Andrew Bailey, chief executive of the Financial Conduct Authority, appeared in front of the Treasury Select Committee to answer questions over problems with the so-called star fund manager’s £3.7bn Equity Income Fund.

Nicky Morgan, chair of the committee, said concerns over the fund were published by the trade press in March.

The fund suffered huge cash outflows and, after struggling to meet redemption demands from investors, suspended withdrawals on 3 June, leaving savers’ money trapped.

Bailey pointed the finger at a loophole in regulation that enabled the fund to exceed the threshold for investment into illiquid company shares by listing some holdings on the Guernsey stock exchange.

The regulator failed to heed warnings from Guernsey regulators about the listings because a message was given to a junior staff member who did not understand the situation, said Bailey.

Bailey rejected the idea that the FCA had been slow to act in the events leading up to the suspension of the fund, insisting it was not the regulator’s role to ‘intrude’ in the stock choices of fund managers.

The fund had twice exceeded the 10 per cent cap on the amount of investors’ money that can go into unlisted investments, which are riskier and harder to sell, before the problems emerged. It was one of just two out of about 3,000 funds that had breached the limit in the past year.

The second breach in February 2018 prompted the FCA to put Woodford’s fund under ‘enhanced monitoring’. However, Bailey said the regulator had been in touch with Link Fund Solutions – the fund’s authorised manager – before then.

But the fund manager attempted to use ‘regulatory arbitrage’ to stay under the 10 per cent limit, a tactic that was not immediately picked up on by the FCA.

Bailey said the fund’s outflows – equivalent to 1 per cent of its assets a week – were not dramatic enough to cause alarm at the regulator, and that the outflows looked ‘manageable’ until just before the fund was suspended.