FCA issues warning notice against Neil Woodford

(Sharecast News) - The Financial Conduct Authority has issued a warning notice against Neil Woodford, claiming the once star stockpicker had a "defective" understanding of the responsibilities involved in managing risk.

Woodford stunned markets in 2019 when he restricted withdrawals from the flagship £2.9bn Woodford Equity Investment Fund (WEIF), after values started to plunge.

It was finally closed in October 2019, locking investor funds in.

A £230m redress scheme for investors caught up in the collapse was approved by the High Court in February. The sum is less than the total losses of £298m, but will see investors recover around 77p in the pound.

The fund has been widely criticised for holding illiquid assets that made it harder to meet redemption calls after months of underperformance.

In its latest update on the long-running scandal, published on Thursday, the FCA's warning statement alleges that Woodford had a "defective and unreasonably narrow understanding of his responsibilities for managing risks".

The watchdog continued: "It also alleges that he and Woodford Investment Management (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 warning notice did not detail what action the FCA was considering taking. Any final decision would be made public, the FCA said.

The regulator also criticised Link Fund Solutions (LFS), which oversaw the fund. It said that between 31 July 2018 and the fund's suspension on 3 June 2019, LFS had failed to manage the liquidity of the fund so that investors could access their money at short notice.

It also claimed LFS had failed to properly oversee WIM or sufficiently ensure concerns about liquidity were acted on.

Therese Chambers, joint executive director of enforcement and market oversight at the FCA, said: "Link Fund Solutions' job was to properly managing the WEIF and to protect investors' interests. It is right that they compensate for the losses that resulted from their failings."

Link Group, LFS's parent, has already agreed to make a voluntary contribution to the redress payment on the basis that there is no admission of liability.

Link sold LFS, without the WIM liability, to Dublin-based Waystone Group last year.

WilmerHale, the law firm representing Woodford and WIM, called the FCA's findings "unprecedented and fundamentally misconceived", and said it would challenge them.

It added: "It is striking that the FCA's only criticisms of Neil Woodford related to his involvement in matters relating to the fund's liquidity framework, which was, in fact, Link's responsibility...and the FCA's."