MPs say the FSA should regulate the advice given to public sector bodies about managing cash reserves and investments.
In a report this week, the communities and local government select committee says the FSA should scrutinise the services provided and the professional independence of companies that offer local authorities treasury management advice.
The select committee says local authorities hold over £30bn of investments at any one time and the collapse of the Icelandic banks left around £1bn of council taxpayers’ money at risk.
Committee chair Phyllis Starkey says: “As it stands, the FSA is powerless to intervene in the circumstances that led to a great deal of public cash being put at risk by the collapse of the Icelandic banks. Under current rules, cash deposits and professional advice relating to such monies remain an unregulated activity outside the FSA’s remit.”
“We are now calling on the Government to make the simple legislative change necessary to allow the FSA to regulate the provision of such advice.”
The committee points out that treasury management firms seeking clients in the public sector routinely use the phrase “authorised and regulated by the FSA” on their letterheads, but many councils are not aware that this does not cover their advice on council investments.
Thomas and Thomas managing director Darren Lloyd Thomas says these steps should have been taken many years ago.
He says “Local councils are put in exactly the same position as a trustee would be if they were managing a trustee investment. A trustee takes professional advice, so local authorities need to wake up to the fact that they need proper financial planners from the private sector.”