The Local Authorities (Contracting Out of Investment Functions) Order 1996

PART III Conditions attaching to the exercise of functions

Interpretation of Part

6.  In this Part, “authority”, in relation to a function and a contractor, means the local authority or parish or community council who have authorised the exercise of the function in question by the contractor.

Conditions attaching to the exercise of functions

7.  In relation to any function which is to be specified in an authorisation given by virtue of Part II of this Order, the authorisation shall require the person who is to be authorised to fulfil such of the conditions specified in this Part as relate to the exercise of the function in question, and the contractor may only exercise that function subject to the fulfilment of those conditions.

Making investments

8.  In relation to any function which involves the making of investments, or entering into a contract in the making of any investment, a contractor shall have regard to —

(a) the need for diversification of investments of sums made available to him by the authority for investment on the authority’s behalf; and

(b) the suitability of investments or any description of investment which he proposes to make and of any investment proposed as an investment of that description.

Qualifications of contractors

9.—(1) In this article —

“EEA State” means a State which is a contracting party to the agreement on the European Economic Area signed at Oporto on 2nd May 1992(1) as adjusted by the Protocol signed at Brussels on 17th March 1993;(2)

“European institution” has the same meaning as in the Banking Coordination (Second Council Directive) Regulations 1992 (“the 1992 Regulations”);(3)

“European investment firm” has the same meaning as in the Investment Services Regulations 1995 (“the 1995 Regulations”);(4) and

“home-regulated investment business”—

(a)

in relation to a European institution, has the same meaning as in regulation 2(l) of the 1992 Regulations; and

(b)

in relation to a European investment firm, has the same meaning as in regulation 2(l) of the 1995 Regulations.

(2) A reference in this article to the carrying out of home-regulated investment business in the United Kingdom shall be construed —

(a) in relation to a European institution, in accordance with regulation 2(4) of the l992 Regulations; and

(b) in relation to a European investment firm, in accordance with regulation 2(6) of the 1995 Regulations.

(3) In relation to any function which a contractor is authorised to exercise by the authority, the contractor shall ensure that he and his employees are suitably qualified to make investment decisions on the authority’s behalf and have practical experience of financial matters, including making investments, and, without prejudice to the generality of this condition, shall ensure that he is —

(a) an authorised person within the meaning given in section 207 of the Financial Services Act 1986 (“the 1986 Act”);(5)

(b) a European institution or a European investment firm carrying on home-regulated investment business in the United Kingdom; or

(c) a person —

(i) who does not transact investment business (within the meaning of the 1986 Act) from a permanent place of business maintained by him in the United Kingdom;

(ii) whose head office is situated in an EEA State other than the United Kingdom;

(iii) who is recognised by the law of that EEA State as a national of that or another EEA State; and

(iv) who is for the time being authorised under that law to engage in one or more of the activities falling within Part II of Schedule 1 to the 1986 Act, and is not precluded by that law from managing assets belonging to another person.

Investment and accounting practices

10.—(1) Subject to paragraph (2) below, a contractor shall have regard to and observe all proper investment and accounting practices which, in relation to any function which he has been authorised to exercise by the authority —

(a) the authority is required to observe by virtue of any enactment; and

(b) whether by reference to any generally recognised published code or otherwise, are regarded as proper investment and accounting practices to be observed in the investing of any sums or the keeping of accounts of local authorities.

(2) In the event of any conflict in any respect between the practices falling within paragraph (1)(a) above and those falling within paragraph (1)(b) above, only those falling within paragraph (1)(a) above are to be regarded as proper practices.

Instructions of authority

11.  A contractor shall comply with any instruction given by the authority in relation to any function which he has been authorised to exercise by the authority.

Information

12.  In relation to any function which a contractor is authorised to exercise by the authority, the contractor —

(a) shall take all necessary steps to ensure that all information obtained, whether from the authority or otherwise, in the course of exercising the function in question is held, at all times, in accordance with all relevant enactments and duties at common law regarding the keeping and disclosure of information;

(b) subject to the provisions of Schedule 15 to the Deregulation and Contracting Out Act 1994 (restrictions on disclosure of information)(6), shall not use any such information for any purpose apart from the purpose of lawfully exercising that function on behalf of the authority;

(c) shall provide the authority at least once every three months with a report setting out the action he has taken in the exercise of that function; and

(d) shall immediately comply with any written request made by the authority for the supply of any additional information, including copies of any records made or held by the contractor, relating to the exercise of that function.

Assignment and sub-contracting

13.  A contractor shall not make any arrangement for the exercise, whether in whole or in part, by any other person of any function which he has been authorised to exercise by the authority, unless that person has been authorised to exercise the function concerned under a further authorisation given by the authority by virtue of this Order.

(1)

Cm 2073.

(2)

Cm 2183.

(3)

S.I. 1992/3218.

(4)

S.I. 1995/3275.

(5)

1986 c. 60; as amended by S.I. 1988/318 and S.I. 1988/803.

(6)

1994 c. 40.