IoD Policy Paper Strengthening the Role of Independent Directors in the Asset Management Industry
In the light of recent scandals affecting the asset management industry, such as the collapse of the Woodford funds, there is a pressing need to rebuild trust in the sector amongst ordinary investors.
Independent directors have a crucial role to play in the governance of UK investment funds. Whilst the Financial Conduct Authority (FCA) has introduced independent fund directors as a new mechanism of investor protection, the challenge is to ensure that this role is trusted by investors and the public, both in terms of director competence and their independent perspective.
The Institute of Directors is today publishing a policy paper, ‘Funds Governance in the UK: Strengthening the Role of Independent Directors’, which sets out a number of recommendations to enable the contribution of independent directors to take a major step forward – enhancing the governance, competitiveness and business prospects of the UK asset management sector over both the short and the longer-term.
In order to rebuild trust in the UK’s framework of fund governance, the IoD calls on the FCA to:
- Improve the credibility of independent directors in their oversight of funds on behalf of investors by strengthening their independence from investment managers.
- Widen the scope of the oversight role of independent fund directors to encompass issues of key investor concern, such as liquidity and investment sustainability.
- Introduce formal training and CPD requirements for independent fund directors, which encompass both sector specific elements and general director training (e.g. as provided by the Chartered Director qualification).
- Encourage the undertaking of periodic board performance evaluations by fund boards, which independently assess their performance in championing investor interests.
The report’s author and IoD Director of Policy and Corporate Governance, Dr Roger Barker, said:
“Independent directors have a crucial role to play in the governance of UK investment funds. However, this potential has yet to be realised due to weaknesses and limitations in the way that the role is currently defined.
“If done correctly, the contribution of independent directors to UK funds governance could represent a major step forward – going beyond oversight of ‘value for money’ and also playing a crucial role in the transition to a sustainable investment approach.
“Better directors will mean more sustainable economies that benefit everyone. To realise this potential, directors’ independence from investment managers must be strengthened and their scope widened, allied with the introduction of formal training and CPD requirements.”
The full IoD Policy Paper – ‘Funds Governance in the UK: Strengthening the Role of Independent Directors’ – can be downloaded here