7 Treasury management advisers|
82. Many local authorities employ private sector
advisers"treasury management advisers"who
have specialist knowledge and skills in understanding money markets.
As Treasure Your Assets states:
Local authorities can and do make their own investment
decisions, but, given the potentially specialised knowledge and
skill required to understand the money markets, many employ an
external firm of advisers to advise in the decision making of
which counterparties to invest in and borrow from. Such advisers
will give regular advice on the current prevailing market, their
assessment of the likely future course of interest rates etc.
83. However, this definition of the role of treasury
management advisers is not one that is fully accepted by some
of the treasury management advisers themselves, as we discovered
in an oral evidence session. The lack of clarity about the type
of service being offered has led to confusion about the role of
those advisers in the events leading to the collapse of the Icelandic
banks, and prompted us to inquire further into the role of treasury
What do treasury management advisers
84. CIPFA's written evidence acknowledges that "local
authorities place varying levels of reliance on the advice of
these advisers depending upon their own level of internal skills
It is perfectly understandable that different local authorities
should contract for differing levels of service from treasury
management advisers, according to their local circumstancesand
that, as one of the treasury management adviser firms pointed
out in a supplementary memorandum to us, the fees charged by those
advisers should reflect the level of service contracted for.
However, the evidence given to our inquiry, particularly that
given in oral evidence from the three treasury management advisers
themselves, highlighted a discrepancy between what many local
authorities thought they were being provided with, and what some
of the advisers themselves claimed to be providing to their clients.
85. Sterling states in its written evidence its view
of what treasury management advisers do, and do not, provide:
There is some confusion in the media about the role
of local authorities' treasury consultants. Their role includes:
a) helping authorities to meet their obligations
under the legislation and codes of practice, including the production
of an Annual Investment Strategy;
b) keeping authorities up to date with changes to
relevant public credit ratings;
c) explaining how the Bank of England, PWLB and money
d) providing information on the pros and cons of
various investment and borrowing options;
e) assisting with the use of risk management techniques;
f) helping authorities to account for investment
and borrowing decisions, and;
g) training officers and members on the above.
Consultants do not:
a) pass on unfounded rumours about market participants,
which would be in contravention of the Financial Services and
Markets Act 2000, or;
b) tell authorities which investments they should
or should not make.
86. In oral evidence, Mr Anthony, Managing Director
of Butlers, explained the services that Butlers offers:
We do offer advice in a number of areas, for example
in accountancy, capital finance issues, economic analysis, interest
rate forecasting, and in addition we do run training courses,
but it is quite clear on the counterparty issue that we act as
a pass through of information. We do not provide advice on counterparties.
Sector's representative, Mr Whelan, gave a similar
I would like to make it quite clear that we do not
provide advice to local authorities on which specific financial
institutions or sovereign states to place their funds. We provide
rating information from the major international rating agencies
through to the local authorities. We try to help and standardise
information because quite often the rating agencies use different
terminology to describe the same outcome. This information then
becomes part of a broader authority decision-making process into
which our input is one part of that process, but we have no further
part in that process.
These advisers suggest, essentially, that they are
an intelligence service, and a limited one at that (the reference
to "unfounded rumours" in Sterling's evidence seems
to suggest that they do not even weigh up and analyse the available
informationa very different business from passing on supposedly
privileged information). If this is their role, then it seems
relatively poor value for money. However, the evidence we received
suggested that this is not the role which many authorities thought
they were contracting for.
87. Howard Knight suggested that treasury management
advisers were back-pedalling on what they did for local authorities,
switching from the claim that they give "advice" to
the suggestion that what they offer is "specialist information".
Mark Horsfield from Arlingclose was the only treasury management
advisor who agreed that it was his role to provide both specialist
information and advice:
In terms of investment advice, which I suppose is
the key area the Committee is interested in, we do believe we
give investment advice. That is what we are mandated to do and
our clients tell us that they want access to information that
they do not have access to themselves. We gather information,
consider it and form a view from a wide range of sources, not
simply the credit rating agencies.
88. The LGA provided useful supplementary evidence
on the varied contracts that exist between local authorities and
the two treasury management adviser firms Sector and Butlers.
