FCA fines Neil Woodford and Woodford IM £46m after fund failures
The Financial Conduct Authority (FCA) has issued a £46m fine against once-renowned investment manager Neil Woodford and his former firm, Woodford Investment Management (WIM).
The City watchdog handed Woodford a fine of £5.88m and banned him from holding senior manager roles and managing funds for retail investors.
The authority also fined Woodford Investment Management £40m.
Both are challenging the decision in the Upper Tribunal.
Woodford’s “inappropriate investment decisions”
Woodford Equity Income Fund (WEIF) was an investment fund managed by Woodford and WIM, with both responsible for managing the liquidity of the fund.
The fund was suspended in June 2019, leaving investors unable to access their money and trapping around £3.7bn in assets, in one of the most dramatic collapses in recent years.
The fund valuation had fallen from a high of over £10.1bn in May 2017 to just £3.7bn in the run-up to its suspension.
The FCA concluded that between July 2018 and June 2019, both parties “made unreasonable and inappropriate investment decisions”, disproportionately selling more liquid investments and buying less liquid ones.
By the time of the suspension, only eight per cent of investments held by WEIF could be sold within seven days.
This broke rules in place at the time, which stated investors should be able to access their funds in seven days.
WIM and Woodford did not react appropriately as the fund’s value declined, according to FCA findings, as its liquidity worsened and more investors withdrew their money, leaving those who remained in the fund at a disadvantage.
Did not accept responsibility
The FCA concluded that Woodford held a “defective and unreasonably narrow understanding of his responsibilities” despite his senior role.
He did not accept any responsibility for the fund’s suspension in interviews conducted by the FCA and failed to provide oversight of WIM’s relationship with the fund administrator Link Fund Solutions, including after Link raised the alarm about the fund’s liquidity.
Steve Smart, joint executive director of enforcement and market oversight at the FCA, said: “Mr Woodford simply doesn’t accept he had any role in managing the liquidity of the fund.”
“The very minimum investors should expect is those managing their money make sensible decisions and take their senior role seriously.”
“Neither Neil Woodford nor Woodford Investment Management did so, putting at risk the money people had entrusted them with.”
WIM said in a statement that they “strongly disagree” with the FCA decision” and “intend to challenge it” as well calling Smart’s comment “inaccurate”.
The statement said “Mr. Woodford has been sanctioned in spite of managing the Fund within a framework designed to ensure sufficient liquidity.”
“In five years of managing WEIF, neither Link nor the FCA raised concerns or initiated discussions with him regarding liquidity management.”
“Yet the FCA now argues that he should have independently identified and addressed
flaws in the framework designed and imposed by Link, which was accepted by the FCA.”
In an interview with Morning Wire, Woodford denied misleading investors, insisting he “could not have been more transparent” to his retail shareholders.
He said: “We could not have been more transparent about the strategy, what we were doing, how the fund was made up.”
Calls for Woodford to lose CBE
Calls are mounting for Woodford to be stripped of his CBE due to the “terrible harm the Woodford scandal” has caused, in light of the FCA’s decision.
In an open letter to Sir Chris Wormald, chair of the Honours Forfeiture Committee, both the Woodford Campaign Group and Transparency Task Force, urged Wormald to swiftly remove Woodford’s CBE.
The letter, signed by Andy Agathangelou FRSA, said the committee should no longer “delay making a decision” regarding Woodward’s CBE.
The letter said, “I believe there is no longer a reason for your Forfeiture Committee to delay making a decision; and given that the Financial Conduct Authority’s judgement is so critical of Mr Woodford, I hope the decision-making process you follow might be both straightforward and swift.”