Watchdog raps investor Woodford and says it would have fined administrator £50m

The City watchdog has said it would have fined the administrator of former star investor Neil Woodford’s collapsed fund £50 million after finding it failed to properly manage the fund.

The Financial Conduct Authority (FCA) said it had decided against fining Link Fund Solutions as it would leave less money to distribute to out-of-pocket investors.

It separately rapped Mr Woodford, and said it has “proposed to take action” against him, finding that he “had a defective and unreasonably narrow understanding” of some of his responsibilities.

Lawyers for Mr Woodford said he “disagree(s)” with the FCA’s findings.

Between the end of July 2018 and the suspension of the Woodford Equity Income Fund (WEIF) on June 3 2019, Link “failed to manage the liquidity of the fund – or how easily assets in the fund could be turned into cash”, the FCA said.

This made it difficult for investors to “access their money at short notice”.

The fund was thrown into turmoil in 2019 as investors tried to cash out faster than Mr Woodford could sell assets to raise the cash to pay them.

Much of the money investors had put into the fund was in illiquid assets. These are difficult to sell off at short notice without giving the buyer a discount.

So when investors wanted their money back the fund struggled to get the cash together to pay them. It later suspended withdrawals to get breathing space.

The FCA said that Link had “failed to properly oversee” Woodford Investment Management or to “sufficiently ensure” that worries about liquidity were addressed.

Since the fund’s collapse Link has been selling off the fund’s assets and has returned billions of pounds to investors.

It has also reached an agreement which will see between £183.5 million and £230 million divided between 250,000 creditors, in return for them dropping any potential legal action.

In response on Thursday, Link said: “As we have previously stated, LFSL (Link Fund Solutions Limited) 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.”

The FCA said it “issued warning notices to Neil Woodford and WIM (Woodford Investment Management) proposing to take action against them for their conduct in the management” of the fund.

“Mr Woodford had a defective and unreasonably narrow understanding of his responsibilities for managing liquidity risks,” it said.

“It also alleges that 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 warnings “are not the FCA’s final decisions”, the watchdog said.

It said no-one else is under investigation for their role in the fund.

Lawyers for Mr Woodford and WIM said: “It is striking that the FCA’s only criticisms of Neil Woodford relate to his involvement in matters relating to the Fund’s liquidity framework, which was, in fact, Link’s responsibility.”

They said that supervision of these matters is the responsibility of the FCA and for the depositary, which they said is responsible for “safekeeping of the fund’s assets” and for overseeing its director.

“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.”