The coalition government has published its response to the Kay Review, a study on the UK equity markets.

A need for ‘fundamental change’ in the culture of investment has been rubber stamped by business secretary Vince Cable.

Launched in July 2012, the Kay Review, written by John Kay, highlighted the need for the creation of relationships built on long-term trust.

He also advocated a realigning of incentives across the investment chain.

Cable comments, ‘Many of us feel that in the past, our public companies and investors have focused on short-term profit at the expense of long-term value.

‘The behaviour of many banks in the run up to the financial crisis is an extreme example of this quick buck mentality, but there is clearly a wider problem.’

Cable describes Kay’s review as ‘insightful’ and that while his agenda is ‘an ambitious one, the business secretary is ‘encouraged’ by the level of engagement the government has seen already from investors.

Kay called for an Investor Forum to create ‘more engagement among investors’, and recommended changing the culture of market participants, including the adoption of ‘good practice statements’ by company directors, asset managers and asset holders to promote stewardship.

Cable adds, ‘These actions will help restore trust in markets and in the system of capitalism on which our future prosperity depends.’

The Government response looks in detail at each of the Kay Review’s 17 recommendations and highlights the steps being taken to deliver them, either through specific policy measures or by business and industry working together to develop good practice.

David Cameron’s administration will now publish an update in the summer of 2014 which will set out the progress achieved in delivering on Kay’s recommendations as well as showing how companies and investors have ‘stepped up to the plate’.

In its endorsement of the Kay Review, the government has committed to:

• work with relevant regulatory authorities to explore further the Kay Report’s directions for regulatory policy
• identify to what extent these directions are practical, what changes in the law or in regulation might be therefore be appropriate, and how these can best be delivered.

The response sets out a number of steps the government is taking to deliver on the Kay Report’s detailed recommendations, including:

• completing reform of corporate narrative reporting to be higher quality, simpler, more relevant to users and more focussed on forward looking strategy
• pursuing reforms to the EU Transparency Directive which will remove mandatory quarterly reporting
• promoting the revised edition of the Stewardship Code which emphasises that stewardship should encompass engagement by investors on company strategy.