There is evidence from those contracts that both Sector and Butlers
are expected by local authorities to give advice, not just provide
information. The following, for example, is an excerpt from a
contract between a district council and Butlers:
Advice will be given with regards to the internal
management of funds. In conjunction with our interest rate forecasts
we will provide advice on the period of investment. Advice will
also be given on the use of both Specified and Non Specified investments.
In addition we will give specialist advice on specific investment
instruments that comply with the Councils' attitude to risk.
The investment service will include performance monitoring of
all products and an agreed exit strategy for existing instruments.
89. Similarly, the LGA quote a contract between a
district council and Sector, entitled a "Mandate for Treasury
Consultancy and Investment Advisory Services", which states
that Sector will provide:
Advice on investment counterparty credit worthiness,
including the provision of prudent parameters established in the
light of information from the UK's leading credit rating agency,
various other analysts as appropriate and associations.
90. Reading Borough Council has been a client of
both Sector and of Arlingclose. The Council sent us internal
documents relating to their treasury management activities, with
copies of e-mails from both Sector and Arlingclose. One exchange
between Reading and Sector in June 2006 is particularly relevant
because it discusses the provision of advice specifically about
with whom the council should invest its reserves (the so-called
"counterparties"). In one e-mail, Reading Borough Council
asked for the following advice:
Historically we rarely had more than £10-£20m
to lend and this list [of counterparties] was adequate. Now we
are in a position that because of borrowing to finance future
programmes/restructure debt we have around £100m lent out,
and our list is proving restrictive. In addition from benchmarking
we have noted that our performance lags most authorities by 0.1%
or so (equivalent to up to £100k pa, though probably more
The brokers we deal with have been asking us to consider
reviewing our list for some time, and [
] we are minded to
do so, but would appreciate your comments on what we propose.
91. Sector responded 13 days later with the following
I have looked at your proposed lending list [
The list looks fine and I have the following comments after checking
the institutions against our own Creditworthiness application.
Other UK Institutions
We recommend that Bradford and Bingley and Northern
Rock are not lent to [for] more than three months.
With the exception of DEPFA (3 months) we recommend
lending to those highlighted for in excess of a year, the two
Swiss banks you mention do not appear on our list but I have checked
on the Fitch website and agree their ratings.
Again we recommend no longer than three months however
the regulatory environment, as you say, may mean that you take
a slightly different view to us. Derbyshire and Leeds/Holbeck
are not rated but again fall into the top 10 due to asset size.
I hope this helps but if you need further input do
not hesitate to contact me.
92. Reading Borough Council does take responsibility
for its investment strategy. It stated in its written evidence:
We have always taken the view that whilst it is the
role of advisers to guide and help, ultimately the authority must
control and own the process. Ultimately treasury activity is
carried out by a small team within the finance function with the
staff handling day to day transactions having clear guidance on
what can be done on a day to day basis.
However, the exchange shows that, at least in 2006,
Sector was giving advice on specific investments and advising
Reading Borough Council not to invest in certain financial
institutions for more than three months. This contradicts the
impression that Mr Whelan sought to give us about Sector in oral
Specific examples of advice relating
to Icelandic investments
93. The following table, reproduced from written
evidence given by Martin Hickman, Consumer Affairs correspondent
at The Independent, summarises, for each treasury management
advisor, the number of local authorities each advise, the proportion
of the total local authority exposure to Iceland each client group
held, and the total amount exposed. It also includes the statistics
for the local authorities with no external treasury management
advisor, for reference.
