Angus Council is looking at moving millions of pounds into foreign accounts in a key shift of financial strategy.
Finance chiefs fear the authority may be missing out on the maximum return for its investments by sticking with a policy of only putting cash into UK domiciled banks and will today ask elected members to agree a policy change that would allow up to £15 million, or half the council’s annual investments, to be taken out of the country.
In a treasury management strategy paper going before a meeting of the full council in Forfar, head of corporate improvement and finance Ian Lorimer warns balancing the council’s financial risk is a growing challenge.
“Angus Council’s approach has for many years been to only use banks which are domiciled in the UK, e.g. RBS, Bank of Scotland, etc,” states the director’s report.
“This approach is, however, becoming increasingly difficult to sustain in an environment where greater diversification of risk is essential.”
His proposal is to alter policy and allow deposits to be placed with foreign banks authorised by the Bank of England to accept deposits through UK branches.
But the official has given an assurance that sufficient safeguards will be applied in an effort to prevent the council being stung in the same way as neighbouring Perth and Kinross Council was during the Icelandic banking crisis.
The authority almost suffered a major six-figure hit after investing in high-interest accounts with the Glitnir bank, but eventually saw £800,000 it feared lost returned.
In his report, Mr Lorimer adds: “Changes to the law via the Financial Services (Banking Reform) Act 2013 are due to come into full force in 2016 and will make it much less likely for governments in the EU, including the UK, to support banks which get into financial difficulty in the future, and this emphasises a need to diversify still further the council’s temporary investments to spread the risks over a wider range of counter-parties.
“In essence the comfort of potential UK government support for UK banks will be significantly reduced by the new act and in readiness for this, it is considered appropriate to increase the number of banks the council can use to take short-term deposits.”
But the director goes on: “For the avoidance of doubt, however, the same minimum credit ratings, Capita colour codings and investment duration periods will apply to non-UK domiciled banks as they do to UK banks, so that only those with suitably high credit ratings will be used and only for the maximum periods recommended by our treasury advisers.
“It is proposed that a maximum of £15 million, or 50% of the council’s investments, would be placed with non-UK domiciled banks at any one time.”