The UK Financial Conduct Authority (FCA) has decided to fine both Neil Woodford and Woodford Investment Management (WIM) for failures in their management of the Woodford Equity Income Fund (WEIF).
The FCA imposed a fine of £5,888,800 on Mr Woodford and banned him from holding senior manager roles and managing funds for retail investors.
The regulator has also decided to fine WIM £40,000,000.
WEIF was an investment fund managed by Mr Woodford and WIM. They were responsible for managing the liquidity of the fund, so that investors could redeem their investments and be repaid.
The fund was suspended in June 2019, leaving investors – a significant majority of whom were ordinary retail customers – unable to access their money. The value of the WEIF had fallen from a high of over £10.1bn in May 2017 to just £3.6bn in the run-up to its suspension.
The FCA has concluded that between July 2018 and June 2019 WIM and Mr Woodford made unreasonable and inappropriate investment decisions. They disproportionately sold more liquid investments (those that are easier to sell) and bought less liquid ones over this period. This meant that at the time of suspension only 8% of the investments held by WEIF could be sold within 7 days. Under rules in place at the time, investors should have been able to access their funds within 4 days.
WIM and Mr Woodford did not react appropriately as the fund’s value declined, its liquidity worsened and more investors withdrew their money. This disadvantaged investors who remained in the fund, compared to those who had withdrawn their investment before the fund was suspended.
The FCA has concluded that Mr Woodford held a defective and unreasonably narrow understanding of his responsibilities. Despite his senior role, he did not accept that he had a responsibility to oversee the management of the fund’s liquidity, including in interviews conducted by the FCA. He also failed to provide proper oversight of WIM’s relationship with Link Fund Solutions (Link), the WEIF’s authorised corporate director, including after Link raised concerns about the fund’s liquidity.
The FCA considers Mr Woodford’s and WIM’s failings led to a significantly increased risk of the fund being suspended.
The FCA previously set out its findings against Link for its role in the suspension of the WEIF. This included securing a £230m redress scheme for those investors stuck in the fund when it was suspended.
