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Woodford administrators could be hit with £306m penalty

Paloma Kubiak
Written By:
Paloma Kubiak

Link Fund Solutions – the administrators of the collapsed Woodford Equity Income fund – could be hit with an up to £306m penalty over its “failings”, the city watchdog revealed.

The Financial Conduct Authority (FCA) said the redress payment Link Fund Solutions could be required to pay may be up to £306m, “reflecting its current view of its failings in managing the liquidity of the collapsed Woodford Equity Income fund”.

The regulator said this figure “does not reflect any amount which may be owed to anyone else, including members of the fund, as a result of potential wrongdoing by other parties”.

It added that it is continuing to investigate matters “relevant to the operation of the fund” and any FCA-determined redress is based on “misconduct rather than losses caused by fluctuations in the market value or price of investments”.

The Woodford Equity Income fund (WEIF), run by former star money manager Neil Woodford (pictured), was suspended in June 2019 following an increase in redemption requests which couldn’t be readily met.

In October 2019, Link confirmed the £3bn fund would be wound-up with cash returned to investors “as soon as possible”.

However, in the latest update to trapped investors, Link warned they may need to wait until 2023 to get their final wind-up payment which would also be less than initially expected.

‘Nowhere near enough to compensate thousands of people’

Meriel Hodgson-Teall, solicitor at Leigh Day, the legal firm acting on behalf of investors to bring a claim against LFS, said: “The reported £306m in relation to ‘any restitution and/or redress payments that the FCA may levy on LFS in relation to its management of the LF Woodford Equity and Income fund’  is nowhere near enough to compensate the many thousands of people who suffered huge and life-changing financial losses investing in this fund.

“Leigh Day calculates that if all of the individuals who suffered losses as a result of investing in this fund signed up to the claims proceeding through the courts, the court claims could be in the billions.

“What is not clear is how the FCA will impose a fine or require a redress scheme to be set up to compensate investors, and when this will actually happen. A redress scheme could still be many months, if not years, away.”

Hodgson-Teall added that if a redress scheme were to be established, this would be separate to the claims which are ongoing through the courts – expected to be heard in December.

She said: “Leigh Day is continuing to work on the court claim, which seeks to compensate investors fully for the losses they have sustained.”

‘Draw a line under this sorry saga’

Ryan Hughes, head of investment partnerships at platform AJ Bell, said news the FCA is ‘likely’ to impose a financial penalty “will no doubt come as a welcome development for the thousands of investors impacted by the collapse of Woodford Equity Income over three years ago”.

He said: “This is the first sign that the investigation into the collapse of the fund is perhaps coming closer to completion, however, the FCA has made it clear that other parties remain under investigation and that Link could appeal any penalty.

“How any payment would be made to impacted investors is as yet unclear and no doubt the FCA will want to complete its wider investigation first. There will likely be further developments particularly given the breadth of the investigation, but this news may be a sign that pressure from the Treasury earlier in the year has finally sped things up.

“Investors who have waited so patiently will be hopeful that some form of financial redress may be forthcoming and they can begin to draw a line under this sorry saga.”

Takeover bid for Link

This update from the FCA comes off the back of a takeover bid for the Link Group by Australian Securities Exchange and Dye and Durham (D&D) to the Toronto Stock Exchange which includes the acquisition of seven firms (including Link Fund Solutions Ltd) authorised by the regulator.

Hodgson-Teall said “it is astonishing” that it has taken a takeover bid of Link Group for the FCA to give this indication that it “considers Link did breach its duties regarding the Woodford Equity Income fund”.

The FCA confirmed it has decided to approve D&D’s acquisition of LFS, subject to a condition to make funds available to meet any shortfall within LFS in the amount available to cover any redress payments it may be required to make.

“This is the only condition the FCA has decided to impose to allow D&D to take control of the seven UK-authorised firms. The FCA has approved a change in control for the other six UK-regulated entities owned by Link Group”.

It added: “Given the FCA’s enforcement case with LFS is ongoing, the FCA is not currently able to provide any further information. The FCA understands that investors will be keen to understand the impact that this may have on them, including any potential to receive redress, and will provide an update as soon as it is able to do so.”