it to account and that has aggravated MPs across the political spectrum.”
Cicero Consulting director Iain Anderson says: “Public dialogue has moved on and the regulatory shake-up and the setting up of new institutions is a chance for regulators to catch up.”
Labour Shadow Chancellor Ed Balls was instrumental in setting up the regulator in its current guise, so it was a significant policy shift for Labour when Shadow Treasury financial secretary Chris Leslie complained about the “democratic deficit” between legislators and the regulator.
In January, Leslie told Money Marketing: “There is a strong case to be made that says perhaps giving financial regulation entirely to unelected officials as though they are entirely removed from the day-to-day world is not necessarily the right thing to do.”
It is not just the tussle with the TSC over the RDR which lost the financial regulator friends this year. The FSA found itself in hot water with the public and politicians alike when, thanks to the Financial Services and Markets Act 2000, it could not publish its report into the collapse of taxpayer-owned Royal Bank of Scotland.
Two old City hands, Sir David Walker and Bill Knight, were appointed to review the report and prepare a version for publication. The report was finally published this week and blames “flawed supervision”, with FSA chairman Adair Turner admitting the FSA made “huge mistakes”. But TSC member and Conservative Party vice chair Michael Fallon complains that still no one has been bought to book.
He says: “It is striking that no single official was sacked, resigned or took responsibility for a scandal that cost this country £50bn.”
The RBS report debacle and other limits that the FSMA places on the FSA illustrate part of the reason why the regulator’s remit, if not quite being ripped up, is being rewritten.
Under the new structure, the Bank of England will, in the words of the TSC, be a “super-regulator”.
Former Labour Chancellor Alistair Darling (pictured) says the Governor will be a “Sun King” of the new regulatory world, presiding over prudential regulation, financial policy and monetary policy. The bank’s board has been attacked for an inability to hold it to account and for refusing to release minutes relating to the financial crash to the TSC. Darling called for it to be abolished.
After a poor performance by bank board members in front of the TSC, Labour MP Chuka Umunna, who is now Shadow Business Secretary, told Money Marketing: “Mervyn King must be loving this. The impression I got is he has them under his thumb and that should not be the way it operates.”
The FSA and the bank have moved to reassure MPs they take their accountability to Parliament seriously. The FSA says it is willing to make the minutes of its future board meetings public and allow more junior staff to face MPs.
Anderson says there needs to be a “big attitudinal shift” within the Bank of England to provide the transparency and accountability that MPs are pushing for, especially given the huge influence it will have over the new regulatory landscape.
Policymakers are now tussling with the question of how to make sure that when they show their teeth they can actually bite, without enabling constant political interference over regulation. As Consumer Focus chair Christine Farnish told the TSC: “If there are no sanctions and no consequences, there is no accountability.”
Sinclair says: “Politicians want distance between them and the sometimes unpleasant decisions regulators have to make but they are the ones we elect to run the country. This is the conundrum they face – finding a mechanism that works without giving a bunch of backbench MPs control over the regulator.”
By the end of this year, most of the reports which will inform the Financial Services Bill to set up the new regulators will be in George Osborne and Mark Hoban’s in tray. The extent to which transparency and accountability will be delivered on the back of a run of scandals that have destroyed trust in Parliament, finance and the media remains to be seen. Transparency does not always deliver clarity and accountability does not always mean taking responsibility.
Anderson says: “Politicians are pushing for regulatory oversight and governance to be in the right place. The question is being asked but as for the outcome, we will have to wait and see. “