The CLG select committee of MPs has urged the Treasury to adopt tighter regulations for council investments, after a dispute between MPs and the Financial Services Authority exposed problems with oversight of town hall advisers. Dr Phyllis Starkey, chairman of the committee, told The MJ she ‘remains concerned' at how town halls invested billions of pounds annually, following her panel's investigation into the £1bn of local authority cash frozen in Iceland's collapsed banks last year. Dr Starkey said she was ‘shocked' the FSA, set up by the Treasury to regulate the financial services sector, appeared to have no powers to monitor treasury management advisers (TMA) providing critical information to town halls. TMAs were influential in advising councils on where to invest cash deposits, and claim they are monitored by the FSA because their employers must meet minimum professional standards. But the FSA rejected that it was, or should become, responsible for oversight of the firms' day-to-day advisory role. Dr Starkey wants the FSA to investigate TMAs – citing potential conflicts of interest relating to their role as advisers. But she believed the regulator was hiding conveniently behind its tightly-defined remit, imposed by the Treasury. In responses, published by the committee, the FSA acknowledged: ‘We do not regulate much of the activity carried out by the firms that provide services to local authorities.' Dr Starkey said: ‘I will shortly forward our correspondence with the FSA to the Treasury select committee in the hope that John McFall [Treasury committee chair] will look into this matter. My feeling is the Treasury and the FSA are more likely to respond to concerns raised by the committee monitoring their activities.' In a report earlier this year, Dr Starkey's committee lambasted the FSA for elusive answers to questions about its lack of TMA regulation. She said: ‘The [FSA] is saying it's not its remit and that the [TMA] firms involved are too small. They are missing the point. The firms may be small, but the amount of money invested following their advice – or information – runs into hundreds of millions of pounds.' Dr Starkey also warned councils: ‘They've got to… put in place more robust procedures now they're getting better advice from the likes of CIPFA.'