|Butlers||Claims to advise 144 UK councils: 31% of total
Number with investments in Icelandic banks: 51%
Proportion of total UK council exposure to Iceland: 53%
Scotland £22.5m, Wales £0, England £447m
|TOTAL: £469.5m |
|Sector Treasury Services |
|Claims to advise 250 UK councils: 53% of total |
Number with investments in Icelandic banks: 46
Percentage of total UK council exposure to Iceland: 35%
Scotland £23m, Wales £49.7m, England £240.4m
|Sterling Consultancy Services |
|Will not disclose number of UK councils it advises |
Number with investments in Icelandic banks: 3
Percentage of total UK council exposure to Iceland: 2%
Scotland £3.7m, Wales £0, England £13.5m
|TOTAL: £17.2m |
|No external advisor
||Number of UK councils without advisers: at least 16 |
Number with investments in Icelandic banks: 16
Percentage of total UK council exposure to Iceland: 1%
Scotland £0, Wales £0, England £13m
|Claims to advise 40 (now 50 after Icelandic collapse) UK councils: 9% |
Percentage of total UK council exposure to Iceland: 0
Number with investments in Icelandic banks: 0
Source: Ev 130
94. These figures were submitted to us as written
evidence and also appeared in an article in The Independent
on 19 January 2009. We have not sought to verify the figures,
but Mr Anthony of Butlers said in oral evidence, "No, you
cannot dispute the amounts, they are there for everybody to see".
95. Sterling's written evidence defends local authorities'
investments in Iceland, pointing out that the Icelandic banks
were some of only a limited number of banks willing to accept
small deposits that many local authorities wanted to make (many
highly-rated banks only accept deposits in excess of £25
million); and that the Icelandic banks paid "high, but not
exceptional," rates of interest on deposits and "local
authorities typically lend their cash to whichever approved counterparty
is paying the highest rate of interest, subject to an internal
limit per counterparty".
Sterling goes on to argue that local authorities' decision to
invest in Iceland might not have hindered them financially:
There is around £1 billion of local authority
cash tied up in Icelandic banks, representing approximately 3%
of all local authority investments. It is interesting to note
that since market interest rates have been substantially higher
than yields on low-risk government bonds for the past two years,
local authorities will, in aggregate, have received in the region
of £1 billion additional investment income over this period
by investing on the money market. It can therefore be argued
that individual local authorities who have 3% or less of their
total investments tied up in Icelandic banks have not lost out
financially from the episode, even if the eventual amounts recovered
are low. It follows that those authorities who have a substantially
greater proportion invested in Iceland (and in some cases this
is more than 10%) have lost out. This is as a direct result of
the failure to diversify their investment portfolios adequately.
96. Arlingclose, however, advised its clients not
to invest in Icelandic institutions from early 2006.
It gave the following information in its written memorandum of
the signals early in 2006 that led to this advice:
What were the concerning signals?
newspaper articles (going right back to early 2006) of potential
problems with the Icelandic economy.
An analysis of the Icelandic economy
from 2006 onwards indicated that it was an economy under stress.
The value of its currency was deteriorating, inflation was sharply
higher and its official interest rates were in double digits and
rising. As an economy its growth had been fuelled largely from
the expansionary activities of its banks which resulted in liabilities
dwarfing economic output and the value, therefore, of any potential
Numerous pieces of research released
by investment banks signalling potential problems with Iceland
and its banks. This research kept on coming and its outlook took
on an increasingly pessimistic tone.
One of the credit rating agencies introduced,
in early 2007, a new ratings methodology that inexplicably resulted
in the Icelandic banks being given the highest available rating.
This brought widespread derision from the financial markets to
the extent that the methodology and the ratings were removed shortly
thereafter. This again raised sharp questions about the reliance
on credit ratings as a sole barometer of risk.
Direct communication with the specific
institutions about which we had concerns did not allay Arlingclose's
The credit default swap (CDS) market
provides investors with the ability to insure against a corporate
or sovereign failure. CDS priced Iceland and its banks at levels
that contradicted the credit ratings.
97. Neither Butlers nor Sector stated in their written
evidence whether or, if so, when they advised their clients not
to invest in Icelandic institutions. When pressed on this matter
in oral evidence, they once again relied on the distinction they
were seeking to draw between "advice" and "information".
When questioned about whether Butlers advised its clients to
withdraw their investments from Iceland, Mr Anthony said, "No,
we do not provide advice, we just give out information."
When questioned on whether Sector advised against investing in
Iceland, Mr Whelan responded:
No, we did not. We passed on the downgrades from
the credit rating agencies as they came through to local authority
clients on a timely basis. We do not give specific advice in
98. The Committee received written evidence from
Plymouth City Council, which has £13 million at risk in Icelandic
institutions (5% of its total portfolio).
