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Call for new curbs on council finance advisers

FSA should regulate advisers to councils, say MPs

MPs will today call on the City watchdog to be given new powers to police companies that advise local authorities and other organisations such as charities on where to hold their money.

It comes in the wake of the Icesave debacle in which £1bn of taxpayers' money was put at risk together with tens of millions more in charitable donations after the Icelandic bank collapsed. Such bodies have previously been seen as informed consumers who are not in need of the sort of protection offered to ordinary people by Britain's system of financial regulation.

But in a report to be published today the Communities & Local Government Select Committee will say that clear failings have been exposed by the Icesave affair.

The report will say that the FSA should gain new powers to regulate the advice given to public-sector bodies about the management of their cash reserves and investments.

The committee wants the watchdog to use these powers to scrutinise both the services provided and the professional independence of companies that offer local authorities "treasury management" advice.

Phyllis Starkey, chairwoman of the committee, highlighted concerns about the independence of some of the advice given and said that many councils were unaware that the firms they were dealing with were not regulated for the advice they provided to councils.

The committee has highlighted the way brokers typically used "authorised and regulated by the FSA" on their letterheads and promotional literature.

It has written to Lord Turner, the chairman of the FSA, to express its concerns about the issue, saying: "All four firms which conduct business as local authority treasury management advisers state prominently on their marketing and other literature that they are "authorised and regulated by the FSA".

"As a Committee, on the basis of the response which you have given to our report, we are now puzzled as to how this statement can in any meaningful sense be said to be true. Most activity by treasury management advisers is, under the legislation by which you work, not regulated. That small portion which may be regulated you effectively ignore because the firms carrying it out are too small to raise a blip on your regulatory radar."

Ms Starkey said that while the procedures of many local authorities had improved in terms of treasury management, more needed to be done to ensure no repeat of the Icesave saga.

"Councils might be considered informed consumers but they need advice and they would struggle to be able to pay the sums of money needed to get the quality of advice they need internally," she said.

"That means that they have to look externally. These are not like private-sector organisations. They handle large sums of public monies."

While the FSA's responsibilities have been progressively increased since its creation from the amalgamation of nine regulators, it has indicated that it would not be unhappy to take on the job. However, a spokeswoman said it would require legislation which was "a matter for Parliament".