The Business Secretary said the value of the term “fiduciary duty” had been eroded and the laws that require intermediaries, such as stockbrokers and fund managers, to act in their clients’ best interests need tightening.
There have been “too many examples of irresponsible capitalism recently”, said Mr Cable, in a speech to the National Association of Pension Funds, where he endorsed the recommendations of the Kay Review of corporate governance, reports The Telegraph.
He said there was a “sense of dismay” over “companies not paying their taxes, employees making up the numbers or gambling the future of the entire company, customers being sold complex products they neither need nor want and managers helping themselves to lavish remuneration packages”.
Calling for the need of a “commitment to act with integrity and expect integrity from each other”, Mr Cable said investment managers and brokers were vital to pushing for change.
“Today we are making it clear that all intermediaries should act in good faith and in the long-term interests of clients or beneficiaries,” he said. “These standards should be universal and immutable. We need to achieve them by making sure that our regulatory framework supports them – but also by promoting them as behavioural norms in the investment industry.”
He added: “We will ask the Financial Conduct Authority to consider whether their regulatory rules and approach support these standards and, where necessary, we will argue for changes to regulatory requirements at the EU level. In addition, we are asking the Law Commission to conduct a review of the legal obligations on investment intermediaries seeking to act in their clients’ best interests.”
Mr Cable also endorsed Professor John Kay’s analysis that the UK’s requirement for companies to issue quarterly trading updates had a negative impact on long-term investment.
Mr Cable said: “The Government will work with our European counterparts to change the law so it is no longer required.” Instead, “narrative reporting” – due to come into force next year – will “makes reports simpler, more relevant and more focused on forward looking strategy,” he said.
Mr Cable also accepted Prof Kay’s proposal to create an “investor forum” to boost shareholder influence over companies. But he agreed that while he was “happy to be a catalyst… it is not for Government to create a new quango. A forum will only succeed if it is created and run by the investors it represents.”
While the Government will push ahead with rules to give shareholders a binding vote on pay, Mr Cable instructed the new forum to “tackle overly complex incentive schemes which encourage short-termism and tend to pay out asymmetrically.”
The Government’s response to Kay was welcomed in the City. The Investment Management Association invited its members to join it in “developing and effective mechanism” to support and enhance existing engagement activity.”