Sunday, 29 July, 2012 1 Comment
A report commissioned by business secretary Vince Cable was made public earlier this week and finds a financial sector that is no longer fit for purpose. Professor John Kay, a leading economist, has made his recommendations after scores of submissions and interviews with top business and investment people.
In particular, Prof Kay says that regulation needs an overhaul and that traders seeking short-term profits are not acting in the wider interests of the public and should be marginalised.
His review comes when the stock of the banking sector has never been lower, given a seemingly constant run of scandals involving rogue trading, interest rate fixing and global money laundering.
The report finds that short-termism is an underlying problem in UK equity markets, principally caused by a misalignment of incentives within the investment chain and the displacement of trust relationships by a culture based on transactions and trading.
His recommendations, which are aimed at key players in UK equity markets, as well as Government and regulators, look to:
- Improve the incentives and quality of engagement, including by establishing an Investor Forum to foster more effective collective engagement by investors with UK companies
- Restore relationships of trust and confidence in the investment chain, including by applying fiduciary standards more widely within the investment chain
- Change the culture of market participants, including by adoption of ‘good practice statements’ by company directors, asset managers and asset holders that promote a more expansive form of stewardship and long-term decision-making throughout the investment chain
- Realign incentives by better relating directors’ remuneration to long-term sustainable business performance and better aligning asset managers’ remuneration to the interests of their clients