Its treasury management advisor at the time was Sector, from
whom they commissioned a specific review of the council's investment
strategy in June 2008 because of general concerns being aired
in the money market.
Plymouth's written submission highlighted reassurances given
by Sector at that time. Sector's report stated:
The Council's lending list is very robust and takes
into account consideration of the rating criteria, amount limits
and also duration limits, which is exactly what Sector recommends
from authorities that are looking to place money with any institution.
Those reassurances appear to us to constitute advice,
not just information. Plymouth's Audit Committee document of
18 December 2008 notes that it has since replaced Sector as its
treasury management advisor.
Service provided by treasury
management advisers: conclusion
99. Responsibility for local authorities' investment
decisions lies, and must continue to lie, with the local authorities
themselves. However, the claim by some treasury management advisers
that they give information only, not advice, on investment counterparty
creditworthiness to local authorities is, in our view, misleading.
100. The involvement of treasury management advisers
in local authority treasury management will only be valuable if
local authorities understand the level of service they require,
and if the advisers themselves are clear about the level of service
they are providing. Treasury management advisers must decide,
define and communicate what services they are providing clients,
particularly in relation to the provision of "information"
and/or "advice". The local authority itself nevertheless
remains ultimately responsible for any investment made, and CIPFA
should warn local authorities about over-reliance on treasury
management advisers, whose services have been shown to be variable
and, in some cases, inadequate.
101. In our view, the evidence we have received suggests
both that local authorities believed they were receiving a different
level of advice from the advice that their providers thought they
were giving, and that local authorities need a different
level and quality of advice. The Audit Commission could play a
useful role here. As its preface states, the Commission's report
"Risk and Return" tells "the story of English local
authority deposits in Icelandic banks and their UK subsidiaries."
The "story" includes a brief definition of treasury
but omits any criteria for evaluating their services. The Commission
could provide a valuable service to local authorities by considering
the range of services that treasury management advisers provide
and advising on what level of service may be appropriate depending
on the in-house capability of the local authority, the amount
of money that it has available for investment and its appetite
for risk. We recommend that the Audit Commission carry out
a value for money study of the services that local authorities
have received from treasury management advisers, with a view to
advising local government on the value that they offer in the
differing circumstances applying to individual authorities.
Treasury management advisers
and the CIPFA Codes
102. The CIPFA Codes say very little about treasury
management advisers, brokers and credit rating agencies. Treasury
Management Practice 11 describes the potential benefit of external
service providers of treasury management services and recommends
that local authorities
] ensure that the terms of their appointment
and the methods by which their value will be assessed are properly
agreed and documented, and subject to regular review. And it
will ensure, where feasible and necessary, that a spread of service
providers is used, to avoid over-reliance on one or a small number
This description is fine as far as it goes, but in
the light of our discussion of the services provided by treasury
management advisers, it is clear that the CIPFA Codes need to
be more explicit on the use of external service providers.
103. The Minister, the Rt Hon John Healey MP, told
us that he would like to see "clearer guidance on appropriate
use of expertise whether that is internal or external."
He later accentuated this point when asked again about local
authorities relying on treasury management advisers who claimed
to pass on little more than credit ratings:
That is what I had in mind when I suggested there
may be a case for clearer guidance and possible a reflection of
the CIPFA Treasury Management Code of the use of expertise both
internal and external. I think the sort of evidence the Committee
has taken on that front [
] suggests those authorities who
were not over-reliant simply and singly on credit ratings information
have been less likely to make these investments.
104. There is no guidance in the CIPFA Treasury Management
Code for those local authorities with no specialist staff and
which therefore rely on external advice. John Healey commented
on this fact, saying:
That is an area which you may have heard from
CIPFA they are looking at. It is certainly an area I am interested
in and looking at.
105. We recommend that the CIPFA Codes give more
detailed advice to local authorities on the services which they
may expect to receive from treasury management advisers, and how
to use them effectively. The guidance should make clear that such
advisers may give varying types and levels of information or advice.
