Centralised treasury and investment policy

As part of the State’s prudent approach to financial risk management, the Government has established:

  • a Central Banking System (CBS) administered by Westpac in its role as the State’s banker under a banking service contract;
  • the Treasury Corporation of Victoria (TCV) as the centralised borrowing/finance agency to manage the borrowing and related financial market activities of public sector entities; and
  • the VFMC as the centralised investment agency to manage the long-term portfolio investments of agencies.

The CBS policy is mandatory for all general government sector (GG) agencies. It is non-mandatory for public non-financial corporations (PNFCs) and public financial corporations (PFCs) though the Treasurer has formally requested PNFC boards to consider depositing surplus funds in the CBS.

The policy is given legal effect through the Standing Directions 2018 under the Financial Management Act 1994.

The Standing Directions require:

  • agencies to place all surplus funds on deposit with the CBS through a Westpac deposit account. As noted above, this is mandatory for GG agencies and voluntary for PNFCs and PFCs; 
  • all borrowings and financial (hedging) arrangements of $1 million or more to be undertaken with TCV; and
  • an exemption for GG agencies to allow-term portfolio investments, which in practice are likely to be managed by VFMC.

The Standing Directions provide for the following exceptions and exemptions:

  • agencies may retain notes and coins, and funds in a transactional bank account, to meet daily cash flow requirements, albeit these should be minimised;
  • agencies may undertake foreign currency hedging transactions of less than $1 million with an intermediary, other than TCV;
  • a complete exemption applies to PNFCs, public financial corporations (PFCs), universities established under a Victorian State Act, school councils, incorporated committees of management, volunteer fire units/brigades of VicSES and the CFA, and Class B cemetery trusts;
  • an exemption applies to money held on trust by an agency for, and repayable to, a known beneficiary (other than the State or an agency) pursuant to a statutory function; and
  • where, following consultation with the agency’s portfolio minister, the Treasurer has in writing approved an exemption.

The State has a conservative philosophy for the management of treasury risks and accordingly, agencies must establish treasury (borrowing and/or investment) policies appropriate to the borrowing and investment risks of their business. Agencies must maintain a Treasury Policy if it has borrowings and cash and interest-earning investments. Agencies must maintain an Investment Policy if it invests with VFMC or seeks to maintain any investments other than transactional cash funds.

Reviewed 22/02/2019
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