FCA issues warning notice to Woodford and LFS

The UK’s financial regulator has accused fund manager Neil Woodford of a “defective and unreasonably narrow” understanding of his responsibility to manage liquidity while presiding over the collapse of the Woodford Equity Income Fund (WEIF).

The Financial Conduct Authority (FCA) also criticised Link Fund Solutions (LFS) for its failure to properly oversee Woodford Investment Management (WIM) or to ensure that liquidity concerns were acted on.

The FCA issued its findings almost five years after the suspension of the £3.7 billion equity fund in one of the largest ever fund failures in the UK that has left 300,000 investors waiting for compensation.

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The regulator found that LFS “failed to act with due skill, care and diligence” in its management of the fund. In particular, LFS failed to ensure the liquidity of the fund, underestimating how easily assets in the fund could be turned into cash by investors at short notice.

In a separate action, the FCA issued a notice about the proposed action to be taken against Woodford. It alleges that WIM failed to ensure that the fund’s “liquidity risk framework was appropriate or to respond appropriately to the ongoing deterioration in the fund’s liquidity, and to maintain a reasonable liquidity profile” for the fund.

The FCA’s findings confirms the failings that led LFS to settle the enforcement case and provide compensation to the 300,000 investors affected by the fund’s collapse. The £230 million redress scheme was approved by the High Court in February and investors are now finally starting to receive their share of the compensation.

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“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,” said Therese Chambers, joint executive director of enforcement and market oversight.

“It is right that they compensate investors for the losses that resulted from their failings, and we’re pleased that the scheme has started making payments.”

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