Potential conflicts of interest
106. It is vital that companies marketing their services
as treasury management advisers to local authorities should be
entirely transparent about the basis of their fees and the sources
of revenue, including commissions, which they might offset against
their charges. Butlers, Sector and Sterling are all subsidiaries
of parent financial companies: Butlers is a subsidiary of ICAP;
Sector is a subsidiary of Capita; and Sterling is a subsidiary
of Sterling International Brokers Limited. Concern has been raised
about the provision of a financial advisory service by one part
of an organisation, while another part of the same organisationa
brokeris placing investments for local authorities and
thereby earning commission on those investments.
107. The CIPFA Treasury Management Code of Practice
describes brokers as "money-broking companies, whose role
it is to act as intermediaries, making introductions between the
prospective parties to transactions."
Brokers do not offer advice on which counterparties local authorities
should invest in. Instead, "they may provide information
already in the public domain, but may not interpret it."
The Code recommends that, if local authorities decide to employ
brokers, they should have no fewer than two and they should have
a competitive tendering process every few years.
108. Guildford Borough Council's submission explains
why there is concern about the relationships between local authorities,
treasury management advisers and brokers. Noting reports that
investments by some local authority finance officers have managed
to outperform not only the benchmark set in their authority's
Annual Investment Strategy, but even the performance of some professional
fund managers, it comments:
] this is an important feature in this debate
i.e. the lack of appreciation of the risk being taken. In some
cases this has been with the support of their treasury advisers
and reflects a potentially far muddier area where advisers may
have links to companies and/or affiliations with organisation
that earn commissions from the borrowing/investment activity of
the local authorities. This gives rise to potential conflicts
109. Butlers' website, describing its position within
the ICAP plc Group, makes a virtue of the fact that local authorities
would have 'the whole of the Group' at their disposal:
Butlers is a consultancy company specialising exclusively
in the provision of a wide range of financial services to the
UK public sector [
] Within the ICAP plc Group, the world's
leading financial broking organisation, Butlers operates independently.
The ICAP plc Group has been working with local authorities and
other public sector organisations since the 1930s, initially in
its capacity as money broker but later through the more specialist
advice of Butlers itself. The resources of the whole of the Group
would be at the Council's disposal. 
110. In oral evidence, Mr Anthony, representing Butlers,
agreed that the provision of an advice service by a company in
the same group as a broker could lead to the perception of a conflict
of interest, but maintained that:
] the company makes it absolutely certain
that those conflicts of interest are not breached and we do operate
the Chinese walls. We have absolutely no idea what the other
side of the business gets up to. They do not know what we get
up to. We do not know what our clients are doing with respect
to their dealings with ICAP at all.
In supplementary written evidence, Butlers reiterates
the existence of 'walls' within the ICAP group and maintains the
As Mr Anthony stated at the hearing, there are clear
Chinese (and physical) walls in place within ICAP Group. Indeed
we have been told by ICAP that in respect of our clients in 2008
only 16% of Icelandic investments were placed through ICAP's deposit
Mr Whelan described the practice at Sector:
We do not have a conflict of interest, we do not
receive commission on any time deposits for any financial institution,
local government or any other type of body at all.
111. Mr Horsfield of Arlingclose argued that "it
is important to be demonstrably independent and we took the decision
at a very early stage to demonstrate that independence."
Arlingclose's supplementary evidence elaborates this point:
Arlingclose's treasury advisory fees are clear and
unambiguous. Arlingclose avoids conflicts of interest by deliberately
not taking fees from brokers or financial institutionsits
treasury advisory fees are paid by clients for advice and for
advice only. Arlingclose's founding partners consciously took
the decision to develop this business model after having worked
in the industry for many years, observing practices which they
did not and still do not believe are in local authority's clients'
112. Arlingclose's supplementary evidence also discusses
the commission received by some other treasury management advisers:
Since Arlingclose developed its treasury advisory
services in 2004 there have been occasions when it has been approached
by financial institutions with offers to pay Arlingclose fees
on a range of investment and debt products. These institutions
have offered to pay Arlingclose a fee of between two and five
basis points. On each occasion Arlingclose has declined these
offers in order to demonstrably maintain its independence. In
Arlingclose's opinion and experience, third party relationships
and transactions can be poorly disclosed in Standard Terms of
Business (STOB), meaning that local authority clients are not
fully aware of the scale of commissions that can be obtained.
