By David Williams
30 October 2009
Councils are still not being given reliable financial advice more than a year after the Icelandic banking collapse, according to the Commons communities and local government select committee.
The MPs said that treasury management advisers, blamed for giving councils wrong advice on Icelandic investments in the weeks leading up to the crash, were still not being regulated effectively.
The committee was considering responses to its initial June report on the Iceland affair, which put £1bn of public sector investments at risk. Its follow-up report, published on October 28, included submissions from the government, the Financial Services Authority, the Audit Commission and CIPFA.
Committee chair Phyllis Starkey said that the FSA claimed that the advisers were unregulated in their dealings with councils. But ‘this contradicts the impression given by marketing and other material produced by these firms’, she said.
She also criticised the watchdog for declining to follow up the committee’s concerns that some firms might have financial interests in the investments they were recommending. ‘Given the sums of public money involved, these remain matters of some concern,’ Starkey said, pledging to pursue the issue ‘with vigour’ with the FSA.
Speaking at the CIPFA conference on treasury management in London on October 22, Starkey said the FSA had been ‘unhelpful’ while the committee was carrying out its inquiries and was ‘not taking the responsibility it should’.
She emphasised the importance of local authorities knowing what services they were buying from treasury management companies, underlining the difference between factual information and investment advice.
‘Councils need to understand when they are purchasing advice that quality matters as well as price, and you get what you pay for,’ she added.
Starkey also questioned the reliability of credit ratings agencies, telling delegates: ‘It’s not enough for councils simply to think they’re hedging their bets by using several.’
Many local authorities were still failing to spread their investments widely enough, she warned, recommending that smaller councils pool their treasury management expertise.
The government endorsed the committee’s report, saying: ‘Important lessons have been learnt by all with an interest in treasury management.’
It welcomed the finding that its own guidance to councils was not at fault, and that the problem was that some authorities were not following guidance properly.
CIPFA will be producing its revised treasury management guidelines before the end of 2009. In its response to the committee’s report on Iceland, the institute said the new guidelines would stress the importance of councils’ scrutiny function being strengthened.
30 October 2009
Councils are still not being given reliable financial advice more than a year after the Icelandic banking collapse, according to the Commons communities and local government select committee.
The MPs said that treasury management advisers, blamed for giving councils wrong advice on Icelandic investments in the weeks leading up to the crash, were still not being regulated effectively.
The committee was considering responses to its initial June report on the Iceland affair, which put £1bn of public sector investments at risk. Its follow-up report, published on October 28, included submissions from the government, the Financial Services Authority, the Audit Commission and CIPFA.
Committee chair Phyllis Starkey said that the FSA claimed that the advisers were unregulated in their dealings with councils. But ‘this contradicts the impression given by marketing and other material produced by these firms’, she said.
She also criticised the watchdog for declining to follow up the committee’s concerns that some firms might have financial interests in the investments they were recommending. ‘Given the sums of public money involved, these remain matters of some concern,’ Starkey said, pledging to pursue the issue ‘with vigour’ with the FSA.
Speaking at the CIPFA conference on treasury management in London on October 22, Starkey said the FSA had been ‘unhelpful’ while the committee was carrying out its inquiries and was ‘not taking the responsibility it should’.
She emphasised the importance of local authorities knowing what services they were buying from treasury management companies, underlining the difference between factual information and investment advice.
‘Councils need to understand when they are purchasing advice that quality matters as well as price, and you get what you pay for,’ she added.
Starkey also questioned the reliability of credit ratings agencies, telling delegates: ‘It’s not enough for councils simply to think they’re hedging their bets by using several.’
Many local authorities were still failing to spread their investments widely enough, she warned, recommending that smaller councils pool their treasury management expertise.
The government endorsed the committee’s report, saying: ‘Important lessons have been learnt by all with an interest in treasury management.’
It welcomed the finding that its own guidance to councils was not at fault, and that the problem was that some authorities were not following guidance properly.
CIPFA will be producing its revised treasury management guidelines before the end of 2009. In its response to the committee’s report on Iceland, the institute said the new guidelines would stress the importance of councils’ scrutiny function being strengthened.
