The Financial Services Authority failed to regulate local authority treasury management advisers according to a group of MPs who have looked into the potential loss of council investments in the Icelandic banks collapse. Members of the Commons Communities and Local Government Committee are also unhappy at the FSA’s failure to act on their concerns.

Up to a billion pounds of local authority cash was at stake last year when the Icelandic banks collapsed. As a result the committee looked into the framework for the investment of council reserves. Their report today looks at the responses from the Department for Communities and Local Government, the Audit Commission, the Chartered Institute of Public Finance and Accountancy as well as from the FSA.

Dr Phyllis Starkey, who chairs the committee, said they were pleased by how the main players in local authority treasury management had responded and there had been improvements in the advice and guidance available to councils. Steps had also been taken so there was appropriate coordination and cooperation between all those responsible for monitoring local authority treasury management activities.

But she said there were still worries over the regulation of treasury management advisers and she added: “The FSA’s response to our report seems to suggest that their activities in relation to local authorities are effectively unregulated. This contradicts the impression given by marketing and other material produced by these firms to promote the services they offer.”

Dr Starkey criticised the FSA for failing to follow up the MPs’ concerns about potential conflicts of interest in some of the firms.“Given the sums of public money involved, these remain matters of some concern to us. We are pursuing these issues with vigour with the FSA,” she said.