MW recently asked me if I had sorted out my financial services policy as Financial Services Minister in his Government. Here is my first draft for comment. Lola.
The Bloggers Government: Financial Services Policy
1. Basic Principles.
The State has no business in business and money. It has a small responsibility conferred on it by the electorate to carry out some work as insurer of last resort and lender of last resort.
All EU directives will be ignored and the rest repealed.
The central principles behind these proposals is responsibility. Caveat Emptor and Professional Responsibility will be guiding principles.
2. Central Banking
The role of the Bank of England as central bank is abolished. It will set rates of interest with reference to its own demands for the Official Currency.
3. Interest rates
Will be set by the money markets, not the central bank.
4. Money
The legal tender laws are abolished.
The Pound Sterling will continue to exist and be offered by the Bank of England as the Official Currency. It will be the official currency of government. Its rate of exchange will float. It will be backed by adequate bullion reserves. It will be kept honest by competing domestic money and the absence of an official exchange rate.
5. Financial Regulation
a) All the existing regulatory regimes are abolished.
b) All deposit protection schemes are abolished
(All statutory deposit protection schemes will be abolished, but in the event of insolvency or breach of capital ratios by any licensed deposit taker, depositors (as defined) will be given priority of repayment, and any agreements as to security between bondholders and the deposit taker will be subjected to claims of depositors. Debt for equity swaps will be the preferred method of recapitalising banks.)
c) All compensation schemes are abolished.
6. Banking
Deposits into banks will be the property of the depositor.
The freedom to issue money will be returned to the people and by association, banks, to use if they wish.
It is expected that 100% secure bank deposits will be backed by 100% reserves of bullion. It is also expected that Banks will offer accounts with higher rates of interest that are not 100% reserved. Customers will be made aware of this and will be able to choose the level of risk and reward with which they are comfortable.
Banks will be encouraged to seek commercial insurance for depositor protection. We anticipate that market forces will compel banks to do this.
Limited liability will not be available to the owners or senior managers of any bank that seeks to do business in the UK.
7. Insurers
All the current reporting requirements will be abolished. It is anticipated that accounting standards will rise since auditing accountants will have 100% responsibility for their work and will not be able to escape professional responsibility. The State will require professional institutions to undertake that auditors have sufficient resources to underwrite this responsibility.
Auditors will be personally liable for any losses suffered by third-party investors up to a maximum of the amount by which the company's net assets were overstated." (e.g. as should have been the case with E&Y/Equitable Life). This same discipline applies to all auditors of all financial businesses, for example banks, intermediaries, fund managers etc etc.
8. Specialist and International Institutions engaged in financial engineering.
All regulation is abolished, but the shield of limited liability will unavailable to such institutions.
9. Retail Intermediaries
Intermediaries will have two categories, independent and other. Independent intermediaries will be the clients agent, other will not. It is anticipated that market forces and competition and self interest will drive the establishment of representative institutions to promote and regulate these categories.
10. Disclosure
The single regulation that will remain is that of full disclosure of costs and charges, rates of interest – both APR and flat rates and any other factors that deduct money from client money or are taken.
It is anticipated that the various industry grouping will set up their own bodies to regulate this as it will be in their self interest to do so.
11. Pensions
All final Salary pensions will be phased out. The sole means of pension saving will be in money purchase schemes. This will ensure that members are not ripped off by arbitrary actuarial calculations when moving jobs (a big friction in the labour market) and that real savings are made to fund pensions, which will provide more proper capital for investment. At the same time the tax relief on schemes will reinstated recognising that pensions are deferred pay, meaning that benefits when taken will be taxed as earned income. Contribution levels will be set at a maximum annual of 25% of NAE (or 100% of Citizen's Pension - see MW on LVT). There will be no minimum retirement age.
12. Collective Investment Schemes (unit trusts, OEICs, Investment Trusts, ETF's etc)
Rules and Regulations will remain roughly as they are but repsonsibility will be transferred from the State to self regulation. All compulsory compensation schemes will be abolished (moral hazard) but it is expected that good companies will combine together to provide some mutually protective accreditation which will include investor protection - commercially funded. ISA's and PEPs and EIS's and all that stuff will all be scrapped. But since the dividend tax credit will be reinstated (and CGT has been replaced by LVT) this will not matter. Investor decisions will not be distorted by tax considerations.
12 comments:
N2 is a start but it needs to include the CBs of Europe and the BIS, IMF and WB. Plus the Fed. Of course, that's a little beyond your brief here, Minister.
JH They'll be forced into this by our success. They'll all absolutely hate us for doing this as it will reveal to their populations just how they are being ripped off by their governments.
L, that all lloks good to me, but I can't find the bit that says "Auditors will be personally liable for any losses suffered by third-party investors up to a maximum of the amount by which the company's net assets were overstated." (i.e. E&Y/Equitable Life).
MW That's under pt 7, but I'll edit and expand it with your text asap.
What's all this about bullion reserves then?
You advocating a gold standard?
Steven_L - Not really. I just want to make sure banks are unlikely to get too tempted by fractionally reserving themselves without actually banning it. Got any beter ideas?
Depends what you mean by 'fractionally reserving' themselves.
You mean you want them to always have more assets than liabilities and preferably a healthy capital buffer?
The thing about banks (or anywhere else that money and power is concentrated) is that they attract dodgy people like flys to shit.
Getting rid of silly business regulation would probably ditch a lot of the lobbying/corporatism/corruption that dogs the system.
Coupled with better accountability of the police to the public and much nastier punishments for white collar theft it is probably a move in the right direction.
Take James Crosby for instance, sacked his risk manager for doing his job, then given a board position at the FSA, if there is any truth in the allegations this man should at least be stripped of all his asset, or in StevenL's Britain would be dragged through the criminal justice system like a common crook.
Steven L - Quite. Getting rid of FSA will stop all the corporatism that just serves to line the pockets of shits like Crosby. And I agree, the Police and the criminal justice system will deal very harshly with such people.
L, as to 5 (b), in the full version, can we insert something like:
"All statutory deposit protection schemes will be abolished, but in the event of insolvency or breach of capital ratios by any licensed deposit taker, depositors (as defined) will be given priority of repayment, and any agreements as to security between bondholders and the deposit taker will be subjected to claims of depositors. Debt for equity swaps will be the preferred method of recapitalising banks."?
As to tax relief for pensions in 11, your limit looks good to me, but seeing as I will phase out income tax, there won't be such a thing as 'income tax relief' either.
Same goes for 12, in an income tax/CGT free world, there is no need for PEPs and ISAs (which are only glorified subsidies to financial institutions anyway).
MW You're still going to 'licence' deposit takers then?
L, of course. Anybody who is prepared to play by the above rules gets a licence, and those who don't wish to play by the rules are free to take deposits (It's only borrowing money after all) but if you deposit money with them you are on your own.
MW. OK, but, licencing equates to approval and will require an extra bureaucrat or two. And in my world you are 'on your own' anyway. That's the point. It's down to you.
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