Nor are clients aware that commissions received as a result of
these kinds of arrangements can easily exceed the fees that are
charged by the treasury management advisers to their clients.
113. This evidence raised concerns about the potentially
inappropriate relationships between local authority finance officers,
advisers and brokers. We also received supplementary evidence
from Martin Hickman, consumer affairs correspondent of The
Independent, citing a conversation with a senior representative
in a financial company in the City of London. It should be noted
that, although Mr Hickman states that specific companies, individuals
within those companies and individual transactions were named
in the conversations with his source, he has not investigated
those claims and, as such, they are unsubstantiated.
In the course of this conversation, Mr Hickman was told:
That local authority investment officers placing
tens of millions of pounds of investments in banks were poorly
trained and motivated.
That some local authority officers placing investments
had enjoyed extensive hospitality provided by companies profiting
directly from those investments.
That brokers actively touted for business, dealing
directly with local authority finance officers to discuss the
placement of funds.
That brokers received from banks substantial commission
(sometimes running into hundreds of thousands of pounds) for placing
local authority funds with those banks.
That brokers share this commission with advisers
unbeknownst to local authority clients.
That advisers actively advise local authority clients
to place funds with particular institutions in order that they
would receive a share of this broking commission.
That together advisers and brokers hold conference
calls with local authority finance officers in which they (advisers
and brokers) act in concert to give such advice.
114. The Audit Commission's report "Risk and
Return" contained a sentence which added to our concern about
this issue. It highlighted the fact that many local authorities
did not manage their existing investments in Iceland well, meaning
that some money was put at risk which might not have been:
[Local authorities] did not manage deposits that
had not yet matured as actively. It is sometimes possible to
break a deposit before maturity. This is not a regular occurrence;
some banks charge a fee or a penalty to return funds, but others
do not. There was a general reluctance to break deposits, or
ignorance of the facility. However, some local authorities did
consider the possibility of breaking deposits, but were told by
their brokers that this would not be possible.
115. We asked the Audit Commission whether this paragraph
was suggesting that local authorities were told by brokers that
it was not possible to break a deposit before maturity, when actually
it was possible. The Commission responded:
None of the authorities who were part of our fieldwork
sought a second opinion on breaking deposits after a broker had
told them that breaking would not be possible. Therefore, we
cannot be certain that the information given by a broker was incorrect.
However, we do know that some deposits were redeemed before the
contracted maturity date.
116. All four local authority treasury management
advisers state that they are regulated by the Financial Services
Authority (FSA). We invited the FSA to submit written evidence
to this inquiry. That evidence describes the roles and responsibilities
of the FSA, which is an independent non-governmental body, given
statutory powers by the Financial Services and Markets Act 2000
(FSMA). It is accountable to Treasury Ministers and, through
them, to Parliament, but is operationally independent of Government
and funded solely by the firms that it regulates. The FSMA gives
the FSA four statutory objectives:
maintain confidence in the financial system
To promote public understanding of the
To secure the appropriate degree of protection
To reduce the extent to which it is possible
for a business to be used for a purpose connected with financial
117. We asked the FSA to tell us what it means in
practice that a company is regulated by the FSA. It replied with
the following supplementary evidence:
The FSA website contains information on the different
approaches that we use for the firms we regulated. This can be
found at the following linkhttp://www.fsa.gov.uk/Pages/Doing/Regulated/supervise/index.shtml.
118. We then asked what steps the FSA had taken to
regulate treasury management advisers and received the following
In general FSA conduct of business rules about advice
only cover regulated investment advice and firms that are FSA
authorised. The definition of what is and is not regulated investment
advice, and who does/does not need to be regulated, is set out
by the Treasury in the Regulated Activities Order. How the FSA's
conduct of business rules apply to regulated advice depends on
the exact circumstances of the situation, who is giving the advice,
who is receiving it and whether any exemptions apply. Generally
speaking, financial advisers giving advice about deposits are
not regulated. This is because the Treasury has not included advice
of this sort in the list of activities regulated by the FSA.
