Summary
The collapse of Icelandic financial institutions in the autumn of 2008 brought to light not only the surprisingly large amounts of money invested by local authorities, but also the fact that local authorities had invested nearly £1 billion in Iceland, funds that were consequently at risk.
This Report, 'Local Authority Investments'
(HC 164-I), presents the findings, conclusions and recommendations that follow the Committee's inquiry into local authority investments.
The collapse of Icelandic financial institutions prompted the Committee to launch its inquiry into local authority investments, in order to:
- Understand current practice;
- Study the roles and responsibilities of various groups and individuals involved; and
- Make recommendations intended to limit the exposure of local authority funds to such risk in future.
The unusual nature of the recent financial situation should not excuse failures that occurred in local authority financial arrangements. The inquiry reveals a degree of misunderstanding, misinformation and complacency on the part of some crucial players, both within local authorities and in the wider financial sector, which contributed to the putting of taxpayers' money at unnecessary risk.
There is significant room for improvement in the guidance and codes of practice for local authorities:
- To be more explicit in certain areas in order to make the system more transparent;
- To explain where the responsibilities lie, both in executing and in overseeing treasury management, including more rigorous training and reporting; and
- To highlight the variations of service on offer by different external service providers.
It was the role of external service providers, specifically some of the treasury management advisers, which caused the Committee most concern. It recommends that the Financial Services Authority (FSA) investigate the services provided by them as soon as possible and take a more active role in their regulation.
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