The communities and local government select committee today publishes the government’s and other official responses to our report published in June examining the framework for the investment of local authority reserves. This work was undertaken in the light of potential losses of up to £1bn in the failed Icelandic banks last year.
We invited responses to our report from the Department for Communities and Local Government, the Audit Commission, CIPFA and the Financial Services Authority.
We are broadly pleased by the replies we have had from the government, CIPFA and the Audit Commission. Improved advice and guidance is now being made available to local authorities about their investments, and steps have been taken to ensure that there is appropriate co-ordination and co-operation between those responsible for monitoring local authority treasury management issues.
Nonetheless, while good guidance is being given by CIPFA and the government, it is imperative that local authorities do not become complacent. If they do, the danger is that the same mistakes will be made again and more council tax payers’ money put at risk.
Where the committee remains deeply concerned is with the FSA’s response, and its lack of reassurance about its role in the proper regulation of treasury management advisers. The FSA states that the current legislative framework effectively precludes it from undertaking investigations into the role of such advisers.
This is despite the fact that local authorities hold something in excess of £30bn of investments at any one time, and the fact that treasury management advice might influence where local authorities place their money. These advisers give their clients the reassurance that they are ‘authorised and regulated by the FSA’: a reassurance that, on the basis of the FSA’s response to our report, appears unfounded.
The committee also raised potential conflicts of interests between treasury management advisers and the larger financial group of which some of them form a part. The FSA responded by stating that it takes ‘potential conflicts of interests within firms very seriously’, yet did not offer to investigate the committee’s concerns.
We are pursuing these issues vigorously with the FSA, and will continue to do so until we get a more satisfactory response to our concerns.
Phyllis Starkey is chair of the communities and local government select committee
