23 January 2009
By Tash Shifrin
New CIPFA guidance on treasury management is likely to cover 'country risk' and sources of information other than credit ratings agencies, the institute's chief executive, Steve Freer, has told MPs.
Freer's comments came as he and CIPFA local government policy panel chair Chris Bilsland gave evidence to the Commons communities and local government committee on January 19. Councils are still trying to recover an estimated £1bn of funds locked up in Iceland's banks, following their collapse in October.
Freer defended CIPFA's code of practice on treasury management as 'fundamentally sound', with its emphasis on risk management. An overhaul of the code, expected when the Audit Commission had completed its review of the lessons to be learned, would produce 'some adjustments here and there', he said. 'That's not to suggest that a fundamentally different code is likely to emerge.'
The CIPFA chief did point to areas where changes might be made, however. Asked whether 'country risk' – where the financial sector of a particular country rather than a single bank becomes precarious – should be given greater consideration, Freer said this was 'one of the big learning points' from the Iceland meltdown. He added that it would 'almost certainly' be covered in revised CIPFA guidance.
The CIPFA witnesses were quizzed about the role of credit ratings agencies in councils' treasury management work. Bilsland emphasised that while government guidance pointed authorities towards credit ratings agencies, it also told councils 'not to rely on them entirely'.
Freer said local authorities could make use of advisors, information from brokers and the press to supplement credit ratings. 'The best authorities are having regard to all those sources,' he told the MPs.
Whether or not those authorities caught out by the collapse of the Icelandic banks were all abiding by the code was 'something we don't know', Freer said, although this might emerge from the Audit Commission's review. Freer warned that there was 'a danger' of applying 20-20 hindsight to the Iceland crisis. 'It is important that we avoid sweeping generalised criticism when some of the practice is very good practice,' he said.
Bilsland added: 'It is interesting that... local authorities that have exposure to Iceland include some with reputations for excellent financial management.' It was 'hard to find a common factor' linking the authorities that had been caught out.
PFjan2009
