The leadership of the City watchdog is facing scrutiny after it emerged that the man appointed as its next chairman had invested in a tax relief scheme.
Charles Randell, who is due to take on the role at the Financial Conduct Authority (FCA) on 1 April, admitted to MPs (BSE: MPSLTD.BO - news) that his involvement in the scheme might be seen by ordinary people as a "clever tax wheeze".
Mr Randell admitted to making an "error of judgment" over the scheme when he appeared before MPs on Tuesday.
Former pensions minister Baroness Altmann said "serious questions" were being asked following the disclosure.
Mr Randell told the Commons Treasury Select Committee that he had invested money in a film production partnership called Ingenious Film Partners 2 between 2006 and 2011.
He repaid £114,000 plus interest in 2015 after receiving a letter from HM Revenue and Customs (HMRC), and said he had withdrawn from the partnership.
Committee chair Nicky Morgan said she had written to Treasury permanent secretary Sir Tom Scholar in January about Mr Randell's involvement in the partnership which "at least in the view of HMRC is a tax avoidance scheme".
In his evidence to MPs, Mr Randell referred to a letter he had written to Sir Tom about the correspondence in which he admitted a mistake.
He said: "I regarded the fact that I hadn't made sufficient investigations into the assurances I was given to be an error of judgement."
Mr Randell said he had been told that senior policy officials at HMRC had approved the partnership.
But he conceded that he should have seen the mere fact that this "informal assurance" was necessary was in fact a "warning signal" and that it remained open for HMRC to change its mind "which they obviously did do".
Asked if he could see whether such a scheme could look to "ordinary people... those who aren't seeking to be FCA chair" like "some rather clever tax wheeze", he replied: "Yes, I can."
In correspondence published by the committee, Sir Tom said Treasury officials were aware of the matter, which Mr Randell had disclosed, and had not felt it should prevent him from being appointed.
Baroness Altmann said it was "important that those at the top of our financial regulators understand how ordinary people engage with financial service providers".
Those using tax avoidance schemes were normally paying for independent financial advice - something not open to most being overseen by the FCA, she said.
"The regulators should be at the heart of our consumer protection regime and it is those consumer without financial advisers who need most protection against the power of financial firms," Baroness Altmann added.
"If the FCA have only ever engaged with the markets with the help of advisers, rather than trying to navigate them on their own, then they may be less well-equipped to introduce the measures needed to protect the public."