Time to start thinking like a corporate treasurer?

The Icelandic banks debacle inevitably resulted in the blame game. Fingers were pointed at
investment advisors, various government regulators and eventually responsibility for the substantial losses was placed firmly on the shoulders of the councils and, in particular, the much maligned cash management function. We shouldn’t forget either that it was taxpayers’ money that was involved. Let’s
be honest…the world of cash management was already undergoing significant change even before the chill winds arrived! The Bank of Credit and Commerce International collapsed in the 1990’s following investigation of money laundering charges. Millions of pounds of investors’ funds were lost, much of
which was owned by UK local authorities. More recently, the credit crisis in 2007/8 saw the likes of
Northern Rock and Bradford & Bingley Building Society needing a government bail out in order to protect investors. So it was perhaps hardly surprising that in the aftershock of these unprecedented failures and low interest rates, an alternative home for surplus funds that offered a few extra basis points,
proved to be so attractive.

Hindsight is, of course, a wonderful thing. Such catastrophic events should have been the catalyst
for major change. Adopting best market practice should have been the goal. Corporate treasury should have been used as the model. More could, and should have been done long before the Icelandic banks came knocking.

There are signs that things are improving. CIPFA and The Association of Corporate Treasurers (ACT), for
example, have engaged in a programme of professional training and certification. Some councils have started to invest in treasury technology. But it will all take time to have an effect. There is still much to be done. Not all councils have implemented a clear set of measurable treasury policies that cover, for
example, counterparty risk and approved instruments. Some councils still manage against policies that are out of date in terms of either, for example, the maximum that can be invested with a single counterparty, or simply that the policies were originally approved months (and even years!) before and are in need of update and approval. The position of the treasury function needs to be raised within the local authority sector generally and recognised more as an important risk management function staffed with professionally trained and qualified treasury practitioners.

Unless change is introduced across the board, who can confidently predict that there won’t be another
BCCI orIceland?

Roger Tristram is a Director of BRC Consulting Services Ltd