The saga surrounding the failure of the Woodford Investment Management took some new turns today, when the UK’s main market watchdog hit said it would have fined the firm that operated it and detailed new allegations against its founder.
The Financial Conduct Authority would have slapped a £50 million sanction on Link Fund Solutions, which it said “failed to manage the liquidity of the fund” so that investors could access their money at short notice.
But no such action will be taken by the FCA, because doing so would reduce the amount customers could get back.
It also said that Neil Woodford, the one-time star stockpicker who set up WIM, had a “defective … understanding of his responsibilities”
Therese Chambers, the regulator’s joint executive director of enforcement and market oversight, said: “Link Fund Solutions' job was to properly manage the Woodford Equity Income Fund and to protect investors' interests.
“Their failings led to losses for those trapped in the fund when it was suspended.”
The collapse of Neil Woodford’s flagship vehicle – the Woodward Equity Investment Fund (WEIF), which was worth over £10 billion at its peak – brought one of the City’s best known names and highest flying money managers crashing down to earth.
A run of badly performing investments and poorly timed bets left WEIF with holdings in companies that were difficult to sell, eventually leading to its suspension and collapse.
The FCA said Link’s failings occurred between 31 July 2018 and the WEIF’s suspension on 3 June 2019.
The watchdog also issued fresh criticism of Woodford himself today, alleging that he “had a defective and unreasonably narrow understanding of his responsibilities for managing liquidity risks.”
It added: “He and WIM failed to ensure that the WEIF's liquidity risk framework was appropriate, to respond appropriately to the ongoing deterioration in the fund's liquidity, and to maintain a reasonable liquidity profile for the WEIF.
The FCA has not reached a final ruling over Woodford and WIM, after a near five-year probe into the collapse. They have the right to make representations to the FCA’s Regulatory Decisions Committee.
Legal counsel for Neil Woodford and Woodford Investment Management said:
“The FCA’s case is that Neil Woodford should have known that Link’s liquidity framework was deficient and that he should have challenged it, even though the FCA appeared to have sanctioned the framework and closely monitored it.
WIM and Mr Woodford disagree with the FCA’s findings, which they believe are unprecedented and fundamentally misconceived. The findings will be challenged by WIM and Mr Woodford.”
A spokesperson for Link Fund Solutions said:
“LFSL entered into a conditional settlement agreement with the FCA and Link Group expressly on the basis that there is no admission of liability. If the Scheme had not been approved, LFSL would have challenged the FCA's findings and defended itself against any claims made against it by scheme investors.”
“We are pleased the Scheme has become effective and the initial payment has now been made to scheme investors. We have always believed the Scheme was the best option to provide investors with a substantial level of redress.