Further information on the regulated activities is available on
the following linkhttp://www.fsa.gov.uk/Pages/Doing/Do/index.shtml
119. These answers from the FSA are unhelpful to
the point where we wonder whether they might constitute deliberate
obfuscation. We strongly suspect that the clear answer to our
question of what steps the FSA has actually taken to regulate
treasury management advisers is "none". Given the large
sums of public money which are at stake in local authority treasury
management, we consider this to be an abrogation of responsibility
on the part of the FSA. Treasury management advisers do not advise
local authorities only; they also advise other public sector bodies,
including the National Health Service, housing organisations and
universities, which adds to the importance of ensuring that such
advisers are properly regulated.
120. The Financial Services Authority (FSA) should
take a more active role in the regulation of treasury management
advisers. The evidence which we have examined has raised concerns
about potential conflicts of interest and questions as to whether
there are any financial transactions between treasury management
advisers and brokers that might compromise the independence of
advice being given to local authorities. There is a strong case
for a full investigation by the FSA of the services provided by
local authority treasury management advisers. We recommend that
such an investigation be carried out as soon as possible.
121. Our examination of the role of treasury management
advisers in the Icelandic debacle has raised wider questions about
their influence on local authorities' treasury management practice.
First, there is confusion, and perhaps some deliberate ambiguity,
about what services they offer. It is clear to us that some local
authorities believed that they could place reliance on their treasury
management advisers in a way that some of the treasury management
advisers themselves now seek to argue was misguided. Second,
there is concern about the independence of treasury management
advisers that may be part of companies that will benefit from
the investment decisions of the local authorities that they advise.
Third, there is a lack of clarity about the extent to which local
authorities can assume that treasury management advisers are properly
regulated. While local authorities must ultimately take responsibility
for their investment decisions, a range of regulatory and advisory
bodies appear to us to have been complacent in their approach
to the role of treasury management advisers. The Audit Commission,
CIPFA and the FSA must all re-examine the role and reliability
of treasury management advisors and their discharge of duties
of care for local authorities in managing this aspect of treasury
104 The Centre for Public Scrutiny (CfPS), Treasure
your assets: a jargon free guide to scrutiny of local authority
financial investments, December 2008, p 17. Back
Ev 64 Back
Ev 82 Back
Ev 148 Back
Q 130 Back
Q 16 Back
Q 128 Back
Ev 104 Back
Ev 105 Back
E-mail exchange between Reading Borough Council and Sector (Evidence
not reported). Back
Ev 74 Back
Q130, quoted in paragraph 86. Back
Q 159 Back
Ev 148 Back
Ev 148 Back
Ev 52 Back
Ev 53 Back
Q 141 Back
Q 143 Back
Plymouth City Council Audit Committee, "Icelandic Investments
and Treasury Management", Audit Committee, 18 December 2008,
p. 4 (www.plymouth.gov.uk). Back
Ev 108 Back
Plymouth City Council Audit Committee, "Icelandic Investments
and Treasury Management", Audit Committee, 18 December 2008,
p. 4 (www.plymouth.gov.uk). Back
Audit Commission, Risk and Return: English local authorities
and Icelandic banks, Cross-cutting National report, March
2008, p 36. Back
Q 333 Back
Q 337 Back
Q 339 Back
CIPFA, Treasury Management in the Public Services:: Code of
Practice and Cross-Sectoral Guidance Notes, April 2001, p
Ev 50 Back
Q 197 Back
Ev 82 Back
Q 198 Back
Q 198 Back
Ev 56 Back
Ev 132 Back
Ev 132 Back
Commission, Risk and Return: English local authorities and
Icelandic banks, Cross-cutting National report, March 2009,
p 27. Back
E-mail received from the Audit Commission, 09.04.09. Back
Ev 106 Back
www.butlerasset.com; www.sector-group.com; www.arlingclose.com.