The Financial Conduct Authority (FCA) has published findings indicating that Link Fund Solutions (LFS) failed to manage the Woodford Equity Income Fund (WEIF) with “due skill, care, and diligence.”

The regulator found that between July 2018 and the fund's suspension in June 2019, LFS did not adequately manage the fund's liquidity, which impacted investors' ability to access their money at short notice.

The regulator was even ready to impose a £50 million fine on LFS, but decided it would significantly reduce the compensation amount for the aggrieved investors.

FCA Finds Link Fund Solutions Failed to Manage WEIF Properly

According to the FCA, LFS failed to properly oversee Woodford Investment Management (WIM) and address liquidity concerns. In a separate action, the FCA has issued warning notices to Neil Woodford and WIM, proposing to take action against them for their conduct in managing the WEIF.

"Their failings led to losses for those trapped in the fund when it was suspended,” Therese Chambers, the Joint Executive Director of Enforcement and Market Oversight at the FCA, stated. “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."

🇬🇧 FCA | FCA Finds Link Fund Solutions Mismanagement of Woodford Equity Income Fund • Link Fund Solutions (LFS) found to have failed in due skill, care, and diligence in managing the Woodford Equity Income Fund (WEIF) as per FCA findings. #LinkFundSolutions…

— RegFlow Hub (@RegFlowHub) April 11, 2024

The FCA alleged that Woodford had a defective and unreasonably narrow understanding of his responsibilities for managing liquidity risks. The regulator also claims that Woodford and WIM failed to ensure that the WEIF's liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term risk framework was appropriate, responded adequately to the ongoing deterioration in the fund's liquidity, and maintained a reasonable liquidity profile for the WEIF.

“The FCA would have imposed a fine of £50m on LFS (which would have been reduced to £35m in the case of settlement Settlement Settlement in finance refers to the process when a buyer makes payment and receives the agreed-upon services or goods. The term is used on exchanges such as New York Stock Exchange (NYSE) when security changes hands. When the asset is transferred and placed in the new buyer's name, it is considered settled. This process could take a few hours or several days after a trade is made. It depends on the clearance process. In the United States, the settlement date for marketable stocks is usually 2 Settlement in finance refers to the process when a buyer makes payment and receives the agreed-upon services or goods. The term is used on exchanges such as New York Stock Exchange (NYSE) when security changes hands. When the asset is transferred and placed in the new buyer's name, it is considered settled. This process could take a few hours or several days after a trade is made. It depends on the clearance process. In the United States, the settlement date for marketable stocks is usually 2 Read this Term,” the regulator stated. “However, imposing this penalty would reduce the amount which consumers receive back.”

Less than two months ago, the FCA decided that it would provide more information about its ongoing cases to the public and increase financial incentives for whistleblowers. It aims to enhance market transparency and discourage companies from engaging in activities that violate regulations.

Up to £230 Million Is Waiting to Be Paid Out

Both Woodford and WIM have the right to communicate with the Regulatory Decisions Committee regarding the warning notices. If the FCA makes final decisions, it intends to make its findings public at the appropriate time. Still, it cannot provide further details beyond the warning notice statement at this stage.

LFS has agreed to settle the enforcement case and compensate those affected. Investors who were invested in the WEIF when it was suspended are starting to receive a share of the up to £230 million redress scheme, which the High Court approved in February.

The FCA has confirmed that no other parties are under investigation regarding the Woodford Equity Income Fund.

In 2023, the British regulator issued 21% more warnings about suspicious activities, exceeding 2,250 alerts. It also adopted a Business Plan for 2024-2025, which envisages a tougher stance on regulated firms and greater consumer safety.