The Law Commission: Fiduciary Duties of Investment Intermediaries

22 October 2013

The UK LC's Fiduciary Duties of Investment Intermediaries consultation paper uses pensions as an example of how fiduciary duties apply to working in financial markets, tracing a chain of intermediaries from the prospective pensioner/saver to the registered shareholder of a UK company.

The project follows from the Kay Report on UK Equity Markets and Long Term Decision Making. There are well established duties on pension trustees to act in the best interests of scheme members. The LC look at how far these duties require trustees to maximise financial return over a short time scale, and how far trustees can consider other factors, such as environmental and social impact. They ask if:

• the law is right to allow trustees to consider ethical issues only in limited circumstances?
• the legal obligations on trustees are conducive to investment strategies in the best interests of the ultimate beneficiaries? And if not, what specifically needs to be changed?

For contract-based pensions and others in the chain, fiduciary duties are much less certain. The paper asks if:

• the duties on contract-based pension providers to act in the interests of members should be clarified and strengthened?
• pension providers should be duty-bound to review the suitability of investment strategies over time? And if so, how often they should do this?
• the regulation of investment consultants and custodians needs to be reviewed?

Responses to the consultation paper can be submitted by 22 January 2014 using a form, which can be downloaded from the Law Commission‘s page. The report should be out by June 2014.

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