Risk management

The UK Municipal Bonds Agency has an extremely conservative approach to risk management.  The Governance, Risk and Compliance Framework, together with the detailed policies and procedures that flow from that framework, set out the UK Municipal Bonds Agency’s strategy, processes and practices to ensure that its:

  • governance and management is of a high standard;
  • credit processes and lending policies are robust and appropriate; and
  • adherence to laws and regulations is assured.

The UK Municipal Bonds Agency is not a bank and the terms of its loans to local authorities match those in its bond documentation and other agreements with lenders.  Therefore, the biggest risks to the UK Municipal Bonds Agency relate to its credit policy and credit methodology.

Governance

The UK Municipal Bonds Agency plc is overseen by its Board of Directors comprising seven non-executive directors. The Board has control of all facets of the UK Municipal Bonds Agency including strategy, credit policy and risk management.

More details of the Board of Directors can be found here.

Credit policy

The credit process is an integral part of the proportionally guaranteed loan programme and core to the UK Municipal Bonds Agency’s risk management.  The process is built upon the methodologies used by the leading credit rating agencies Moody’s, Standard & Poor’s and Fitch.  It is used to ensure that local authorities whose finances are significantly less sound than their peers, or whose business model is risky compared to their peers, cannot borrow under the proportional guarantee.

The credit scoring process generates an idiosyncratic credit score for each local authority.  The score is then adjusted in light of the document review, cohort analysis and discussions with the council.  The score that is required for a local authority to be eligible to borrow through the UK Municipal Bonds Agency is set by the Board and periodically reviewed.  Typically, this 3-4 levels below that of the UK sovereign rating, which is Aa2 from Moody’s.

More information on the credit process can be found here.

Supplementary Documentation