House of Commons - Local authority investments - Communities and Local Government Committee

Local authority investments - Communities and Local Government Committee Contents

7 Treasury management advisers

Introduction

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.[104]

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 management advisers.

What do treasury management advisers advise on?

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 and knowledge."[105] It is perfectly understandable that different local authorities should contract for differing levels of service from treasury management advisers, according to their local circumstances—and 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.[106] 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 market work;

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.[107]

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 answer:

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.[108]

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 information—a 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".[109] 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.[110]

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.[111]

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.[112]

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 typically £30-40k).

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 e-mail:

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.

Overseas Banks

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.

Building Societies

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.[113]

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.[114]

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 evidence.[115]

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 TOTAL: £313.5m

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 TOTAL: £13m

Arlingclose
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 TOTAL: £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".[116]

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".[117] 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.[118]

96. Arlingclose, however, advised its clients not to invest in Icelandic institutions from early 2006.[119] 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?

— Widespread 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 government guarantee.

— 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 fears.

— 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.[120]

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."[121] 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 this area.[122]

98. The Committee received written evidence from Plymouth City Council, which has £13 million at risk in Icelandic institutions (5% of its total portfolio).[123] 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.[124] 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.[125]

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.[126]

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 management advisers,[127] 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 of companies.

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."[128] 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.[129]

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:

130

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 organisation—a broker—is 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."[131] 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."[132] 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.[133]

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 of interest.[134]

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. [135]

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.[136]

In supplementary written evidence, Butlers reiterates the existence of 'walls' within the ICAP group and maintains the following:

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 broking desk.[137]

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.[138]

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."[139] 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 institutions—its 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' best interests.[140]

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.[141]

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.[142] 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.[143]

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.[144]

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.[145]

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:

— To maintain confidence in the financial system

— To promote public understanding of the financial system

— To secure the appropriate degree of protection for consumers

— To reduce the extent to which it is possible for a business to be used for a purpose connected with financial crime.

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 link—http://www.fsa.gov.uk/Pages/Doing/Regulated/supervise/index.shtml.[146]

118. We then asked what steps the FSA had taken to regulate treasury management advisers and received the following answer:

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 link—http://www.fsa.gov.uk/Pages/Doing/Do/index.shtml[147]

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.[148]

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.

Conclusion

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 management.

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

105 Ev 64 Back

106 Ev 82 Back

107 Ev 148 Back

108 Q 130 Back

109 Q 16 Back

110 Q 128 Back

111 Ev 104 Back

112 Ev 105 Back

113 E-mail exchange between Reading Borough Council and Sector (Evidence not reported). Back

114 Ev 74 Back

115 Q130, quoted in paragraph 86. Back