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MPs accuse FSA in Icelandic bank collapse row

A committee of MPs from the House of Commons have today taken the unusual step of publicly criticising the conduct of the Financial Services Authority (FSA) with a suggestion that the authority has been deliberately obstructive. This is an ongoing investigation into how a number of local UK authorities managed to put in excess of £1 billion at risk in the Icelandic banking collapse.

There is some confusion as to exactly what role the Bank of England and the FSA have in regulating local authority Treasury departments, with MPs suggesting they should be overseeing the situation and the FSA adamant they did all they could. This is not the first time that the FSA has come in for severe criticism from a MPs committee although this is by far the most vocal criticism yet seen. So who is wrong and who is right?

There is no doubt that you would expect the FSA to be involved in some way should there be concerns about overseas investment markets and the safety of public sector funds. However, many local authorities are alleged to have ignored concerns about the Icelandic market sometime ago, and even credit rating downgrades just prior to the collapse, as they chased higher interest rates but took on higher risks.

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